Think the dot-coms had it bad? Many consulting firms could be heading for an early grave, too.
Like the broader financial markets, our Partner Index fell more than 10 percent for the week ended March 22, closing at 381.52, a record low. Thats quite a steep drop from this time last year, when our index stood above the 2000 mark.
Last weeks losers outnumbered winners, 47 to 2, with one stock unchanged. The situation is particularly bleak at companies like MarchFirst, Razorfish and Breakaway Solutions. Shares in all three companies are trading at well under $1.
Faced with mounting losses, takeover rumors are swirling within the e-consulting marketplace.
Purported combos include Scient and Hewlett-Packard, and Razorfish and Organic. The Scient/HP rumor was moving from cubicle to cubicle at Zefer last week. HP and Scient both declined to comment about the talk. A source close to HP finds such a deal almost inconceivable for two reasons: HP wont pay a premium for damaged goods, and Scient isnt big enough to fulfill HPs consulting needs.
Merger rumors will surely continue, but few deals are expected. The line of thinking is rather simple: Why buy a money-losing company when you can hire away its best people?
Meanwhile, EarthLink is one of the few companies in our index enjoying 2001. Armed with 4.7 million subscribers, EarthLink is a distant No. 2 in the ISP market to America Online (28 million).
EarthLink lost $369.7 million last year, but some investors are betting that the company is ripe for a takeover. Most speculators point to Microsoft as a potential buyer. Microsoft CFO John Connors did not rule out such a deal during a Robertson Stephens conference last month. Rumors about such a deal have died down in recent weeks, but EarthLinks stock is up more than 100 percent this year.
Elsewhere, consolidation continues in the distribution market, where Avnet last week snapped up Kent Electronics for $550 million in stock. In addition to its distribution expertise, Kent has a network consulting operation, dubbed Kent Datacomm.
Avnet and Kent are upbeat about their long-term prospects but bearish about near-term business. Avnet says sales for its Q3 ending March 30 likely will fall 6 percent from Q2, and Kent says income for its current quarter wont meet expectations.
The warning has a familiar ring to it.