Proxicom Inc.: Taking the Vertical Leap

Looking to push out in new areas, Proxicom targets key markets.

Internet consulting firm Proxicom may not have the proverbial silver bullet for dealing with the current economic downdraft, but believes it can weather the storm.

Like many of its competitors, the companys top management concedes that its revenue growth will be dampened this year by a slowdown in IT spending. Signs of that were evident in Q4 when Proxicom saw a number of customers delay "green-lighted" projects, which led to a drop in quarterly revenue.

For its part, the 10-year-old company is not taking the chilly economic forecasts lightly. Proxicom is banking on its experience, technical know-how and a go-to-market strategy focused on vertical markets. The importance of its vertical-market focus was elevated even higher during the Q4 period. Thats when Proxicom expanded its vertical focus from four to seven industries, adding communications, high tech, as well as media and entertainment.

To support its expanded vertical focus, Proxicom also increased the number of its business development specialists from 65 to 80, all with vertical-market expertise.

"The tighter economy calls for intensive efforts for building pipeline and growing existing client relationships. Key to this is our vertical expertise which has been built through years of experience and targeted hiring," says Raul Fernandez, chairman and CEO of Proxicom. The company, he adds, won six new projects in Q1 and also is leveraging its alliance relationships with Compaq, Intel, iPlanet, Microsoft and Sun.

On the international front, Proxicom added more business development focus for its financial services vertical in the U.K. and Germany. It also scored three major client wins in its European markets, says Heiner Rutt, president of Proxicom. He adds that by year-end, its international offices will account for 18 percent to 20 percent of revenue, up from 15 percent in Q4.

However, Proxicom executives see a softer Q1 as a direct impact from the delay of projects, and estimate Q1 revenue to fall within the $55 million to $56 million range. Executives expect an uptick in the second half of the year.

Proxicom is responding to customer demands to shift to productivity enhancement and technology-driven cost cutting. The company also has found customers putting stricter emphasis on the ROI process.

"This is familiar territory for us. In the early days, as a client needing to justify Internet expenditures, we worked with the likes of Mobil, McKesson and GE to measure the substantial ROI generated from e-business systems we built," says Fernandez.

For its Q4 period ended Dec. 31, the company met analyst expectations. Proxicom reported revenue of $57.9 million, up from $29.6 million in the year- ago quarter. It scored a pro forma gain in Q4, reporting $3.2 million, or 5 cents per share, up from $2 million for the same quarter last year.

For the year, the company recorded revenue of $207 million, up from $82.7 million in 1999.

During Q4, the company laid off 65 employees because of delayed projects, says Ken Tarpey, Proxicoms CFO. The company ended the quarter with 1,194 employees.

Analysts see Proxicom surviving the turbulence. "I think there is only a select number of Internet consulting firms that will survive, and I put Proxicom in that elite grouping," says Vince Colicchio, VP at Southwest Securities who upgraded Proxicom to a buy.

Colicchio points out that Proxicoms in-depth vertical expertise and its ability to integrate e-business applications with legacy systems is a big plus.

Now, Proxicom has to stay the course and row a bit harder.