Decliners Rule for Third Consecutive Week

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For the first time since we launched our stock index in October 2003, shares in solutions providers have declined over three consecutive weeks.

For the week ended Feb. 20, our Ziff Davis Channel Zone Stock Index slid 2.38 percent to 1,137.62. Decliners outpaced winners by a wide 3-to-1 margin. Overall, solution provider shares performed worse last week than broader market indexes, including the Nasdaq (down 0.76 percent) and the S&P 500 (down 0.1 percent) and the Dow industrials (down 0.1 percent).

Five companies in our index saw their shares slide more than five percent on the week, including Arrow Electronics Inc. (ARW, -11.12 percent), GTSI Corp. (GTSI, -9.33 percent), DiamondCluster International Inc. (DTPI, -8.33 percent), Convergys Corp. (CVG, -5.04 percent) and Avnet Inc. (AVT, -5.04 percent).

GTSI Corp. announced a one-time write-off of $6 million in its 4Q. The write-off was associated with an ERP project apparently gone awry. GTSI had been pursuing a “highly customized” ERP solution, but changed course in 4Q because the customization involved a “higher level of development risk and higher total cost of ownership.”

Cutting through the babble

Cutting through the babbleGTSI is now deploying a “standard ERP system,” though the company didn’t disclose its software partner on the project. The strategy change means $6 million worth of customized ERP gear does “not have future economic value.”

Cut through the babble, and GTSI essentially admitted that $6 million from its IT budget went up in smoke. Nevertheless, GTSI says it has made “considerable progress in its efforts to update and enhance its IT infrastructure.”

Meanwhile, Arrow announced strong profit growth on Feb. 17 but investors weren’t impressed. During the distributor’s 4Q, year-over-year net income more than tripled to $26 million. Quarterly sales also surged to $2.5 billion, up from $1.9 billion in 4Q 2003. Arrow shares may have slid last week based on investor speculation that the stock was fully valued. Indeed, shares in the company have nearly doubled since February 2003.

Last week wasn’t a total loss for solution provider stocks. Noteworthy winners included Manhattan Associates Inc. (MANH, +4.21 percent), Unisys Corp. (UIS, +2.83 percent), Agilysys Inc. (AGYS, +2.47 percent) and The Titan Corp. (TTN, +2.24 percent).

Manhattan shares rallied on an upgrade from SunTrust Robinson Humphrey; Unisys announced new cyber security efforts and a managed services contract with Avis Europe; Agilysys swallowed hospitality integrator Inter-American Data Inc. for $36.5 million; and Titan won a $217 million IT contract with the U.S. Army.

Stock Index Results for week ending Feb. 20

Stock Index Results for week ending Feb. 20About 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.