Channel Stocks Brace for Earnings

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Wall Street bulls are optimistic that solutions providers and technology companies will deliver strong quarterly results this week.

Among the 30 companies in our Ziff Davis Channel Zone Stock index, at least three– CDW Corp. (CDWC), IBM Corp. (IBM) and Unisys Corp. (UIS)–are slated to announce results this week. Non-index members such as Advanced Micro Devices Inc. (AMD), Dell Inc. (DELL), Hewlett-Packard Co. (HPQ) and Intel Corp. (INTC) are also scheduled to announce earnings this week. In addition to revealing spending patterns in the IT marketplace, the results could shed light on corporate technology budgets for the rest of this year.

Generally speaking, solutions providers and Wall Street remain upbeat about the IT marketplace. However, the enthusiasm is already priced into the market. Indeed, our Ziff Davis Channel Zone Stock Index is up more than 6 percent this year and nearly 18 percent since its October 2003 launch.

Still, it will take stellar quarterly results from multiple IT companies to give Wall Street a further boost: Our index was essentially flat for the week ended April 8 (U.S. markets were closed on April 9), declining a scant 0.18 percent. Of our 30 index members, winners and decliners were split evenly, 15 to 15.

Last week’s winners

Last week’s key winners included PC Connection Inc. (PCCC, +6.64 percent), Convergys Corp. (CVG, +5.93 percent), Manhattan Associates Inc. (MANH, +4.86 percent) and DiamondCluster International Inc. (DTPI, +4.84 percent). The biggest decliners were Manchester Technologies Inc. (MANC, -7.24 percent), GTSI Corp. (GTSI, -4.34 percent), Pomeroy IT Solutions Inc. (PMRY, -3.62 percent) and Ciber Inc. (CBR, -3.54 percent).None of the major winners—or losers—delivered big news last week, but the rest of this month should be busy with lots of chatter. Channel investors are particularly preoccupied with Electronic Data Systems Corp. (EDS), which is slated to announce quarterly results on April 26.

EDS says it signed roughly $1.3 billion in contracts globally during the last week of its most recent quarter. The Plano, Texas-based consulting giant said the contracts are primarily medium-sized deals that extend existing integration contracts with EDS. Nevertheless, Standard & Poor’s downgraded EDS debt on April 5 to one notch above junk status. Fitch Rating issued a similar downgrade on EDS debt in March. Both ratings firms attributed the downgrades on stiff competition in EDS’s core consulting market.

Other upcoming earnings announcements for our index members include:
April 20: Affiliated Computer Services Inc., Convergys Corp. (CVG)
April 22: Manhattan Associates Inc. (MANH), PC Connection (PCCC)
April 28: Keane Inc. (KEA)
April 29: Avnet Inc. (AVT), DiamondCluster International Inc. (DTPI), Sapient Corp. (SAPE)
May 4: Perot Systems Inc. (PER)
May 17: Computer Sciences Corp. (CSC)
Stay tuned. I’ll bring you weekly recaps beginning with my April 19 column.

How the full channel stock index performed

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.