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Systems Integrators Stage Rebound

Bill Loomis

By Bill Loomis


The integrators rebounded over the last two weeks but continued to lag the Dow Jones and Nasdaq indexes.

Investors now are focusing on first quarter earnings announcements, looking for any signs of softness in business or any changes in tone or expectations from the companies' management.

Enterprise software stocks have been hit particularly hard in the last few weeks following negative earnings pre-announcements from several companies, many of which blamed Y2K spending for their woes.

We will likely see continued concerns about the impact of year 2000 spending on non-Y2K IT budgets for a couple more quarters.

If there is any negative impact from Y2K on information technology service companies, we should see it by the end of the second quarter. Projects developed after that point likely will not be implemented until 2000, therefore not disturbing fixed programs.

Among the strong performers last week was Titan Corp. of San Diego. Shares in Titan climbed 25 percent after the diversified high-tech company announced it will build and operate an electronic pasteurization plant designed to irradiate ground beef for several meatpacking companies. Titan has several other commercial efforts in addition to its federal systems integration business.

Shares of Lockheed Martin Corp. and Boeing Co. both climbed 14 percent over the last two weeks. Seattle-based Boeing announced better than expected first quarter results, though both are benefiting from recently renewed interest in defense stocks.

Compaq Computer Corp. of Houston was the big loser, declining 34 percent over the last two weeks on the announcement of weak first quarter results.

This was a big surprise to Compaq investors since the company waited until after the quarter ended to pre-announce the poor results.

The company hurt the situation further by releasing the announcement after the close of the markets April 16 and not holding a conference call for analysts. While Compaq's problems seem to be more internal rather than related to slowing IT budgets, it made nervous tech investors even more nervous.

The fallout from the company's ills continued April 18 when Compaq announced that its chief executive, Eckhard Pfeiffer, and chief financial officer, Earl Mason, had resigned abruptly.

American Management Systems of Fairfax, Va., suffered from investors' rotation out of IT services, with its shares dropping 22 percent over the last two weeks, despite the company reporting very strong first quarter results.

AMS reported first quarter earnings per share of 37 cents vs. 21 cents, well ahead of the consensus estimate of 28 cents. AMS' state and local government unit provided much of the upside surprise with revenue in the unit growing 74 percent.

Computer Sciences Corp. of El Segundo, Calif., recently held an analyst meeting in New York, reiterating its comfort with investors' current earnings expectations. CSC had an upbeat outlook on the global IT market, including the U.S. federal government sector. Shares in CSC rose more than 6 percent during the last two-week period.

CSC's federal unit was responsible for the bulk of CSC's contract wins over the last year, even if the multibillion-dollar Internal Revenue Service modernization contract win was excluded.

On April 29, the new chairman of Electronic Data Systems Corp. of Plano, Texas, will head to New York to address investors and analysts. EDS' shares have been inching higher over the past few weeks in anticipation of good news coming from the meeting.



Bill Loomis is managing director of the Technology Research Group at Legg Mason Inc., Baltimore. He can be reached at wrloomis@leggmason.com. This information should not be construed as advice designed to meet the investment needs of any investor.

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