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Have we seen the worst of the commercial IT spending slowdown? Based on second quarter reports and the outlook for information technology services companies for the second half of the year, the answer is yes and no. Most of the companies we track in the industry did meet their previously reduced earnings guidance for the quarter. But most also indicated that growth in the next quarter will probably be lower than in the second quarter. For the industry in general, we believe the larger integrators, including Electronic Data Systems Corp. and IBM Global Services, will continue to show sequential revenue and earnings growth as their global diversification and long-term outsourcing contracts offset the weakness in their relatively small (for them) shorter-term systems integration and consulting businesses.However, for many of the midtier integrators ? around $1 billion or so in revenue, including companies such as American Management Systems Inc. and Keane Inc. ? we expect to see sequential revenue declines next quarter. This is a bit surprising, given how well their revenues have held up to this point. Unfortunately, layoffs in the industry will likely continue over the next quarter, though probably at a lesser rate than in the first two quarters of the year. Most of the e-business companies should continue to show sharp 20-percent to 30-percent sequential declines in revenue in the next quarter, as larger companies continue to take back market share from these smaller players. Of course, these companies no longer describe themselves as e-business companies. Before the Internet wave, I called this group specialty integrators, since they tended to focus on particular technologies, primarily client-server in the mid-1990s, or vertical markets.I think this group will continue to shrink over the next year through consolidation and attrition. Unfortunately, consolidation has not proven to be beneficial to shareholders, with a few exceptions, such as the bidding battle over Proxicom Inc. earlier in the year. In fact, the latest merger between Scient Corp. and iXL Enterprises Inc. resulted in the combined market value of the two companies' dropping after the announcement. One of the largest companies in this segment, Sapient Corp., is actually turning to more boring ? but stable ? IT services such as application outsourcing and offshore development in India. The standout performance, bar none, in the quarter was PEC Solutions Inc. PEC reported a quarter as strong as Cambridge Technology Partners or Sapient would have in their prime. All this from a federal systems integrator. PEC reported second quarter earnings per share of 14 cents vs. 7 cents a year ago, up 100 percent and above the 11 cents analysts were expecting.Overall, the company's results were very strong, the only negative point being a large jump in accounts receivable days sales outstanding for the fourth consecutive quarter (now at 93 days vs. 64 days a year ago).Revenue climbed 63 percent, benefiting primarily from strong growth in PEC's subcontracts from EDS on the $6.9 billion Navy-Marine Corps Intranet contract. The contract represented 29 percent of second quarter revenue, up sharply from the first quarter's 17 percent and nothing last year.Because of continued strong execution and a quick ramp-up on the NMCI subcontract, the company increased its operating profit margin to an outstanding 21.5 percent, about three times a typical operating margin in the industry and setting a new standard.PEC's success in the federal sector aside, the business in the commercial IT services industry is not improving, and probably will not do so until next year. However, business does seem to be stabilizing, as clients better understand how their own businesses are being impacted by the economic slowdown. In the meantime, the federal market continues to outperform.