Investors rethink technology investments as a Security and Exchange Commission investigation torpedoes Titan Corp.'s shares.For the second time in two weeks, a government investigation has rattled a solutions provider. Shares in Titan Corp. (TTN) fell 5.71 percent for the week ended Feb. 13. The slide occurred because the Securities and Exchange Commission (SEC) is investigating payments from Titan to certain international consultants.
The investigation comes at a critical time: Lockheed Martin Corp. in September announced plans to acquire Titan for about $1.8 billion. The deal is expected to close by the end of March. According to Reuters, both companies remain committed to the merger.
Shareholders may be overreacting to the SEC investigation, which focuses on a Titan business unit that represents less than two percent of the company's overall revenue. Titan and Lockheed brought the matter to the SEC's attention after an internal review raised questions about the unit's business dealings, Reuters reported.
Titan isn't the only solutions provider under investigation. In a separate matter, Affiliated Computer Services Inc. (ACS) on Feb. 3 disclosed that the SEC and the U.S. Department of Labor are investigating the solutions provider's business practices in Florida. Published reports alleged that ACS may have manipulated job placements and wages to trigger contract bonuses in the state.
Next page: Investors taking a wait-and-see approach
Investors taking a wait-and-see approach
Overall, investors are taking a wait-and-see approach to solutions providers. For the week ended Feb. 13, our Ziff Davis Channel Zone Stock Index slipped 1.14 percent to 1165.33. Decliners outnumbered advancers 16 to 14. In addition to Titan, major decliners included PC Connection Inc. (PCCC, -12.49 percent), American Management Systems Inc. (AMSY, -8.49 percent), Manchester Technologies Inc. (MANC, -7.36 percent) and Computer Sciences Corp. (CSC, -6.04 percent).
Much of the sell-off can be traced to American Management Systems, which on Feb. 11 revised its fourth quarter income estimate downward. The consulting firm expects pretax income of about $9 million, down from previous guidance of $12 million to $14 million estimate. Ironically, American Management System blamed the shortfall on start-up costs for a new software system that is expected to improve the company's long-term operations. American Management is scheduled to announce actual results on Feb. 19.
Elsewhere, some solutions providers continue to gain momentum. Winners on the week included Sapient Corp. (SAPE, +8.16 percent), Covansys Corp. (CVNS, +5.34 percent), Unisys Corp. (UIS, +4.70 percent), DiamondCluster International Inc. (DTPI, +4.49 percent) and Acxiom Corp. (ACXM, +4.36 percent).
Sapient continues to report improving revenue trends, while 4Q net income at Covansys topped $6.1 million, up from $1.3 million for the corresponding quarter last year. Although year-over-year quarterly revenues declined 6.8 percent to $91.6 million, Covansys says it expects overall profitability to hold steady or improve throughout this year.
Next page: Our top 30's weekly performance
Our top 30's weekly performance
Hed: Stocks on the Rise
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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