Scavengers Slam on the Brakes

Bottom fishing by bargain hunters lifted prices of e-solutions stocks last week, but the buying frenzy appears to have fizzled. Our index, for example, rose 5.6 percent for the week, less than one-third of its gain the previous week.

“Based on our conversations with investors, there appears to be two very separate outlooks with regard to the [consulting and applications services] sector,” says Michael Sherrick, analyst at Morgan Stanley Dean Witter. “The first believing that the worst is behind us, and the second believing that the worst is yet to come.”

Investors seem to be rewarding those companies that either have adopted credible plans to restructure their operations or have benefited from new business contracts or partnerships.

Among the winners in our index last week were MarchFirst, which announced additional cost-cutting measures to achieve $100 million in savings. The company will cut an additional 550 employees on top of the 1,200 already laid off, close offices in Pittsburgh and Montreal, and reduce corporate expenses to about 10 percent of sales.

Mark Wolfenberger, analyst at Credit Suisse, says MarchFirst has “the necessary ingredients for survival,” but its stock still faces uncertainty in the coming quarters.

Scient and Viant, also in the midst of major reorganizations, were rewarded by investors last week. Viant is refocusing its efforts on several vertical markets: financial services, media, energy and retail. Scient is rolling out a Preferred Partners Program, awarding better pricing in exchange for a monthly commitment of business.

Other winners include Computer Horizons, whose wholly owned eB Networks subsidiary was selected as a Cisco Professional Services Partner. The company also appears to be benefitting from an optimistic outlook for IT infrastructure outsourcing, which is “relatively insulated from slowing economic growth and/or temporary IT budget constraints,” says Lehman Brothers analyst Karl Keirstead.

Cysive advanced, after it announced its new membership in the Intel e-business service program, which provides businesses with a source for standardized e-business solutions. Covad gained, following word of a new partnership with Reliant Energy Communications to offer high-speed Internet access to business customers.