Y2K Countdown!
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Sector Snapshot
Y2K Countdown! |
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Introduction
Analysts International Corporation ____________________ |
The event horizon of a black hole is its boundary; anything passing through this boundary is on a one way journey to a region of infinite density and the end of time. Somewhat less spectacular is the "event horizon" referred to in Y2K circles. This industry definition refers to the future event that forces organizations to begin fixing the "Year 2000 problem." Both definitions carry the implication of a "point of no return." While one definition sits squarely within the realm of theoretical physics, the other is of more immediate and practical concern. The Year 2000 Problem. What is the exact nature of this problem that has industry analysts expectantly awaiting the arrival of a $200 billion industry?
After December 31, 1999, computers won't know As prominent industry analyst Peter de Jager notes, the initial response to this statement of the problem is, "You've got to be kidding!" The Unraveling of History Imagine that you are speaking on the phone with relatives on the eve of December 31, 1999, chatting excitedly about the dawn of a new millennium. You toast the new year and continue your conversation on into the year 2000. Your response when you get your bill might be, "Aunt Clara can be pretty long-winded but gee, there must be some mistake." The phone company says that you had a conversation that was 52 million minutes long! Computers live in a world of no irony, no double meanings, just strict interpretation of what is given. The day that we can design a computer that interprets data like this: "Hey Bob I know that you really meant to put an upper-case 'w' when you entered your password, I'll go ahead and log you onto the system anyway," is the day that the "human function" will no longer be needed. In the early 1960s, data entry was extremely labor intensive and storage devices were costly. Storing, entering, displaying and retrieving data was always beholden to efficiency. Date representations were entered and stored as six-digit fields. The day and month were recorded with specificity, but the rendering of the century digits was ambiguous. Let's look at a typical age calculation to elucidate the problem with the phone bill. Current Date Birth Date Calculated Age 03/07/99 03/07/71 28 03/07/00 03/07/71 -71, 71, or Error! Of course, if an eight digit format had been used, where the century was defined in terms of its full four digit value, then you would not be reading this sector snapshot. As can be seen from the phone bill example, assuming the problem was not rectified in time, the phone company's computers might turn your hour-long call into the call of the century (60 minutes * 24 hours * 365 days * 99 years)! Possible Solutions One intuitive solution to this problem is to just "add two more digits." However, this and other more complex solutions all run into the same barrier with regard to implementation. Programmers can't be sure of the exact location of these dates in the code that's been written. It has been estimated that the typical company with this kind of problem has amassed more than 100 million lines of code. Here is the staggering nature of the problem: If you spent just one second on each line of code and labored for eight hours a day, 5 days a week, it would take you 13 years to look at all your code! It would take 13 people one year, and 156 people one month. The most important consideration, of course, is that there is a concrete deadline, and it's not the year 2000! The goal is to search through all the code, find all of the unknown number of errors, and implement a new system by December 31, 1998. Yes 1998, not 1999, because all the changes that have been made to the various applications need to be tested for an entire fiscal year. Here is a rundown of the options that companies face with regard to this problem: Repair - This invariably requires less time to implement and is less risky due to the fact that the working code is left in place. As mentioned previously, the downside to this solution is that some bad dates may have been missed and testing is more difficult. In addition, the company has to weigh the opportunity cost of implementing a new system with improved workflows as opposed to just "catching-up" and restoring the old system to health. Contract programming companies that supply the labor would benefit from the repair solution as well as software vendors engaging in Year 2000 contracts. Replace - Changing over to a new system is extremely risky considering the limited time frame, but this is easier to sell to management due to the potential strategic business advantages that a new system could bring. The costs may be the same as repair. Package vendors and large-scale integrators would be the primary beneficiaries in the event of widespread adoption of this solution. Outsource - With growing legions of corporate America bent on proselytizing and spreading the gospel of "core business focus," many companies that may have never considered outsourcing are presently doing so. Engaging in Year 2000 contracts removes many of the headaches associated with compliance, but suffers from the loss of control inherent in the transfer. Large integrators would benefit most from the adoption of this solution. Read on about the types of companies involved and valuation issues. -Alex Schay (MF Nexus 6) |
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Cash/Share: A measure of how much cash per share a company currently has. Current: The Current Ratio is a measure of liquidity. You just take the Current Assets and divide by the Current Liabilities. Ideally, this is 1.0 or greater in financially strong companies. DSO: Days Sales Outstanding measures the company's control on receivables. A company whose DSO is 50 takes 50 days to collect accounts receivable. Smaller numbers mean the company can use that money---a good thing. The figures herein use fiscal year receivable figures. EV/SR: The Enterprise Value/Sales Ratio is a better indicator than the PSR of the true value of a company. Where the PSR uses the company's market cap for the numerator, EV/SR looks at the Enterprise value. Both ratios use the denominator of trailing revenues. To get the company's enterprise value take the market cap (share price times shares outstanding), add the long term debt, and then subtract the cash and cash equivalents. GM: Gross margin, a measure of what percentage of each dollar of sales they get to keep after paying for the costs of manufacturing it. Market Cap = Market Capitalization. This is the number of shares outstanding times the current share price. Essentially, this is what the company is currently on sale for -- or at least what someone who acquired the company would have to pay. PEG: Price/Earnings Ratio over earnings per share (EPS) Growth Rate. This is a Foolish valuation that is also known as the Fool Ratio. It is detailed in our PEG area in Stock Research (Fool Main Screen --> Stock Research --> The Fool Ratio). Essentially, this is a short-hand for how underpriced or overpriced a stock is given the assumption that the Price/Earnings ratio should equal the rate of EPS growth. P/E: The Price/Earnings Ratio, this essentially gives you a ratio of how much you are paying for a dollar of earnings, allowing you to compare a stock to its peers on an apples to apples basis. PSR or P/S: The Price/Sales Ratio, this is derived from dividing the current market capitalization of the company by the last four quarters trailing revenues. This gives a guide to how a company is valued relative to its peers when it does not have earnings to currently compare. PM: Profit margin, a measure of what percentage of each dollar of sales a company gets to keep after paying for everything. RS: Relative Strength, a measure of how well the stock has performed relative to the market over the past two years. Scored on a scale of 1 to 99 with 99 being the best. Surprise: This ratio represents the latest quarter's EPS divided by the EPS that had been estimated. So, a 6% surprise simply means that EPS were 6% greater than expectations. WC/MC: Working capital is the difference between current assets and current liabilities. This is a measure of what percentage of the market cap is currently found in the working capital, signaling value. (WC-I)/MMC: Working Capital minus the Inventory divided by the Modified Market Cap. (Modified Market Cap. is the Market Cap. plus the company's long-term debt.) This ratio measures the working capital that's not tied up in inventory relative to its current market value. This is a measure of the working capital that can be used to growing the business. The inventory is subtracted from the working capital because in this industry the liquidation value of the inventory is lower than what the FIFO or LIFO value would indicate. YPEG: The Year-ahead PEG, this guy is also detailed in our PEG area in Stock Research (Fool Main Screen --> Stock Research --> The Fool Ratio). Essentially, this is a short-hand for how underpriced or overpriced a stock is given the assumption that the Price/Earnings ratio should equal the estimated long-term growth rate.e. |
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The sheer amount of computer code coupled with the complex interdependence of modern systems (in exchanging data), presents a formidable challenge to information technology managers confronting the Year 2000 problem. A recent survey conducted by OLSTEN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %>, a staffing services company, found that only 28% of companies had begun correcting the anticipated problems, and 34% were still in the planning phase. A common misconception is that the Year 2000 problem is confined to old legacy mainframe applications written in COBOL. The problem is just as prevalent in client/server applications. The bottom line is that one non-compliant date can corrupt an organization's entire network if it is passed on. In addition, existing outsourcing arrangements were not written to cover the full scope of the problem. Broadly speaking, here are the types of companies involved in the Year 2000 problem. Large System Integrators - These massive companies benefit from a large existing base of clients and are also the beneficiaries of most outsourcing arrangements. The integrators will manage the planning and assessment phase while subcontracting much of the technical millenium work to software firms and contact programmers. Software Companies - The development of specialized automated toolsets for doing some of the heavy lifting that's needed when plowing through code are designed by specialty software companies. As mentioned previously, there simply is not enough time for a small team to do the job "manually." Contract Programmers - These are the few pure play companies in the Y2K domain. They are invariably small- to mid-sized, providing highly focused manpower and solutions. The essential element that determines the success or failure of these companies is their ability to hire older, skilled programmers and experienced project managers. The Year 2000 problem has received extensive media coverage over the last year. This has prompted quite a rise in Year 2000 company stocks. Much of the future expectations for the group have already been built into existing stock prices. Their ability to outperform will be predicated upon growth in service contracts as well as a gradual rise in margins as we approach the year 2000. -Alex Schay (MF Nexus 6) |
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Analysts International Corporation The Company & Latest Financials Analysts International Corporation is engaged in the software segment of the computer industry. Within this segment, the company is engaged in the business of providing contract programming and related software services through its branch and field offices. Servicers are provide primarily to users and manufacturers of computers. Software services offered by the company include consulting, project management, systems analysis and design, programming, software maintenance and training. Computers and computer equipment utilize software of two types: systems software and applications software. Systems software, which includes operating systems software and utility software, manages the input, flow, storage and output of data and performs related housekeeping functions within the computer. Applications software performs the specific tasks required by the computer user; for example, programs which create invoices or which create records of accounts receivables are applications programs. Analysts International Corp reported net income of $3,905,000, equal to 26 cents per share, for the second quarter ended Dec. 31, 1996, an increase of 35 percent from $2,882,000, or 19 cents per share, in the second quarter last year. Revenues were $101,847,000, up 29 percent from the $78,786,000 reported last year. For the six months ended Dec. 31, 1996, the company reported net income of $7,773,000, equal to 52 cents per share, compared with $5,691,000 or 38 cents per share, in the first half last year. Revenues were $199,869,000, compared with last year's $151,857,000, an increase of 32 percent. |
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The Company & Recent Financials CIBER is a nationwide provider of information technology consulting services. The company offers services to its clients in three principal areas: information technology services, package software implementation services and millennium date conversion services. The CIBER Information Services division provides application software staff supplementation, system life-cycle project responsibility and other computer-related professional services. CIS historically represented the core of the company's business. Package software implementation services are provided by the company's wholly-owned subsidiary, Business Information Technology which assists clients in understanding and implementing new human resource and financial application software for client/server systems. CIBER reported record revenues and earnings today for its second fiscal 1997 quarter, ended December 31, 1996. Revenues for the quarter were $59,720,000, an increase of 39% over revenues for the quarter ended December 31, 1995 of $43,066,000. Pro forma net income for the quarter, excluding one-time merger costs, was $3,405,000 or $.17 per share. After merger costs, pro forma net income for the December 1996 quarter increased to $2,809,000 or $.14 per share compared to $1,979,000 or $.10 per share for the same quarter of fiscal 1996. Revenues for the six months ended December 31, 1996 were $113,750,000, an increase of 34% over revenues for the same period ended December 31, 1995 of $85,009,000. Pro forma net income for the six months, excluding one-time merger costs, was $6,709,000 or $.34 per share. After merger costs, pro forma net income for the six months ended December 31, 1996 increased to $5,491,000 or $.28 per share compared to $3,942,000 or $.21 per share for the same period of fiscal 1996. |
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Computer Horiozons Corporation The Company & Recent Financials The company provides a wide range of information technology services and solutions to major corporations. Historically, a professional services staffing firm, the company has, over the past five years, developed the technological and managerial infrastructure to offer its clients value added services including CHC's Signature 2000(TM) solution for the millennium change, client/server systems development and migration, enterprise network management, outsourcing and offshore software development and maintenance. The company markets solutions to both existing and potential clients with the objective of becoming one of such clients' preferred providers of comprehensive information technology services and solutions. Annual revenues advanced by 17% in 1996 to $233,858,000 from $200,050,000 a year ago. Net income increased by 13%, $11,232,000 compared to $9,907,000 in 1995. Earnings per share improved to $.66 from $.64 in 1995. Average shares outstanding increased to 17.0 million in 1996, from 15.6 million a year ago, the result of a mid-1995 equity offering. For the fourth quarter ended December 31, 1996, revenues were $63,520,000, a 13% increase over the prior year. Net income totaled $3,159,000 in comparison to $3,256,000 last year. Earnings per share were $.19 in the fourth quarter compared to $.20 in 1995. |
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The Company & Latest Financials CSC offers a broad array of professional services to industry and government and specializes in the application of adavnced IT solutions in order to fulfill client demands. CSC's services include: Outsourcing, operating all or part of a client's IT infrastructure; Systems Integration, designing and developing, implementing and integrating complete information systems; and Managment Consulting. CSC's revenue for the quarter rose to $1.42 billion, up 15.0% from the $1.24 billion for the third quarter of last year. Earnings for the quarter were $57.4 million, compared with $45.7 million for the year-ago quarter, prior to the after-tax $26 million special charge related to the SOCS acquisition by Continuum in that quarter. As a percentage of revenue, earnings before the special charge improved to 4.0% for the quarter, up from 3.7% for the same quarter last year. Earnings for the first nine months of this fiscal year were $152.0 million, prior to a special non-recurring after-tax charge of $35.3 million related to CSC's second quarter acquisition of Continuum.This represents an increase of 25.3% compared with the $121.2 million for the first nine months of last year, again prior to the special charge related to the SOCS acquisition discussed above. Revenue for the nine months was $4.08 billion, up 18.3% from the $3.45 billion for the prior year period. Earnings as a percentage of revenue for the nine months rose to 3.7% from 3.5% last year, excluding the special charges. |
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The Company & Latest Financials Data Dimensions provides high quality knowledge-based and tool-assisted millennium consulting services. The company's millennium consulting services are based on its proprietary "millennium consulting methodology" also referred to as the "Millennium Methodology." This methodology consists of a documented set of procedures for resolving the widespread problems caused by the inability of certain computer systems to properly interpret dates for the year 2000 and beyond. Data Dimensions began providing millennium consulting services in 1991 and has specialized in this service since 1993. The company's clients consist primarily of large business organizations, including insurance companies, financial institutions, healthcare providers and public utilities. Data Dimensions announced that revenues for the year ended December 31, 1996, were at an all time high of $14,835,000, an increase of 138% from $6,232,000 in the same period in 1995. The Company reported a 25.6% gain in net income to a record $947,000, or $0.27 per share (on weighted average shares of 3,563,000), from $754,000, or $0.30 per share (on weighted average shares of 2,517,000) in the comparable 1995 period. Gross margin for 1996 was $6,644,000, compared to $2,747,000 in 1995, an increase of $3,897,000, or 142%. |
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The Company & Recent Financials Keane provides software design, development, integration and management services for corporations and healthcare facilities. Keane's services and methodologies enable companies to leverage their existing information systems ("IS") capability and more rapidly and cost-effectively develop and manage mission-critical software applications. The company serves its clients through two operating divisions: the Information Services Division and the Healthcare Services Division. The company provides services primarily to Fortune 1,000 companies, including AT&T Corporation, Eastman Kodak Company, General Electric Company, International Business Machines Corporation, McDonald's Corporation and Procter & Gamble Company. Keane Inc reported revenues and earnings today for the Fourth Quarter and Fiscal Year ending December 31, 1996. Revenues for 1996 were $467,090,000, up 22 percent as compared to $382,739,000 for 1995. Net income for 1996 was $25,358,000, up 32 percent from $19,257,000 a year ago. Earnings per share for 1996 was $.76 on 33,226,618 shares as compared to $.59* on 32,695,506* in 1995. Revenues for the Fourth Quarter of 1996 rose to $127,354,000, up 26 percent from the comparable period in 1995. Net income for the Fourth Quarter was $7,035,000, up 86 percent versus $3,788,000 a year ago. Earnings per share for the Fourth Quarter were $.21 on 33,458,174 shares as compared to $.12 on 32,821,714 shares in the comparable period in 1995. |
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The Company & Latest Financials Since inception Platinum Technology has pursued an aggressive acquisition strategy with the goal of becoming the leading enterprise software company by the year 2000. Just recently becoming profitable the company offers enterprise infrastructure software products through five business units: systems management, database management, application lifecycle, business intelligence and data warehouse. The company is now leveraging the breadth of its product lines and its professional service capabilities, and is devoting substantial resources to integrate its products and technologies, to provide complete, customized solutions for enterprise infrastructure problems. These solutions range from a single product to a set of integrated products from multiple business units bundled into a product suite, along with design and implementation services provided by the company's consulting staff. These solutions also include ongoing product upgrades, maintenance and support, sometimes pursuant to multi-year contracts. Platinum Technology announced record revenue growth resulting in the largest quarterly revenue in its history for the third consecutive quarter. Revenues increased 46 percent during the fourth quarter of 1996 over the fourth quarter of 1995, climbing to $142.8 million from $98.0 million. Net operating income for the quarter, excluding the effect of charges for acquired in-process technology, was $7.4 million, or 13 cents per share, compared with net operating income of $1.2 million, or 2 cents per share in the fourth quarter of 1995. After-tax charges of $37.4 million or 66 cents per share, for merger costs and acquired in-process technology brought the net loss for the fourth quarter of 1996 to $30.0 million, or 53 cents per share. Revenues for the year ended December 31, 1996, were $439.2 million, an increase of 44 percent over 1995 revenues of $304.7 million. Net loss for the year ended December 31, 1996, excluding the effect of merger costs and charges for acquired in-process technology, was $15.2 million, or 27 cents per share. The net loss for the year ended December 31, 1996, was $68.0 million, or $1.22 per share, including the after-tax charges of $52.8 million, or 95 cents per share, for merger costs and acquired in-process technology. |
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The Company & Recent Financials VIASOFT provides business solutions designed to help Fortune 1000 and similarly sized organizations worldwide understand, manage and evolve the software applications that run their businesses. These solutions consist of a highly integrated suite of software products and specialized professional consulting services. All of the Company's business solutions are based on VIASOFT's proprietary technology, the Existing Systems Workbench, an integrated suite of software development tools. ESW, which is also the company's primary software product line, supports the IBM MVS operating system, providing a broad spectrum of technology for use on mainframe computers. VIASOFT's business solutions include VIASOFT's Insourcing for reducing costs and improving the productivity of managing enterprise applications, VIASOFT's Enterprise 2000 for solving the year 2000 problem, and VIASOFT's Legacy Transitions for reusing and evolving enterprise applications for new initiatives. The company posted second quarter and year-to-date revenues of $19.8 million and $33.8 million, increases from the previous year of 93 percent and 81 percent, respectively. Net income, excluding acquisition related charges, increased 69 percent to $2.8 million, or 15 cents per share in the second quarter of fiscal 1997, from $1.6 million, or 10 cents per share for the comparable quarter a year ago. The weighted average number of common stock and equivalent shares outstanding were 17,961,000 and 17,092,000, for the quarters ended Dec. 31, 1996 and 1995, respectively. |
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