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iXL: Shareholders Are Now the Most Important Client

In the past few months, it has been a nightmare for e-consulting companies. The problems? Well, there is intense competition; there is difficulty finding talented employees; and, of course, dot-com companies have been rapidly running out of money.

As a result, the valuations of e-consulting companies have been thrashed. One of the hardest hit has been iXL . Yesterday, the company announced that its third quarter would show a 15 to 20 percent fall from the past quarter; there would also be a net loss. The stock price fell $1-3/8 to $7. The high for the year was $58-3/4.

True, while dot-coms have been cutting back on consulting services, the Fortune 500 companies have been spending more. Isn't this good for the e-consultants? Not necessarily. Fortune 500 companies tend to rely on top-tier management consulting firms, such as KPMG International, Arthur Andersen and PricewaterhouseCoopers.

Despite this, I think there is opportunity for e-consulting. The fact is that top-tier management consulting firms need to hire lots of personnel to manage their projects. So why not buy e-consulting companies? With valuations much lower, consolidation seems imminent. And I think iXL is a great candidate.

Like most other e-consultants, iXL is not a company with a major burn rate. Actually, in the company's latest report, iXL had $119 million in revenues and $3.4 million in profits. The company has such clients as Delta Air, Chase Manhattan Bank, Cox Enterprises and WebMD. A typical project ranges from $250,000 to $1 million.

The company announced that it has launched a restructuring, as it focuses on traditional clients. What's more, the company now has a new CEO and there will be a focus on cost cutting. The transition will probably take a few quarters, but it should be worth the wait.