Channel Stocks Climb 44 Percent in 2003

The channel certainly is enjoying the technology rebound.

During 2003, our Ziff Davis Channel Zone Stock Index rose 44 percent. Twenty-nine out of 30 stocks in our index rose this year. Moreover, five index stocks—DiamondCluster International Inc. (DTPI), Digitas Inc. (DTAS), Covansys Corp. (CVNS), Sapient (SAPE) and The Titan Corp. (TTN)—rose more than 100 percent this year.

The index's biggest winner was DiamondCluster, whose shares have risen 195 percent this year. The Chicago-based digital consulting firm weathered the dot-com bust and recently returned to profitability, generating $461,000 in net income and $38.2 million in revenue for its second quarter ended Sept. 30.

Although DiamondCluster's year-over-year revenue was essentially flat, investors were happy to see the company's business stabilize and new contracts in the pipeline. DiamondCluster earlier this month won a five year contract with California's Department of General Services. Jeff Hesse, a partner in the company's public sector practice, says DiamondCluster will organize "small, high-impact project teams" to help California leverage technology amid the state's financial crisis.

Shares in Digitas also enjoyed a blockbuster year, rallying 169 percent through Dec. 26. Annual profits at the Boston-based marketing and IT consulting firm topped $8.7 million through Sept. 30, a dramatic reverse from a year-ago loss of $42 million during the same period. Despite the recent stock rally, Digitas believes its shares remain undervalued. The company recently approved a $20 million stock repurchase program that runs through June 30, 2005.

Continuing a familiar theme, Covansys and Sapient shares rallied 160 percent and 135 percent this year, respectively, as both companies pushed back into the black amid mostly flat revenues.

Meanwhile, Titan remains one of the index's rare growth companies. The San Diego-based consulting firm has deep roots in the government market. Titan's year-over-year revenue for the nine months ended Sept. 30 rose a healthy 27 percent to $1.29 billion. Equally impressive, Titan has pushed beyond the government sector and recently won a series of contracts within the public school sector. The company's close partners include Linux proponent Red Hat Inc. Read my Contract Watch column on Dec. 30 for details about the latest Titan/Red Hat customer win.

Other major index winners for 2003 include distributors. Despite falling hardware margins and stiff competition from direct sales proponents, shares in several distributors enjoyed double-digit gains this year. Noteworthy winners include Avnet Inc. (AVT, +97.6 percent), Arrow Electronics Inc. (ARW, +78.3 percent), Tech Data Corp. (TECD, +49.15 percent) and Ingram Micro Inc. (IM, +29.55 percent).

The index's only loser this year was GTSI Corp., whose shares have lost about 2 percent through Dec. 26. Still, the Chantilly, Va.-based solutions provider has delivered year-over-year sales growth during September, October and November 2003. That's certainly something to build on.

For the index's latest one-week performance results, see the table below.

About this column: The Ziff Davis Channel Zone stock index tracks 30 channel-related stocks on a weekly basis. We don't recommend buys, sells or holds. Rather, the index seeks to measure the channel's financial health. We launched the index on Oct. 24, 2003 with a value of 1000. Each stock in the index is equally weighted. For example, if one stock rises 5 percent and another falls 4 percent, the net result is a 1 percent gain.

Joseph C. Panettieri (joe_pan5@yahoo.com) has covered Silicon Valley since 1992. He is editorial director of the New York Institute of Technology .

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