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No news was good news for many consulting and service provider stocks, which have recovered some of their recent losses. The rebound lifted our index 9.5 percent for the week ended April 11, its first increase this month.
“I like to think were nearing the bottom, if not there already,” says Gary Dean, an analyst at Robert W. Baird. “In the e-services space, most negative news is already priced into the stocks.”
The winners last week included several beaten-down stocks. Among them were USInternetworking, an application services provider, XO Communications and Exodus Communications.
Exodus was boosted by news of a new alliance with Portal Software. Exodus will use the companys customer management and billing systems to track its own customer accounts. Digex, another hosting services provider, also soared.
Hosting companies and other providers of outsourced applications, such as managed services companies, are expected to benefit from a long-term trend of IT services outsourcing by many corporations.
Near-term, however, many of those projects are on hold as corporations slash IT spending and keep services in-house.
A Merrill Lynch survey of chief information officers, conducted in March, found that IT spending at major Fortune 1000 companies will be flat this year—rather than up 6 percent, as the pervious survey conducted in December had indicated.
“Many companies started the year with single-digit growth expectations, but the continued weakness in the economy has forced them to reassess and lower their previous plans,” the survey said.
The economic slowdown is expected to increase demand for outsourced services, but not right away. The survey said it takes at least nine months for a company to decide which projects to outsource, select a vendor and ramp up the effort.
Despite the gains in many stocks last week, some services companies continued to slide on earnings warnings, layoffs, and other cost cutting measures.
Scient, once a hotshot Web consulting company, announced that it was cutting more than half its staff immediately and relocating headquarters to New York from San Francisco. PSINet said it was laying off 125 more staffers following hundreds that were let go last year.