BT's IT services arm to fall short

Warnings from BT that profits for its IT services unit will fall far below expectations has sunk the company to a lower valuation that when it was privatised in 1984.



After his announcement on Friday that the performance of Global Services would be "disappointing", BT boss Ian Livingston watched the group's shares fall 19% to 115p.



Analysts had doubted the arm's 15% growth target by 2011-2012 but still expected a reported 10.9% this year, shy of the company's expected yield of 7-8% for 2008-09 .



Despite driving the company's revenue growth – it is expected to be up 15% this year, the division's problems appear to be the inability of its management to reduce costs.



François Barrault, the chief executive of Global Services, which supplies 80% of FTSE 100 companies, has partly accounted for this failure with his resignation.



But analysts at Ovum warned that it has not been made clear if costs can now be cut, and speculated whether the terms of BT's tailored IT contracts will allow for reductions.



Speaking this week, BT declined to comment on plans to restructure or sell the division – a suspicion from the City based on two finance chiefs being introduced up top.



The same spokesman told the Daily Telegraph that it was "unlikely" that Global Services would be sold, despite the corporate reshuffle in the light of Mr Barrault's departure.