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Blog posts by Rachael Stormonth

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  • When The Going Gets Tough, The Tough Spend On S&M

    Aug 28, 2014, by Rachael Stormonth

    When you look at the financial performance of the four largest Indian oriented IT service providers (IOSPs) over the last four years, it becomes evident that there is a direct correlation between the level of topline growth they achieve and their expenditure on sales and marketing (S&M)…with EBIT margins benefiting from the strong topline growth. Let’s look at a few data points[...]

  • Xerox's Loss is Accenture's Gain in Texas Medicaid

    Aug 22, 2014, by Rachael Stormonth

    In a case that has been unfolding for several years now, and which heated up in early May, Accenture on August 1 assumed responsibility for administering Medicaid claims in the state of Texas. Accenture’s first award as a state’s primary fiscal agent was announced in the wake of a dispute between Texas and  Xerox over its process for reviewing Medicaid dental c[...]

  • Cognizant Q2 2014 Results: Delivers on Revenues, Margins, But Share Price Falls on Reduced Guidance. Over-Reaction, We Feel

    Aug 06, 2014, by Rachael Stormonth

    So why has Cognizant’s share price taken such a battering today, after such strong topline growth (16.5%, at the mid-point of prior guidance) and a non-GAAP operating margin of 21%, above the company’s target range of 19% to 20%? (see here). Quite simply because of the revised revenue guidance for 2014 from growth of at least 16.5% to at least 14%. This is a huge[...]

  • HCL Q4 FY 2014 Results: IT Infrastructure Services, Europe Dominate Growth; Application Services Relatively Soft

    Aug 05, 2014, by Rachael Stormonth

    At first glance, its Q4 FY 2014 results look like another impressive quarter’s performance from HCL Technologies (HCL), with the strongest y/y topline growth since Q2 FY 12 (to 14/6%) and ongoing y/y margin improvement (to 24.1%). (See here for full details). Look more closely, however, and, while the performance is undoubtedly very strong, it tends to be concentrated in a few service lines [...]

  • European IT Services Majors Deliver on Margin Improvements in H1; H2 Margins Will Be Impacted by Consolidation

    Aug 05, 2014, by Rachael Stormonth

    The H1 results from the European majors Atos, Capgemini, Sopra, all France-headquartered, are now in - also those of Sopra, about to merge with Steria. So what does this tell us, about the progress of these firms and the state of the European market and what should we expect in H2 2014? The average constant currency revenue growth experienced by these firms in H1 2014 was 1.4% with Steria and S[...]

  • Xerox Services Q2 Results: Further Problems in Government Healthcare Business, but Beginning to Grapple With Margins

    Jul 25, 2014, by Rachael Stormonth

    Xerox Services has had a challenging half year: In Q1 it announced it was taking an impairment charge ($80m for the year) related to HIX platform impairment (see here for discussion). In Q2 it lost the Texas Medicaid contract. The impact of this is significant (around 1.5% of revenues): Q2 2014 Services contract renewal rate was 63%, well below the company’s target range of 85% to 90[...]

  • Wipro Q1 FY 2015 Results: Good in Parts....

    Jul 24, 2014, by Rachael Stormonth

    Wipro announced its Q1 FY 2015 results today (for full details see here:). Bit of a mixed bag from Wipro this quarter, generally positive, but with a few areas where we would hope to see improve over the next few quarters. Looking at overall topline performance, revenues were towards the higher end of prior guidance of $1,715m-$1,755m, and the 9.6% reported y/y growth was[...]

  • TCS: "Big, Broad, and Bold"

    Jul 18, 2014, by Rachael Stormonth

    In case anyone has missed the phenomenon that is TCS, it has achieved over 16% y/y growth in four of the last five quarters (with “just” 15.3% in the fifth). This quarter, it reported a y/y increase of nearly $530m in revenue. If TCS continues at this pace – and management commentary is of a strong pipeline – then revenues this fiscal year should be around $15.5bn. TCS has [...]

  • Infosys' Last Quarterly Results Before Arrival of New CEO: Any Surprises?

    Jul 11, 2014, by Rachael Stormonth

    What do Infosys’ Q1 FY 2015 results indicate about its current performance and its general health as a new CEO arrives? (a full breakdown of the results are available here) Revenue growth of 7.1% was in the 7% to 9% guided range for the full year, albeit at the low end. This was the third quarter in a row of decelerating growth, in both reported and constant currency gro[...]

  • Serco: More Bad News, But Beginning to Grasp the Nettles

    Jul 08, 2014, by Rachael Stormonth

    Last week Serco Group provided an update on its H1 2014, at the start of its close period before the results on August 12, 2014. Overall performance is in line with the guidance for H1 2014 given in the market update two months ago, of Adjusted revenue of ~£2.4bn, broadly flat y/y on an organic basis A significant y/y decline in margins, with an improvement expected in H2. [...]

  • HP Enterprise Services: Getting into its Stride in EMEA

    Jul 07, 2014, by Rachael Stormonth

    In March, after attending HP’s annual analyst event in Boston, we wrote a short piece on how HP Enterprise Services is building its “Advise, Transform, Manage” Positioning (see: Last week, we attended the HP EMEA analyst event in London, where the key theme was the “One HP” approach to market. NelsonHall’s interest is HP’s Ent[...]

  • What Does its Selection of CEO Indicate for Infosys?

    Jun 13, 2014, by Rachael Stormonth

    Yesterday, Infosys ended a period of speculation and announced it had appointed its next CEO and MD, Dr. Vishal Sikka, who had resigned early last month from SAP, where he was a former board member.  Dr. Sikka’s selection as Infosys' next CEO had been touted by the Indian press soon after the news of the resignation of BG Srinivas, who many had felt had been one of the two top [...]

  • CGI: Good Progress on Logica Integration, Now Focusing on Transformation... Where Next?

    May 30, 2014, by Rachael Stormonth

    NelsonHall recently attended CGI’s global analyst event in London. The key messages in CEO Michael E Roach’s keynote were the success with which CGI is executing on its "Buy and Build" profitable growth strategy and that the expected benefits of the merger are now becoming more visible. At the same event last year, CGI indicated some of the measures it was applying to impr[...]

  • IBM Launches IBM Cloud Business Solutions, Led by GBS

    May 29, 2014, by Rachael Stormonth

    IBM announced today a new portfolio of cloud-based offerings called IBM Cloud Business Solutions. Now the last three words don’t in themselves give away too much as to exactly what is on offer - but IBM is taking assets from across IBM Group, including consulting services from GBS, pre-built assets from IBM Research, IBM software, advanced analytics, and cloud infrastructure delivered v[...]

  • Uplifting Service: How NIIT Technologies is Positioning for Growth

    May 23, 2014, by Rachael Stormonth

    NelsonHall recently attended a NIIT analyst and advisor event in London. If we compare NIIT’s recent topline performance with some other IT services providers who report in Rupees, its revenue growth in FY 2014 of 14%  (to Rs. 23,050m, or just below $400m)  is on a par with Wipro (16%) and Hexaware (17%: of a similar size to NIIT, with Rs. 22,853m revenue in CY 2013), and far ou[...]

  • NTT DATA Inc: at the Forefront of the "One NTT DATA" Initiative; Looking for Further Expansion

    May 02, 2014, by Rachael Stormonth

    NTT DATA Moves Away from Holding Company Approach to Be More Region-Centric as it Pursues International Growth NTT DATA Inc. recently held its first ever analyst day in Boston. For those readers who may not be fully up to date of where NTT DATA Inc. fits into the NTT DATA organization: NTT DATA Inc. is the North American subsidiary of Japanese-headquartered NTT DATA, the largest IT services [...]

  • Xerox Services Margins Take Big Hit: Problems at Nevada the Main Culprit

    Apr 23, 2014, by Rachael Stormonth

    Let's start with some positive takeaways about the performance of Xerox Services in Q1: The commercial healthcare BPO business experienced “strong” revenue growth and margin improvement ITO revenue was up 4.4% y/y and also saw margin improvement Document outsourcing was up 0.8%. Overall BPO revenue declined 1.9%, impacted by the runoff of the student loan contra[...]

  • TCS Makes Timely Move for Rapid Growth in Japan

    Apr 21, 2014, by Rachael Stormonth

    TCS has announced that it has signed an agreement with Mitsubishi Corporation (MC) to merge TCS Japan, IT Frontier Corporation (ITF), MC’s 100% owned IT subsidiary, and Nippon TCS Solution Center (NTSC) as a single new entity in which TCS will have a majority 51% stake and MC 49%. The transaction is expected to close by end June 2014. The new entity will have over local 2,400 employe[...]

  • TCS Looks to FY 2015 with Confidence, Infosys Still on Multi-Year Journey: Some Key Differences

    Apr 17, 2014, by Rachael Stormonth

    TCS and Infosys have both now reported their Q4 and full FY 2014 results. A quick look at their respective revenue numbers (not to mention margins, utilization and attrition rates) highlights very significant difference in performance across geographies, service lines and industries, with TCS surging ahead across the board, in many of them at a level that is simply breath-taking.  [...]

  • Atos Managed Services: Strong Progress on Margin Improvement; Further Acquisition Will Be the Key to Future Growth

    Apr 03, 2014, by Rachael Stormonth

    NelsonHall recently attended an Atos analyst summit which provided a follow-up to the 2014-6 three-year plan first outlined last November (see our blog “Atos Unveils 2016 Financial Objectives”). As a reminder, the financial targets for IT services are: 2014-2016 CAGR of 5% with half of this growth to come from acquisition A 100 to 200 bps improvement in adjusted operating margi[...]