We're not here to recommend buys, sells or holds. Rather, the Ziff Davis Channel Zone Stock Index seeks to track the channel's financial health. To get started, we launched the index on October 24 with a value of 1000. Each stock in the index (see list below) is equally weighted. For example, if one stock rises 5 percent and another falls 4 percent, the net result is a 1 percent gain.

Now that you have the background information, let's take a look at the action for the week ended October 31. Our index gained 3.22 percent, closing at 1032.23. Winners beat losers by a rather stunning 27-to-3 ratio.

Weekly Winners
The index's top five gainers for the week were Avnet Inc. (AVT, +11.94 percent), Arrow Electronics Inc. (ARW, +9.83 percent), Cognizant Technology Solutions Corp. (CTSH +9.64 percent), Ingram Micro Inc. (IM, +8.19 percent) and Agilysys Inc. (AGSYS, +8.10 percent).

Avnet reported 1Q revenue of $2.41 billion, up 11 percent compared to the corresponding quarter last year. The Phoenix, Ariz.-based distributor also reported an $11.4 million loss, but CEO Roy Vallee told Reuters "there are enough data points to say 'Yes, things are getting stronger.'" Investors cheered the news and Goldman Sachs upgraded Avnet shares from "under perform" to "in-line" (loosely translated as from "sell" to "hold").

Similarly, Cognizant recently raised its expectations for the current quarter. The company says it expects current-quarter revenue to top $105 million, roughly $6 million higher than analysts had expected. The Teaneck, N.J.-based company specializes in offshore software development.

Another key winner was Covansys Corp. (CVG, +6.39 percent). Although the company's 3Q revenue slipped 5 percent to $94.4 million, net income reached $4.2 million -- its highest level since 1Q 2000. The Framington Hills, Mich.-based solutions provider says its offshore delivery model is gaining momentum. The company has added more than 460 billable consultants to its India workforce since September, 2002. That's not exactly comforting to U.S.-based consultants, but Covansys has little choice but to leverage the lower labor costs available abroad.

Investors also kept a close eye on DiamondCluster International Inc. (DTPI, +2.3 percent). The Chicago, Ill.-based consulting company has weathered the dot-com implosion better than most of its rivals. DiamondCluster's stock suffered a steep fall in 2001, but has climbed more than 160 percent this year.

Still, the run-up may be difficult to sustain: Wachovia Securities on October 29 cut its rating on DiamondCluster to "market perform" from "over perform." One reason: DiamondCluster says 2Q revenue was $38.2 million -- or roughly flat with the corresponding quarter last year.

Separately, Agilysys enjoyed a strong showing. The Cleveland-based company continues to host Hewlett-Packard Co. StorageWorks Certification Boot Camps for its resellers. The classes will assist new and existing enterprise resellers who want to pursue HP's Accredited Pre-Sales Professional (APP) and Accredited Pre-Sales Consultant (APC) certifications. The training is organized by Agilysys' KeyLink Systems Group.

Minor Dips
Despite a strong week for channel stocks, the index had three decliners for the period: Manhattan Associates Inc. (MANH, -10.46 percent), Modis Group Inc. (MPS, -7.46 percent), Manchester Technologies Inc. (MANC, -0.57 percent).

Weak quarterly results torpedoed Manhattan Associates' stock. The Atlanta-based software integrator says 3Q income slid to $4.99 million compared to $5.97 million for the corresponding quarter last year. Manhattan blamed the problems on slower licensing revenue.

Similarly, Modis announced weak quarterly results. The Jacksonville, Fla.-based solutions provider said revenue slipped to $278.8 million, down from $289.4 million for the corresponding quarter last year.

Meanwhile, Manchester Technologies posted a 4Q loss of $2.6 million, which disappointed some analysts. Revenues, however, climbed to $73.7 million for the quarter compared to $67.2 million for the corresponding quarter last year. Eager for a tech recovery, the Hauppauge, N.Y.-based company is heavily promoting its technology solutions on major New York radio stations. New York Giants star running back Tiki Barber is the pitchman for the promos.

Overall, it's been a strong year for publicly held channel companies. Our index members' shares are up an average of 40 percent this year.

Ziff Davis Channel Zone Stock Index
Week Ending Oct. 31, 2003

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

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