Lawson Cuts Jobs to Get Costs in Line with Sales

Published: December 1, 2008

by Timothy Prickett Morgan

Midrange ERP application software provider Lawson Software took some financial hits in the past year as it had to write off some investments it had made in sophisticated financial instruments, and now the economic slowdown that has by and large been caused by the economic hangover from similar investments made by the market at large has come boomeranging around and forced Lawson to do layoffs.

When an economic collapse is caused by the assumption of too much risk by the broader markets, we always pay one, two, three, or four times over for our exuberance, and we almost never learn because we are taught as citizens and workers to value growth above all other factors. Such as sustainability. Or employment. Or doing a good job in a difficult world. You get what you expect--and most of the time, less than that.

Lawson, which has gotten through its acquisition of former rival Intentia International, said on November 18 that is was implementing a cost reduction plan because of current adverse economic conditions. The company said in a statement that it would be laying off approximately 200 employees, or about 5 percent of its 4,000 employees worldwide. The layoffs are expected to be accomplished by December 31, which suggests that the company's operations in the United States are taking the bulk of the hit. (Because of strong labor laws, it is a lot harder to fire employees in Europe.) When combined with the normal employee attrition rate and limiting hiring (which has just been initiated), Lawson says that the workforce reduction in its current fiscal year ended May 21, 2009, will be somewhere between 8 percent and 10 percent of the workforce. In addition, Lawson is closing one of its offices and will be reducing discretionary spending.

Lawson said that these actions, when taken together, should cut somewhere between $40 million and $50 million in costs from the corporate ledgers. The company said that the actions would result in somewhere between $9 million and $12 million in pretax charges, the most of which will be taken in the second fiscal quarter that ended on Sunday (November 30).

"Making decisions to reduce personnel are difficult because of the impact to good people and their families, but these actions are necessary in this challenging economic environment," explained Harry Debes, Lawson's president and chief executive officer. "Lawson is a financially strong company with a robust balance sheet and a healthy net cash position. While we are reducing our overall costs, we will continue to maintain high levels of customer support and product innovation. We will also continue to make targeted investments in our IT systems and infrastructure and other selected initiatives that keep our long-term goals intact."

Lawson will report its second quarter of fiscal 2009 financial results on January 8.

Wall Street, which is dizzy with disasters of its own making, took Lawson's news in stride, and the company's shares did a slight rebound to just under $4 a pop. But Lawson's shares, like those from so many other publicly traded companies, are off about 63 percent from their year high (in this case, set just after Christmas last year, when the stock was kissing $11 a share). Lawson had a market capitalization of $638.4 million as we went to press on Friday, and this has more than wiped out any benefit, in terms of share price, that Lawson got by acquiring Intentia back in June 2005. That said, rival Oracle's stock curves do not look all that different from Lawson's, but Oracle's decline has been less steep as 2008 has dragged on. And that is because Oracle is a leader not just in ERP and related application software, but also in databases, middleware, and application development tools.

It pays, it seems, to diversify.

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