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Computer Service Companies: A Bankable Area of Technology

   

Makers of PCs, chips, software and Internet-related firms have enjoyed stellar growth in the last few years. But their sales and profit growth has been, to say the least volatile. Moreover, technological advancements can render strong competitors weak underdogs virtually overnight.

A safer way to invest in the computer industry is through service firms. Computer service firms store data for companies, create and customize software, provide technical support and other functions. While most big companies have their own computer systems departments, they often turn to outside computers service firms to handle these and other tasks. This is particularly the case in the last few years because of the relative shortage of skilled information technology professionals (have you checked out the want ads for computer programmers lately?). Techies gravitate to outside service firms because they perform cutting-edge work and get paid handsomely versus working in the back-office operations of industrial companies where they are often unappreciated.

The key to growth in revenue of service firms is their ability to created value-added products for their customers. For example, customers may want to query their off-site data bases for demographic and other information for their next marketing campaign. Firms can customize search approaches to allow end users to easily retrieve and manipulate this information. Without these value-added services, clients are likely to choose a firm with the lowest bid on a given project, rather than judge a firm by its level of quality.

Another key is the service firm's ability to buy competitors and bolster its market share. When this happens, the company can spread expensive personnel and other costs onto more projects, thereby increasing its profits.

Although computer service firms have relatively high price-to-earnings ratios, they are growing at extremely high levels. First Data, Medaphis, Reynolds, HNC Software and Keane all have solid grounding in this emerging field.

Bottom line: regardless of which hardware and software companies come to dominate the market, service firms will prosper because they can rapidly absorb changing technology and adapt it to clients needs..

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