When IBM Corp. announced
solid—but not stellar—financial results last week, some investors were disappointed. Instead of rising on the earnings news, IBM shares declined roughly 1 percent for the week ended April 19.
Still, solutions providers should take heart. While most investors focused on IBM's hardware and consulting revenue, I prefer to look at the software sector. Applications, after all, fuel demand for networks, storage, security and so forth.
That's good news for IBM and its solutions providers. Indeed, year-over-year quarterly sales of IBM's middleware brands – including WebSphere, DB2, Rational, Tivoli and Lotus – increased a respectable 11 percent. Remember, these are large, mature lines of business, which means double-digit growth is difficult to generate. WebSphere led the way with year-over-year quarterly sales growth of 24 percent. In other words, the application server market seems to have rebounded strongly since last year.
Despite reasonable results from IBM, our Ziff Davis Channel Zone Stock Index declined 2.15 percent last week. The index's biggest one-week decliners included PC Connection Inc. (PCCC, -9.64 percent), Agilysys Inc. (AGYS, -7.33 percent), DiamondCluster International Inc. (DTPI, -6.79 percent), Avnet Inc. (AVT, -6.70 percent) and Tech Data Corp. (TECD, -5.17 percent).
Next page: Is the recovery exhausted?
Investors are hoping for IT spending to kick into overdrive, but solutions providers say we're experiencing more of a gradual recovery. We'll get a better view of the picture this week, when more index members announce results on April 20 (Affiliated Computer Services Inc., Cognizant Technology Solutions Corp. and Convergys Corp.) and April 22 (Arrow Electronics Inc., Manhattan Associates Inc. and PC Connection Corp.).
Meanwhile, some consulting firms have announced preliminary results in an attempt to ease concerns about a lackluster recovery. Shortly before the markets closed on Friday, Accenture Ltd. (ACN, -2.65) confirmed its business outlook for its current third quarter and the company's full fiscal year. Accenture is slated to announce its official 3Q earnings on July 14, according to the company's Web site. For the full fiscal year, the consulting firm expects revenue to grow 11 to 14 percent.
Some of that growth will come through an outsourcing relationship with Best Buy Co. Inc. The electronics retailer is transferring roughly 650 IT positions to Accenture as part of a long term outsourcing relationship. Final terms of the deal are pending.
Other upcoming earnings announcements for our index members include:
April 28: Keane Inc. (KEA)
April 29: Avnet Inc. (AVT), DiamondCluster International Inc.
(DTPI), Digitas Inc. (DTAS), Sapient Corp. (SAPE)
May 4: Perot Systems Inc. (PER)
May 17: Computer Sciences Corp. (CSC)
I'll be sure to recap more earnings in my April 27 column.
Next page: Stock Index Weekly Results
Company
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 has covered Silicon Valley since 1992. He is editorial director of the New York Institute of Technology . Write to him at joe_pan5@yahoo.com.
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