Earnings Give Solutions Providers a Lift

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Solid quarterly earnings from multiple companies gave distributors and solutions providers a lift during the week ended April 23.

Of our 30 index members, the week’s biggest advancers were Arrow Electronics Inc. (ARW, +7.76 percent), Agilysys Inc. (AGYS, +5.42 percent), DiamondCluster International Inc. (DTPI, +4.45 percent), Tech Data Corp. (TECD, +4.06 percent) and Avnet Inc. (AVT, +3.94 percent).

Arrow Electronics delivered 1Q income of $29.5 million compared with a net loss of $0.9 million in 1Q 2003. President and CEO William E. Mitchell was very upbeat, stating that 1Q 2004 was “very strong with exceptional year-on-year sales growth” in several key business areas. The upbeat mode influenced the entire channel, lifting our Ziff Davis Channel Zone Stock Index 1.12 percent for the week ended April 23. Advancers beat decliners, 21 to 9.

Investors hope the optimism carries over into this week, when Keane Inc. (KEA) announces results on April 28 and Avnet, DiamondCluster, Digitas Inc. (DTAS) and Sapient Corp. (SAPE) deliver results on April 29.

In recent months, Sapient has diversified its revenue stream by promoting Microsoft Corp.’s BizTalk Server. Eager adopters include the Alliance Division of Rock-Tenn Company, one of the nation’s top packaging companies. With an assist from Sapient, Rock-Tenn deployed BizTalk to streamline business processes between employees, suppliers and various IT systems. We’ll see if the BizTalk push boosted Sapient’s overall revenue on Thursday. Analysts expect Sapient to eek out a penny-per-share profit, according to Earningswhispers.com.

Sapient Rival DiamondCluster apparently has brighter prospects. Analysts are expecting five-cents-per-share, according to Earningswhispers.com and Wachovia recently upgraded DiamondCluster shares to outperform (i.e., “buy”) from market perform (i.e., “hold”). For the nine months ended Dec. 31, DiamondCluster’s revenue rose 4 percent to $127.4 million. The Chicago Transit Authority (CTA) recently tapped DiamondCluster for a touch-and-go electronic farecard system. The farecard includes an embedded microchip that allows commuters to more easily move about Chicago.

Not all are enjoying a rebound

Not all solutions providers are enjoying the IT spending rebound. Shares in Affiliated Computer Services Inc. (ACS, -9.38 percent) and Unisys Corp. (UIS, -3.69 percent) dropped significantly last week amid earnings concerns. ACS delivered respectable earnings on April 20, but investors were expecting even stronger results and showed their disappointment by dumping ACS shares. Separately, investors remain worried about rising pension costs at Unisys. The costs were the primary reason Unisys’ 1Q net income fell about 25 percent for its first quarter ended March 31.Longer term, watch for earnings from Perot Systems Inc. (PER) on May 4 and Computer Sciences Corp. (CSC) on May 17.

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.