It is a new age of uncertainty in which many of us are living, no matter where we make that living, it seems. The current recession has acted like an oppressive bogeyman, swooping down on all fields of endeavour and creating havoc in its wake. And it also appears that no industry is immune, including the tech sector; witness the massive number of layoff notices issued this past winter by the once-invisible Microsoft (NASDAQ: MSFT, StockForum).
But things have not been so dire in Silicon Valley that companies providing Information Technology (IT) cannot prosper. Indeed, the bottom lines of many companies have become so obsessed with efficiencies and saving money that they have sent their in-house IT departments packing and instead gone to third-party companies.
According to a recent Info-Tech Research Group report, about two-thirds of companies surveyed outsource at least a portion of their IT infrastructure. And it's no wonder: Handing over activities such as e-mail, Web hosting, network management and service desk to a third-party provider can minimize internal headaches and maximize an IT department’s ability to focus on core competencies.
Many nonprofits do not have the resources to hire an IT staff person to support, maintain and plan all of the organization’s technology infrastructure needs. Those with dedicated staff often find their technology needs become greater than their staff can handle, particularly when they upgrade to a new system. Hence, outsourcing seems a practical solution.
So, even in tough times, there is still money to be made in the telecommunications services: the global market for such services tops $3.9 trillion, with telecom infrastructure services boasting a market of $70 trillion.
Silicon Valley-based Sun Microsystems (NASDAQ: JAVA, Stock Forum) has been among the heavyweights of infrastructure providers. Specializing at first in computers servers and workstations, Sun has been the mover of such software products like the Solaris Operating System, developer tools, Web infrastructure software, and identity management applications. Other technologies of note include the Java platform, which the company considers its crown jewel.
But JAVA, too, has shown signs of tottering. First-quarter losses in 2008 were $1.68 billion; revenue fell 7% to $2.99 billion. Sun’s stock lost 80% of its value November 2007 to November 2008, reducing the company’s market value to $3 billion. With falling sales to large corporate clients, Sun announced plans to lay off 5,000 to 6,000 workers, or 15-18% of its workforce.
Sun was in the headlines over the winter of discontent for reasons it would prefer not to; a proposed takeover bid by IBM (NYSE: IBM, Stock Forum) fell through in early April. The deal, allegedly worth $7 billion, was taken off the table when “Big Blue” reduced the price from $9.55 a share to $9.40, and Sun’s board turned thumbs down. Those antsy board members did not have to wait long for another suitor, for only a week or so later, Sun did agree to another bid by Larry Ellison’s Oracle Corporation (NASDAQ: ORCL, Stock Forum) for $7.4 billion. Whether the merger proves the remedy for Sun’s misfortunes remains to be seen.
To the penny-stock end of the pole, a smaller company engaged in much the same work – and perhaps going about things much more efficiently – is Beacon Enterprise Solutions Group (OTC:BB: BEAC, Stock Forum). Incorporated since 1997, Beacon offers end-to-end solutions for its business clients, whether architecting a powerful website and e-commerce store, installing an enterprise-size network, integrating existing technologies with the Web or designing a corporate knowledge base. The array of services includes Web integration, application software design and development, IT consulting and outsourcing, data conversion, and progressive programming support programs.
By outsourcing network infrastructure management enterprise customers can realize immediate and significant reductions in their network expenditures. And, with more firms opting to go that route in this volatile market, more new sales and revenue opportunities are opening up for this company, based out of Louisville, Kentucky, with other facilities in Ohio and India.
BEAC was in the news last week by its announcement of a major contract with one of the country’s major grocery retail chains. Under the terms of the contract, the number of stores is nearing 50, and should generate significant new revenue, above and beyond the $1 million from store orders announced the previous week. Earlier this week, BEAC announced a contract with American Municipal Power-Ohio, to provide all network design and engineering services for its new headquarters facility in Columbus. Despite its name, AMP-Ohio is not limited to the Buckeye State, providing wholesale power and services for 126 member municipal electric systems in Ohio, Pennsylvania, Michigan, Virginia, Kentucky and West Virginia. The potential revenue stream for BEAC is huge.
When the economy was going dark, Beacon stood out like, well, a beacon, hitting the heights of $1.52 a share the week before Christmas, plumbing a low of 30 cents in March when stocks were tanking all over the place. The stocks closed trading on May 1 around 83 cents a share, still within range of many small-cap investors, and not so close to… the Sun!