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Four analysts and top management from thirteen sector firms examine the IT Consulting & Systems Integration sector in this 67 - page IT Consulting & Systems Integration Issue from The Wall Street Transcript available at (212/952-7433) or http://www.twst.com/info/info600.htm

TWST: Chris, how is this downturn preparing IT services companies for the future?

Mr. Penny: In general, if you look at some of the smaller companies that grew rapidly in the 1990s, one fundamental thing they learned was that while there are ebbs and flows in any given year, the underlying growth of the industry is still relatively constant — let’s say 10%-15%. I think many of these companies realized that long, sustainable growth rates in the mid-20s are not possible. The example I use relates to company infrastructure. A lot of these companies grew their infrastructure (buildings, people, etc.) at 30%-50%, far surpassing the long-term growth rate. Of course, with the large amount of demand in the late 1990s, the annualized growth of the industry was near that level. However, when demand started to dry up, as it did going through 2000-2001, you had an infrastructure that couldn’t support that growth. When you’re growing at 30% plus and the underlying growth is only 10%, you’re left with a bloated infrastructure. A lot of these companies are going through very tough times right now, going through significant restructuring, letting go of people who are very good and finding themselves with too much office space, but only because they grew too fast for the industry in the late 1990s. I think that’s the one fundamental thing that a lot of these companies have learned.

TWST: Chris, what about state and local government? Can we anticipate that they will further the call for IT consulting?

Mr. Penny: I think the state and local governments are a little different right now than they were a year ago, because of the macroeconomic environment. A lot of the revenues that are generated at the state and local level depend on taxes. Therefore, with reduced spending, I think a lot of these states are starting to see a pullback in some of their budgets. In addition, you have about two-thirds of the states reelecting governors at the end of this year. As a result, we are not seeing the push on IT spending that we expected about a year or two ago. Having said that, I think a lot of states are realizing that, over time, a significant amount of cost controls and efficiencies can be realized by integrating technology such as seat-management outsourcing, like NMCI, which is what the State of Georgia is doing right now. WorldCom was one of the bids on this contract, but it’s an IT seat-management contract, very similar to the Navy/Marine Corps contract. Georgia realized that they need to spend money to save money. Right now, however, they’re fighting a battle with tax revenues. Some states that can do it are, while others are just taking a wait-and-see approach right now.

TWST: Chris, are there any names that may not be on your buy list today, but that you feel could prove promising for investors long term?

Mr. Penny: Everything’s worth something these days, and I would say that there are some worthwhile companies out there. S1 Corp. (NASDAQ:SONE) is a financial technology company that sells software and services into large, medium and small banks. It is trading right now at 0.5 times on an enterprise-to-revenue basis, and it has a lot of cash. It also has a relatively new management team that has refocused their strategy. We have seen several solid customer wins in the last couple of weeks on a relatively new software platform. It has a good balance sheet, a new management team in place and a new offering that will set it apart from the rest. Therefore, S1 is a company that can provide some long-term value for investors.

1) Special Focus - IT Consulting & Systems Integration Issue, In an in-depth (9,600 words) Analyst Roundtable, Cynthia Houlton, a Senior Analyst at RBC Capital Markets, Prakash Parthasarathy, a Senior Equity Research Analyst for Banc of America Securities, Christopher Penny, a Senior Analyst and Vice President in FBR & Co., examine the outlook for the sector and share specific stock recommendations.

2) Computer Services & IT Consulting - In an in-depth (3,300 words) Analyst Interview, Adam Frisch, an Executive Director at UBS Warburg, examines the outlook for the sector and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of ten - sector firms examine the outlook for their firm and the sector.