Back in October, things looked good for Datalink
Datalink provides high-end consulting services for implanting storage technologies, working with providers such as EMC
In the first-quarter earnings Datalink reported last week, revenue increased 19% year over year and 6% sequentially, to $40.9 million. However, those sales still resulted in a net loss of $719,000 or $0.06 per share, compared to net income of $833,000, or $0.08 per share, in the year-ago period. Unfortunately, the Street expected the company to be profitable, and its displeasure sent shares plunging 21%.
Perhaps Datalink lost focus with the integration of its $14 million acquisition of Midrange Computer Solutions (MCSI). It wasn't necessarily a bad deal -- the two companies have little overlap in terms of customers and partnerships, and Datalink picked up a talented group of consultants in the process. But Datalink hasn't acquired another company since 2000, so the company's dealmaking talents may be rusty. Cultural differences can also make it particularly tricky to mesh service organizations.
All of this helps to explain why management thinks the company won't start to benefit from the acquisition until the second half of 2007. Even though the stock is much cheaper now, prospective investors are probably still better off taking a wait-and-see approach.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,784 out of 28,166 in CAPS. Symantec is a Motley Fool Inside Value pick. The Fool has a disclosure policy.