Tech Services Firms' Stocks Head South

FRAMINGHAM (06/23/2000) - Share prices of leading computer services firms have taken a hit on Wall Street in recent weeks as a result of disappointing revenue announcements.

On Tuesday, Computer Sciences Corp. [NYSE:CSC] in El Segundo, California, announced that its first-quarter revenue growth projection of 15% was being decreased to 13%, sending the stock tumbling 14%.

Two weeks ago, the share price of Perot Systems Corp. [NYSE:PER] in Dallas declined more than 20% after the firm announced that second-quarter revenue and profit would be less than it was for the same period last year.

Meanwhile, earlier this month, Electronic Data Systems Corp. [NYSE:EDS] saw a similar drop in its share price when it lowered its second-quarter revenue growth projections. The Plano, Texas-based company cited sales reorganization and contracts starting slower than expected. But analysts said the problem has more to do with the inflexibility of these major systems integrators.

"The sentiment around [the] traditional IT services space has definitely deteriorated," says Karl Keirstead, a senior analyst at Lehman Brothers Holdings Inc. in New York.

Major computer services firms aren't able to transition rapidly enough from providing traditional information technology services, such as enterprise resource planning, to emerging sectors, such as customer relationship management, electronic business and wireless applications, say analysts.

And boutique Web consultancies such as Scient Corp. [Nasdaq:SCNT] in San Francisco and Sapient [Nasdaq:SAPE] in Cambridge, Massachusetts, are stiff competitors. "We know that these large firms don't turn on a dime. In the short run, they might lose some market share until they scale up to e-business capabilities," says Randall.

But some analysts say they expect a brighter outlook. Gary Helmig, an analyst at Wit SoundView Group Inc. [Nasdaq:WITC] in Stamford, Connecticut, says many of the new customers enlisted in the first and second quarters will show up in revenue statements later this fiscal year. William Loomis, an analyst at Legg Mason Wood Walker Inc. [NYSE:LM] in Baltimore, also predicts better numbers in the third and fourth quarters as larger firms spend more money on electronic-business outsourcing projects.

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