Channel Stocks: Eager for 2004

When IBM Corp. talks, solutions providers listen.

During a meeting with analysts last week, IBM CFO John Joyce said businesses are finally ready to take some risks and increase IT spending, particularly on comprehensive solutions, rather than individual point products. Joyce’s comments were first reported by Reuters.

IBM’s upbeat mood helped the Ziff Davis Channel Zone stock index to maintain its recent gains. The index rose 0.54 percent for the week ended Dec. 5 and is up more than 44 percent since January 1. IBM shares, meanwhile, gained less than 1 percent on the week but are up nearly $20 since March.

Elsewhere in our index, last week’s major advancers included Covansys Corp. (CVNS, +11.11 percent), Perot Systems Corp. (PER, +10.89 percent) and Electronic Data Systems Corp. (EDS, +7.31 percent). Manhattan Associates Inc. (MANH, -7.68 percent) and Sapient Corp. (SAPE, -5.87 percent) were the index’s only significant decliners. Our 30-member index was split evenly between advancers and decliners.

Covansys shares have moved along a sharp incline this year, rallying from a 52-week low of $2.15 to a current price of around $10. The Farmington Hills, Mich.-based solutions provider has cut costs, returned to profitability and worked closely with IBM to cash in on WebSphere opportunities. Customers frequently visit a WebSphere Innovation Center in Michigan, a unique center that allows executives to see e-business applications in action prior to production deployment.

Meanwhile, shares in Perot rallied more than 15 percent before giving back some gains and holding onto a 10.89 percent increase for the week. Brokerage firm Jefferies & Co. Inc. on Dec. 1 upgraded Perot shares, which triggered the rally.

Rather than facing off against EDS and IBM Global Services, Perot continues to focus on mid-market outsourcing contracts. Vanguard Car Rental USA Inc., for instance, recently signed a 10-year, $275 million IT outsourcing deal with Perot. Vanguard has acquired Alamo Rent-A-Car and National Car Rental, and will depend on Perot to integrate those IT systems into a single enterprise network.

The week’s other big winner, EDS, announced plans to support Sun’s new Java Desktop System within enterprise settings. The Java system is based on GNOME, StarOffice and Linux. It runs on Pentium II-compatible hardware (or newer) and costs $25 per employee through June 2, 2004. Prices rise to $50 per employee after that date. The discount requires customers to run Sun’s server-based software as well.

The week’s two major decliners, Manhattan Associates (MANH, -7.68 percent) and Sapient (SAPE, -5.87 percent), suffered from silence. Manhattan Associates landed on Forbes magazine’s “Best of the Web B2B” in November but recent silence from the company prompted investors to take some profits off the table. Shares in Manhattan Associates had nearly doubled since April. The same held true at Sapient, where shares had more than tripled since April before easing last week.

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 October 24 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 and founder of JCP Media Inc.