Predictive Systems Inc.: Weathering the Storm

Network consulting firm feels a draft but won't get blown away.

While the web integrators that made it big off of well-funded dot-coms are sweating the downturn of their customers sector, Predictive Systems remains cool.

During the height of the boom, the six-year-old network infrastructure consulting firm never strayed into the Web front end, but instead kept its focus on the IT infrastructure. And its focus was not just on pipes, but on building complex IT architectures for telecommunications and financial firms.

Infrastructure has been Predictive Systems core mission since it was founded by Ron Pettengill, chairman and CEO, and Robert Belau, president, both of whom have spent years in networking environments. And despite Predictive Systems stock plummeting from $60 per share to the $2 range, the companys executives are optimistic.

"The message we gave to our shareholders is ... it will take us a little bit of time to get our cost back and make sure we can run our business in any kind of environment," Belau says.

However, similar to the damage incurred by Internet consulting firms that relied on dot-coms, Predictive Systems found its Q4 hamstrung because of its focus on the new breed of telecoms, such as CLECs, which have been hit hard by the steep drops in voice revenues. For instance, Predictive had to take a Q4 write-down of $4 million after one of its customers, ICG Communications, went out of business.

Belau acknowledges Predictive Systems has not been immune to the slowdown in the sector, but adds the following: "The telco space is not a doomed sector. The fundamental difference with what happened with the dot-coms is that the dot-com boom will never exist again. The telcos will exist and are going through a contraction," he says.

The company, which raised $75 million in its 1999 IPO and $40 million in a follow-on offering, has been focused on building and managing IT networks through its BusinessFirst approach. Its consulting services are aimed at network design and engineering, network and systems management, call centers, and business integration. Late last year, the company rolled out a new network modeling service as part of its suite of e-infrastructure services that allows businesses to analyze and predict their networks performance.

Also, Predictive Systems last October acquired Global Integrity Corp., a wholly owned subsidiary of Sciences Applications International Corp., bolstering its security practice. In September, it acquired Synet Service Corp., a network- and systems-management consulting firm.

Putting the Q4 loss behind them, which included laying off 120 employees, the company has focused on building its sales and business-development resources, says Pettengill. "The effects of the uncertain economic climate have us taking a more conservative view of the future," Pettengill says.

That means digging deeper with present accounts and expanding the horizon of its customers and its services, the executives explain. For example, the company is expected to grow its security consulting services.

The company also will drive its alliances, says Belau, and that includes its alliance with Cisco Systems, which took an equity stake in the company. Belau says that because Predictive Systems does not hawk boxes, its relationship with Cisco makes sense. "We are a consulting company, and we mimic the company [Cisco]," he says.

"While our business is not immune to economic cycles, we will be a survivor," Belau asserts.