It’s Earnings Season: High Times and Disappontments for High-Tech Integrators

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During lunch last week, a marketing consultant asked me where I thought stocks were heading for the rest of this year.

It was a question I dare not answer. I’m no financial analyst. And I don’t have a crystal ball that foretells world events. But I did learn a really important lesson during the dot-com bust: Tune out the noise, focus on earnings per share and compare your performance your competitors’ results.

Despite the recent market rally, some channel stocks remain laggards because of weak earnings and pessimistic business forecasts. Although our Ziff Davis Channel Zone Stock Index is up nearly 10 percent this year (see chart on page 4), some index members are misfiring.

Two companies of concern are Convergys Corp. (CVG) and Accenture Ltd. (ACN). Convergys disappointed investors last week when the company guided future earnings estimates lower. Convergys specializes in IT billing solutions. One of its major customers, AT&T Wireless, is up for sale. The AT&T division represents 20.9 percent of Convergys’ revenue, according to Convergys’ 10-Q filing with the SEC in November. It’s unclear how a potential change in AT&T Wireless’ ownership will impact Convergys’ revenue stream. Convergys shares fell 7.22 percent for the week ended Jan. 23.

What’s Accenture’s problem?

Meanwhile, Accenture shares are down nearly 11 percent in January. Of our 30 index members, Accenture shares are the only ones to suffer a double-digit decline so far this year. Good news for the overall channel, terrible news for Accenture. CFO Harry You told Reuters earlier this month that profits for Accenture’s current quarter, which ends in February, will likely miss analyst expectations. Ouch.The news is better elsewhere. From Agilysys Inc. (AGYS) to Unisys Corp. (UIS), the overall sales and profit trend for solutions providers remains upward. Agilysys, which is slated to announce 3Q results on Feb. 2, recently revised its profits estimates for the year upward. Equally impressive, Unisys last week said year-over-year 4Q net income rose 25 percent, thanks to strong demand for its IT consulting services.

Another big winner, CDW Corp. (CDWC), posted its highest quarterly sales in the firm’s history. Year-over-year 4Q revenue jumped 28 percent to $1.349 billion. The company says unit sales of notebooks, servers, data storage and printer hardware rose more than 30 percent compared to 4Q 2002. That’s nice growth in any economy. Watch for CDW to release January sales figures on Feb. 11.

More earnings announcements are on tap.

Stock to watch next week

Results to watch include those from DiamondCluster International Inc. (DTPI, Jan. 28), Avnet Inc. (AVT, Jan. 29), Computer Sciences Corp (CSC, Feb. 11), and American Management Systems Inc. (AMSY, Feb. 19). Pay particularly close attention to DiamondCluster. The firm’s mix of consulting, management and integration services is the preferred recipe for success in today’s channel. Or is it? We’ll find out on Jan. 28.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.

The 30 stocks in our weekly index