Information Tech Firms Insist Sales Are on the Rebound By CARLOS MARTINEZ Staff Reporter Valley-based information technology firms, like those in other parts of the country, claim they’ve experienced a spike in business over the last few months, prompting some analysts to say the downturn may be over for IT providers. Executives at Calnet Technology Group Inc. of Northridge say IT service has fueled a recent revenue increase from $266,000 in the quarter ending March 30 to $566,000 in the quarter ending June 30 while Glendale-based Systech Solutions Inc. has seen its software development division experience a 30-percent jump in sales since March. Indeed, Nathan Schneiderman, an analyst with Los Angeles-based Wedbush Morgan Securities Inc., said IT firms are starting to see some growth after a steep slide in 2001. But, he added, the sector’s upturn may not mean an end to the troubles facing the tech market as a whole. “We need to see more evidence before we can say things are on their way back,” he said. Hugh B. Bishop, vice president of the Aberdeen Group Inc., a technology industry market research firm based in Boston, is more optimistic. “You can’t help but think that this IT upsurge is a precursor to improvement in the whole tech sector,” he said. Phil Mogavero, president and CEO of Woodland Hills-based IT firm Data Systems Worldwide Inc., said his company’s revenue has been on the upswing since May. “We’re not quite sure what’s driving these numbers, but we’re seeing a big improvement over the beginning of the year,” Mogavero said. In the quarter that ended June 30, Data Systems Worldwide grossed $4.5 million compared to $3.6 million in the previous quarter. Sales in the current quarter have already reached $5.4 million, Mogavero said. Donald Becker, CFO of Data InfoTech Inc., a data storage firm in Sun Valley, said his company recently eliminated its own IT department and signed a new contract with a third-party firm when it realized outsourcing was more cost-effective. “We really needed two people to work on the equipment but, when we did an analysis of the whole company, it made sense to get rid of some dated equipment and outsource everything,” he said. “We’ve had some revenue improvements and it allowed us to afford an overall analysis and get it done.” Jeremy Lopez, a tech analyst for MorningStar Inc., said he’s heard similar stories, leading him to believe there has been some improvement in the overall tech market. “People are starting to spend and improve production and it starts to show in the IT segment,” he said. “It’s hard to tell if it will be sustained, but it has the makings of a turnaround in the tech market.” Dave Wood, executive director of the Los Angeles-Santa Barbara office of the American Electronics Assn., said his trade organization’s members are seeing signs of an upturn. “They’re starting to spend more now on equipment and IT,” he said. Zach Schuler, president and CEO of Calnet, said things began to turn around for him back in the first quarter. “It seemed like the luck of the draw that we got more sales, but it seems more like a trend now,” Schuler said. The company’s sales through June 30 were $832,000, compared to $406,000 for the same period last year. “I can attribute a lot of that to companies who are now willing to outsource their IT department because of the high cost,” Schuler said. Aberdeen’s Bishop agreed, saying more company officials tell him they plan to increase IT spending over the next six months. “We expect IT purchasing to gradually recover over the coming months and closely mirror the overall health of the economy,” Bishop said. According to an Aberdeen study last month, companies surveyed said they expected to increase IT spending by 3.7 percent over the next six months, compared to a similar study in February in which companies reported they planned to reduce such spending by nearly 2 percent. Butch Barksdale, president and CEO of Van Nuys-based IT service provider SIA Inc., said he expects the revenue jump to continue through to the end of the year. “The second quarter has always been strong for us, but more so this year, and it seems to be coming from the manufacturing sector,” Barksdale said. His 25-percent revenue jump during the second quarter was fueled by clients in manufacturing who may be readying to ramp up production, Barksdale said. Like other area IT firms, SIA also handles Web site development, hardware sales, computer network design and maintenance and software design. Such diversification helps the company survive economic downturns, Barksdale said. Srinivasan Ramaswamy, COO of Systech, said diversification has propelled his company’s recent upsurge in sales. “We’re not seeing a big jump in service, but in application development and in business intelligence (software),” Ramaswamy said of his company’s 30-percent sales increase over the same period last year. Systech Solutions has been on Inc. Magazine’s list of fastest-growing companies the last three years, with revenues last year topping $13 million. Aberdeen’s Bishop said IT spending could continue to climb through the end of the year, as prices for hardware software and bandwidth drop, further spurring IT sales.
