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T-Systems needs acquisitions to reach critical mass

T-Systems International AG, the technology services unit of Deutsche Telekom AG, plans to make acquisitions abroad to reach the company's sales targets, division head Lothar Pauly said in an interview. T-Systems needs 16 billion euros ($20.6 billion) in sales by 2010 to gain „critical mass,” Pauly said in Frankfurt yesterday. The Frankfurt-based division reported € 12.9 billion in 2005 sales. T-Systems plans to generate 30% of sales outside Germany in four years, from 15% currently. „We will not manage to reach that goal by growing organically only. We will have to acquire,” Pauly said. „Currently we have no growth in Germany and growth is what we must achieve, especially abroad.” T-Systems, the third-largest division of Bonn-based Deutsche Telekom by revenue, this year bought Volkswagen AG's Gedas computer-services division to expand in the automotive industry. Second-quarter orders improved from the previous period, helped by contracts with lender HVB Group and government-owned television channel ZDF, Pauly said. Deutsche Telekom is scheduled to release second-quarter earnings Aug. 10. T-Systems's revenue in the first three months fell 3.1% to € 3 billion as new orders fell 6.5%. The company blamed the decline on lower prices of desktop and telecommunications services. „Prices in our industry are coming down by 10% plus every year, in all businesses we compete in,” said Pauly, who previously ran Siemens AG's communications division before joining Deutsche Telekom last year. T-Systems still expects sales of technology services to medium- and small-sized companies to rise to € 700 million this year, on course to reach € 1 billion by 2007, Pauly said. Overall revenue growth at T-Systems „will be difficult” in 2006, and Pauly is hopeful sales growth will resume next year, he said. (Bloomberg)