In a surprise transaction, Office Depot announced the acquisition of U.S.-based CompuCom, an end-user computer specialist. The price is significant: ~$1bn, including $750m in cash and 45m shares of Office Depot, with the seller, PE Thomas H. Lee Partners, owning 8% of the share of Office Depot. Despite revenues of $10.6bn, Office Depot has a market cap of just ~$2bn.
With the acquisition, Office Depot expects to add $1bn in annual revenue and deliver $40m in cost savings within two years. The real value is deemed to be in projected longer-term revenue synergies.
Founded in 1987, CompuCom has historically specialized in break-fix services, with 6k of its 11.5k employees being field technicians. The company services around 5.15m users (6.4m desktop/laptops and 1m mobile devices), across 57k locations. 2016 revenues were $1,086m, with an EBITDA margin of 6.4%.
CompuCom also leads (with Getronics) the Global Workspace Alliance (GWA), an alliance of several IT providers, offering workspace services including field and remote services in over 90 countries globally. Key GWA capabilities include 38,000 employees, 9.9m serviced PCs, and 6m users supported onsite.
Having sold its European operations, Office Depot is focusing on North America. After its failed merger with Staples last year, the company has a new CEO, Gerry Smith, who joined from Lenovo earlier this year. Although a program of store closures continues, and revenues on a like-for-like basis continue to decline in mid-single digits, he has secured a number of significant senior leadership appointments, including Janet Schijns (who left Verizon somewhat unexpectedly in July to head Office Depot’s services division), and a new CMO, Jerri Devard, who left ADT Corp. It is now evident that these appointments were part of a broad strategic transformation plan to evolve Office Depot’s positioning from being seen primarily as a retailer to a company that provides integrated technology services to the SMB market. Gerry Smith, in an interview with the Wall Street Journal mentioned “our goal is to grow the services piece faster. This is a necessary pivot for us to be a highly valued company in the future.”
The acquisition of CompuCom puts tech support/field services back into the spotlight, a capability that has largely been divested by most IT infrastructure management services giants, the latest example of this being the divestment by Atos in 2016 of its field services in the U.S. and France. Given the competitive nature of field service tech support, most activity is now done by small to mid-sized specialist firms. It is not yet clear how Office Depot will bring innovation to this service with Compucom.
The big advantage that Office Depot will have is its ability to cross-sell CompuCom’s desktop support services through its network of 1.4k stores across the U.S. and its concept of the “business center”. Having a local physical presence for break-fix (and also replacement) services continues to be an attractive proposition. The company believes Compucom can potentially access 6m SMBs that are located within three miles of its stores. The potential is therefore significant.
But this will not be easy. CompuCom has targeted mid-sized businesses to large enterprises; its Tech-Zone offering for small businesses is not a major part of its business. Servicing SMBs brings a set of specific challenges, requiring, inter alia, very standardized services, extremely efficient delivery, and (particularly difficult to achieve), a strong channel strategy: both Smith and Schijns have great expertise in the latter.
Office Depot looking to be a consolidator
Office Depot’s press release emphasized this is a first step in its transformation to a technology services company. It claims that CompuCom has a 3% share of the North American EUCS market, and is the second largest vendor therein. More acquisitions are likely. As well as field services, capabilities of interest are likely to include security and mobility.
By Dominique Raviart and Rachael Stormonth
We recently talked to HPE Technology Services (TS) about its recent Pointnext branding campaign. Despite the divestment of its Enterprise Services unit, HPE has retained very significant IT services capabilities, provided through Pointnext. Technology Services is a sizable unit with FY16 revenues of ~$7.9bn (for the period ending 31 October 2016), and has a headcount of 25k across 80 countries.
It would be tempting to view Pointnext as the product-related services arm of HPE, providing mostly support and IT consulting services, all within the context of product “attach” sales (i.e. service sales tied to hardware sales). And indeed, product support (and the attach sales model) remains a key element of the services provided by Pointnext, with IT consulting services providing a small part of the overall revenue.
Nevertheless, the services portfolio under the Pointnext brand is broader than product support and consulting capability. Pointnext wants to accompany the full project lifecycle: capabilities include consulting services, professional services, and run services (“operational” services). So how will Pointnext rebalance its service portfolio mix away from support? HPE won’t say but we assume consulting (directly) and professional services (both directly and with the help of the indirect channel/VARs) are a priority.
With the Pointnext brand launch, the business has also had a portfolio refresh on the digital transformation theme, largely around IT infrastructure, in areas including cloud computing (application modernization and cloud migration) and hybrid cloud (“hybrid IT”), big data and analytics, IoT edge devices (“Intelligent Edge”), and IoT.
With its refresh around digital transformation, Pointnext is counting on HPE’s own hardware and software portfolio transformation. It is also investing in expanding its portfolio – e.g. in advisory services (emphasizing workshops and assessments), and run services (pushing aaS consumption models), together with its cloud computing partner Microsoft with Azure.
Pointnext’s delivery is also evolving, with the unit moving further towards offsite delivery. Currently, ~ 60% of its delivery is done remotely. This number will increase, with more CoEs being created onshore and offshore to drive a factory approach, even for systems integration activities such as migration of mainframes to open servers, and to private/hybrid/public clouds. Meanwhile, Pointnext continues to hire onshore for its advisory services.
The topic of delivery is closely related to that of VARs and partners, which provide professional services for installing HPE’s products, and for providing L2 and L3 support. Pointnext highlights that partners remain a core element of its go-to-market approach and continues to create repeatable and packaged offerings that can be resold by partners. Examples include strategic offerings HPE Flexible Capacity, an aaS model for onsite servers/datacenters that is supported by HPE Datacenter Care.
In many ways, with its focus on packaged offerings, its inclusion of the indirect model, and its “attach” business model, Pointnext differs from most tier-one IT services competitors. Dynamics are at work in IT infrastructure services towards more packaged, standard offerings. So, let’s welcome the new HPE Pointnext brand as a vendor focused on making that happen.
]]>In short, 2016 started off with a bang, with two very large IT services acquisitions announced in the first quarter:
Compared with last year, the whole of 2015 saw just one multi-billion acquisition announced: that of IGATE by Capgemini for $4.5bn. We expect to see more large deal activity.
Atos and CGI Likely Bidders for Large Transactions in 2016
Among all IT services vendors, Atos and CGI are the most likely buyers: their business models are based on inorganic growth.
Meanwhile, three other acquisitive vendors, Leidos, NTT DATA and Capgemini, have put a temporary hold on their M&A activities. Leidos and NTT DATA obviously will focus on finalizing and integrating their acquisitions, also on reducing their net debt (~$3.4bn and ~$6.5bn respectively). Capgemini has a lower debt (~€1.8bn) but less appetite for debt leverage than, for instance, CGI, and still needs to integrate IGATE and prove this acquisition is working. The company has denied any interest in acquiring Hexaware.
TCS, Cognizant and Infosys have the cash make large acquisitions. TCS does not have a track record in large transactions and does not need one: it still is enjoying industry-leading growth in spite of its size ($16.3bn in revenues in calendar year 2015). Cognizant has also enjoyed industry-leading growth but appears to be more large acquisition minded, even after TriZetto. For both Infosys and Wipro, inorganic growth is key to their 2020 revenue targets. Infosys’ target is $20bn (up from $9.2bn in CY 2015). Wipro’s target is $15bn (up from $7.2bn). Both have experience in small to mid-sized acquisitions. Neither has of integrating a large acquisition.
CSC is in a different situation: acquisitions are a key component of its turnaround. Having acquired UXC to gain scale in Australia, it is now in the process of acquiring Xchanging which will bring in insurance software assets, inter alia. We expect to see more mid-sized acquisitions from CSC.
Finally, the network of companies that is Deloitte continue to make small acquisitions across the globe, many of them digital related.
So what themes will prevail in 2016? In short, all the current hot topics will remain
Gaining scale in India
Mphasis, Hexaware and Zensar are likely targets in 2016. And PLM service vendor, Geometric Ltd, whose largest client is ISV Dassault Systems, is also rumored to being up for sale. Valuation multiples in India defy gravity but firms like Hexaware and Mpashis are within reach, at ~$1bn-$1.5bn.
Mid-sized deals in U.S. Commercial
As we have noted above, the likes of Atos, CGI and CSC, also some of the Indian oriented service providers are interested in mid-sized vendors with a presence and IP in specific U.S. commercial industries, including utilities (but not energy, although there will be some fire sale opportunities) and healthcare.
BpaaS, or at least a BpaaS aspiration, is likely to be a feature of some of these deals. An early example this year is Wipro’s announcement in February it is to acquire HealthPlan Services for $460m.
Digital Capabilities and RPA IP: Small to Mid-Sized Acquisitions
Looking at smaller acquisition activity, obvious attractive targets will continue to be firms, often privately held:
Many of these targets have headcounts in the 50 to 200 range and are local players. Competition for these firms is high and includes the largest global IT services vendors, with Accenture having led this drive for the last four years.
The hunt even extends to very small firms. Giants such as Accenture and IBM are acquiring firms with specialisms in perhaps digital strategy or SaaS services that have fewer than 100 employees.
The market is getting further crowded; telecom service providers continue to acquire in security while the advertising sector has expanded its M&A scope from UX to SaaS services.
And what will we see in the mid-term?
IoT, IT/OT and Big Data Will Become Increasingly Important in the Mid-Term
IoT, also the integration between IT and Operational Technology (OT) will drive a lot of M&A investment in the years to come, initially around IoT platforms, with the intent to reach scale, create a vertical-specific IOT platform, or gain point capabilities e.g. device security testing, creating device-specific apps. In all likelihood, acquisitions will be small in scale; an early example is that of Radius by Luxoft.
On a large scale firms that have IP around big data will be attractive (while this was not an IT services acquisition, that of The Weather Company for $2bn by IBM was an interesting move that will prove its value in the longer term).
]]>Background
The data shows a steady (but non-linear) decline in Total Contract Value (TCV) from 2002 onwards. The level of new-scope contracts declined from ~80% towards ~40%, signaling fewer new deals. Then came the subprime-driven recession of 2008-9, which triggered a vast level of ITO renegotiations: in 2009, bookings were up to a very high level, but that of new-scope contracts were low (~20%). Unlike 2001 when the internet bubble burst, the 2008-9 crisis was about existing contract renegotiations, not about new deals.
Contract signings were high during 2009 and 2010. But then, booking levels declined to their lowest level since 2008, to ~$32bn. Meanwhile, the level of new-scope contracts continued to be low. In short, the market is quiet with few transactions, mostly renewals and recompetes. This signals a maturing market, also marked by the impact of offshoring (which is reducing prices and TCVs very significantly) and also - and increasingly - by cloud computing (and in particular public clouds).
About three years ago, NelsonHall complemented its ITO Index approach based on contract data with a quarterly spending analysis of IT services, professional services (i.e. consulting and systems integration) and ITO. Our quarterly spending analysis has several benefits: it provides a quarterly view on how ITO spending is going to evolve, while our contract signings analysis provides more of a 12 to 18 month view of how ITO spending will change.
What does our short-term spending analysis tell us?
Spending in IT services has continued to grow, albeit at low levels (~2% in Q4 and about the same during full-year 2014). Growth is driven by professional services (+3% in Q4 2014 and ~4% in full-year).
Meanwhile, for the first time since Q4 2012, ITO spending growth was in positive territory in Q4 2014 (up by almost 1%) and down 1% for full-year 2014. This final quarter improvement in spending growth results from better economic conditions in mature countries.
What does our 12- to 18- month bookings quarterly analysis tell us?
During 2014, ITO bookings were flat across geographies as well as in North America and Europe. Activity in fast-growth countries (India, Brazil, China) was anecdotal.
An important KPI is the level of new-scope contracts (as opposed to existing scope contracts): an estimated 40% of contracts (with a TCV over $100m) in full-year 2014. This is better than 2013, when new scope contracts accounted for ~35% of bookings (and 30% in 2012). This level is at the higher end of the traditional range and is good news.
What does NelsonHall forecast for 2015?
The outlook for IT services in 2015 remains mixed, with the improving economic conditions driving some spending. For ITO specifically, the higher level of new-scope contracts will also have an impact on spending.
However, the economic environment in mature economies is only somewhat better. It is positive for India, unclear for China and Brazil, and clearly negative for Russia. In addition, offshoring will continue to further drive prices down, resulting into lower spending.
We are therefore predicting limited higher growth in spending in IT services overall (2.5-3.5%), professional services (4-5%), and ITO (1-2%).
You can listen to a recording of this week’s ITO Index webcast here. NelsonHall regularly blogs about the ITO industry here.
]]>
Background
The data shows a steady (but non-linear) decline in Total Contract Value (TCV) from 2002 onwards. The level of new-scope contracts declined from ~80% towards ~40%, signaling fewer new deals. Then came the subprime-driven recession of 2008-9, which triggered a vast level of ITO renegotiations: in 2009, bookings were up to a very high level, but that of new-scope contracts were low (~20%). Unlike 2001 when the internet bubble burst, the 2008-9 crisis was about existing contract renegotiations, not about new deals.
Contract signings were high during 2009 and 2010. But then, booking levels declined to their lowest level since 2008, to ~$32bn. Meanwhile, the level of new-scope contracts continued to be low. In short, the market is quiet with few transactions, mostly renewals and recompetes. This signals a maturing market, also marked by the impact of offshoring (which is reducing prices and TCVs very significantly) and also - and increasingly - by cloud computing (and in particular public clouds).
About three years ago, NelsonHall complemented its ITO Index approach based on contract data with a quarterly spending analysis of IT services, professional services (i.e. consulting and systems integration) and ITO. Our quarterly spending analysis has several benefits: it provides a quarterly view on how ITO spending is going to evolve, while our contract signings analysis provides more of a 12 to 18 month view of how ITO spending will change.
What does our short-term spending analysis tell us?
Spending in IT services has continued to grow, albeit at low levels (~2% in Q4 and about the same during full-year 2014). Growth is driven by professional services (+3% in Q4 2014 and ~4% in full-year).
Meanwhile, for the first time since Q4 2012, ITO spending growth was in positive territory in Q4 2014 (up by almost 1%) and down 1% for full-year 2014. This final quarter improvement in spending growth results from better economic conditions in mature countries.
What does our 12- to 18- month bookings quarterly analysis tell us?
During 2014, ITO bookings were flat across geographies as well as in North America and Europe. Activity in fast-growth countries (India, Brazil, China) was anecdotal.
An important KPI is the level of new-scope contracts (as opposed to existing scope contracts): an estimated 40% of contracts (with a TCV over $100m) in full-year 2014. This is better than 2013, when new scope contracts accounted for ~35% of bookings (and 30% in 2012). This level is at the higher end of the traditional range and is good news.
What does NelsonHall forecast for 2015?
The outlook for IT services in 2015 remains mixed, with the improving economic conditions driving some spending. For ITO specifically, the higher level of new-scope contracts will also have an impact on spending.
However, the economic environment in mature economies is only somewhat better. It is positive for India, unclear for China and Brazil, and clearly negative for Russia. In addition, offshoring will continue to further drive prices down, resulting into lower spending.
We are therefore predicting limited higher growth in spending in IT services overall (2.5-3.5%), professional services (4-5%), and ITO (1-2%).
You can listen to a recording of this week’s ITO Index webcast here. NelsonHall regularly blogs about the ITO industry here.
]]>The company is aiming to enhance its end-user experience, de-emphasizing its traditional service desk approach and aiming to add alternative channels for connecting end-users and support personnel.
As part of this initiative, the company is spreading the usage of its Tech Cafés. Tech Cafés provide largely onsite technical assistance in large sites (over 1k users). Key features of Tech Café include:
Key clients of Tech Cafés include Unilever.
One of the major end-user initiatives is its self-service portal, which Unisys offers through its software product VantagePoint. The objective of VantagePoint is to reduce incoming calls by pushing self-service. VantagePoint's features include:
VantagePoint is accessible on PCs and mobile devices. Looking ahead, Unisys is looking to expand end-user interaction channels to include Twitter.
The company is also working on expanding its Resolver offering, largely a Level 1.5 sitting between Level 1.0 for catch and dispatch and L2 for more technical activities. The objective of L1.5 is to reduce work backlog for L2 support and help work on pro-active monitoring and maintenance. Unisys argues that L1.5 reduces time to solve simple tasks and therefore increases end-user satisfaction.
Along with this customer experience effort, Unisys is also involved in several activities to reduce the level of incoming calls. This includes rolling out usage of analytics around ITSM tools (BMC Remedy, ServiceNow or its own BMC Remedy-based Edge IP). The company is collecting data around incidents and route cause analysis with the intent to provide proactive maintenance. An example of this approach is when Unisys rolled out PCs for a client and later identified that a certain percentage of PCs had a specific issue with hard drives. The company proactively replaced hard drives that showed signs of potential failures, based on ITSM data analyses.
Another important move is Unisys’ role-/persona-based approach. The company is taking a role-based approach for providing certain support levels. Examples of persona include road warriors/mobile workforce, VIPs, administration personnel and office workers. Unisys argues that its role-based approach helps expanding from the traditional one-size-fits-all approach (along with VIP service) for support services. For each persona, Unisys is to associate a number of mobility options, access to applications, and CPU uses. To formulate this approach, the company relies on methodologies and discussions with end-users, businesses and IT as well as deploying agents sitting on end-user PCs to identify and measure application, CPU and network needs.
Also, as part of PC roll-outs, Unisys is working increasingly with PC manufacturers to have images (OS and applications) of PCs preloaded, fully or partially on the PC, before shipment.
----
It is interesting to see that the phenomenon of IT consumerization has largely failed under the BYOD form. This is true especially in Europe where demand from end-users to select and maintain their own PC/devices has not materialized and where different tax rules in different countries have made employee allowances somewhat of a complex issue.
Nevertheless, an outcome of such IT consumerization has largely materialized into a self-service approach. While self-service actually shifts work previously done by IT support to end-users, it is increasing end-user satisfaction with end-users taking over responsibility for basic tasks such as email resets, and overall being more active with tutorials and access to incident status.
Nevertheless, productivity gains remain a key objective of support offerings. The creation of L1.5 service desk, along with self-service usage, also frees up the time of more expensive personnel found in L2 support. Along with this, the wider usage of chat as opposed to phone is also increasing productivity, with support personnel being able to handle more end-user enquiries simultaneously than through phone. Chat will also drive further offshoring of work to India, with lack of English accent proficiency becoming less of a problem in written interactions, as opposed to voice discussions.
The good news is that productivity improvement is also driving interest in proactive maintenance and early identification of issues, based on ITSM data collection and analysis. This will also help reduce the volume of incoming calls and interactions.
Finally, the persona approach of Unisys has close links with desktop virtualization, whether through VDI or SBC. The role-based model is very attractive on paper. However, client acceptance has remained fairly limited at this point for desktop virtualization. That is not to say that occasional deals will not happen: Unisys has won a very large desktop virtualization contract with a large European utility, which potentially could involve up to 100k end-users with a high desktop virtualization ratio. Yet, examples of such contracts remain rare.
]]>Launched in May 2013, Wipro continues to enhance ServiceNXT. Additional features that have been added include:
Wipro believes that ServiceNXT has been instrumental in wining 14 contracts for a combined TCV of $1bn in the past 10 months. Two contracts stand out: Carillion (construction, U.K., 10-year, February 2014)) and Corning (manufacturing, U.S., May 2014,).
In the case of Carillion, Wipro has taken over the full IT including applications and IT infrastructures and some level of BPO work (F&A, back-office, HR, and sales administration), from a U.S. centric incumbent. The priority of the contract is to drive further cost savings, which Wipro is doing through the rollout of ServiceNXT across business to drive standardization and productivity. In the mid-term, once the transition is over, Wipro is to work with the client on a BLA approach to monitor key business processes. It is also to drive more synergies with ServiceNXT (used for ITO) and the BPO productivity framework used by Wipro’s BPO operations.
The Corning contract is IT infrastructure services-centric with some application management activities around SAP Basis. The priority for the contract is to drive cost savings through deployment of ServiceNXT across business units.
Wipro positions ServiceNXT for managed services contracts and with contract lengths of at least three years. Overall, Wipro is finding ServiceNXT fits contracts where it is taking over responsibility from the client to manage applications and IT infrastructures.
--------
ServiceNXT is an example of a new offering which applies a number of levers to substantially reduce the cost to serve in large IT infrastructure management and/or applications outsourcing contracts, while also focusing on the delivery of business-oriented benefits to clients. Several vendors have refreshed their offerings significantly: in the case of Wipro, ServiceNXT is a brand name for a productivity effort that the company has been pursuing for several years. With applications contracts, ServiceNXT is focused on run-the-business services as opposed to change-the-business services embedded in a multi-year contract. This shows that productivity improvements can still be found at the support and run level.
An increasingly common feature in ServiceNXT and other vendor offerings is the business process approach, in this case with its BLAs, where it monitors key business processes of a given client. At the moment, only a handful of vendors are currently on this path, but this approach is likely to become more widespread, at least in the larger vendors. Wipro is investing in building some level of pre-defined scenarios to accelerate adoption of business process-led AM services.
With ServiceNXT, Wipro is building its analytics approach to the application level, as opposed to a set of applications. Again, this is part of a long-term where several vendors, but far from all, are now adopting a single application view of application management. This is important as understanding at the application level paves the way for application-specific SLAs and analysis.
All in all, Wipro with ServiceNXT is one of the leaders in productivity improvements around AM and ITO. It appears to have boosted Wipro’s success in securing very large outsourcing contracts.
NelsonHall recently published
For more information on either, please email [email protected].
]]>T-Systems Dynamic Workplace was introduced to address client needs for virtual desktop and mobility overall, based on a centralized approach to applications and data. T-Systems with this offering has taken several decisions:
T-Systems has a modular pricing model based on the general use of a core, virtual service plus options and add-on services. T-Systems continues to enhance the offering. Its current V2 of Dynamic Desktop includes MDM and MAM capabilities, Windows 8.1, a thin client option, and the latest version (v7.5) of Citrix XenApp/XenDestkop as well as an offline option for Microsoft Office/Lotus Notes.
-----
In total, for a client, the price of virtual desktop, depending on options, ranges from €200 to ~€320 per user per year. This includes offline management, mobile & collaboration (Microsoft Exchange, SharePoint and Lync) applications.
For large enterprises, the pricing is adequate largely because virtual desktops bring additional benefits in terms of centralization of security, storage and because they enable mobility.
T-Systems Dynamic Workplace seems to be resonating relatively well in the market: the company has 50k users on Dynamic Workplace. And it has a pipeline that could represent an additional 125k seats by mid-2015, working with ~40 potential clients. This probably means that T-Systems is growing faster than the market for virtual desktop services.
Nevertheless, NelsonHall remains cautious about potential acceleration of spending in virtual desktop services. Key inhibitors remain cost-related (which T-Systems in addressing) and overall lack of client appetite for changing the way they use and consume desktop services. In many respects, the recent rebound in PC shipments in H2 2014 indicates that organizations still prefer procuring traditional PCs rather than massively adopting VDs.
NelsonHall has published an extensive profile of the virtual desktop services activities of T-Systems. The profile is available here for subscribers. For further information, contact Guy Saunders at [email protected].
]]>Q2 2014 revenue (and growth both on an actual and CC/organic basis) by service line was:
Tieto continues to be a recovery story in terms of profitability: EBIT reached 5.6% of revenues, and 7.8% excluding one-off items. The company has maintained its midterm objective of reaching a 10% EBIT margin, including one-offs. While all units in IT services have decent profitability and increasing, Product Development Services (PDS) continues to drag profitability of the company overall.
The recent announcement of massive lay-offs by Microsoft in its Nokia handset business did not seem to worry Tieto management. Nokia is no longer a major client, since it has stopped and sold its Symbian business. NSN remains a top 2 client for Tieto’s Product Development Services unit.
One can't blame the company for having migrated delivery location to offshore: offshore ratio for PDS is 61.6% (Q2 2013: 60.8%) while it stands at 42.0% for IT services personnel. However, one can certainly blame the company for not having diversified earlier its client base.
Revenue growth has unfavorably impacted by the performance of PDS (-19% in CC/organic). Excluding PDS, IT services revenue growth was up +3% (EVRY +2%). The company is satisfied with the performance of its Managed Services unit and is really focusing on its project services business, which includes C&SI and Industry Products. In C&SI, it is getting back to basic with high focus on utilization rates, portfolio management (mobile and omni-channel overall, transformation consulting). Tieto acknowledge it needs to make its application management cost-competivive, largely through automation, something it has achieved already in its Managed Services business (IT infrastructure management).
The comparison with Capgemini comes to mind. Capgemini has the same levels of offshoring as Tieto. Like Tieto, Capgemini is more of a C&SI company than an IT infrastructure management one. Capgemini finally increased the cost competitiveness of its AM offering in 2012/2013, and seems very optimistic about recent wins and its pipeline. Also both companies focus heavily on portfolio management, something Capgemini started much earlier. There is no reason therefore that Tieto could not replicate the apparent success of Capgemini in AM and C&SI.
Both companies have a R&D services business of roughly the same size. Yet, Tieto has suffered for years from the state of the European telecoms equipment manufacturing industry. Capgemini is now beginning to experience the pains of Airbus having completed its major airplane design and development programs. Capgemini has taken action and launched its Global Engineering Services unit last year, which may help balancing work. Tieto could not indicate when its PDS unit would stabilize. Development relationships with new client is a priority. In all likelihood, Tieto will be under pressure to fix or sell the business. The stock of Tieto is down 6% today, after the results, with much questioning on PDS.
]]>IT outsourcing spending growth is different and is much less cyclical. Growth in spending has varied between -2% and +4% again since 2008. It is well known than organizations turn to outsourcing when they want to lower their costs, usually when facing poor economic conditions: this is driving spending.
Is this really so?
NelsonHall advocates that the dynamics of how clients spend their ITO budgets have fundamentally changed:
The prospect of a resumption in ITO spending growth to up 4%, under favorable conditions, is unlikely. In the mid-term, NelsonHall expects therefore that ITO outsourcing growth will not exceed +1.5% to +2% in good economic conditions and probably -4% during bad ones. On average, flat growth is to be the norm, assuming good market conditions last longer than periods of economic unstability.
From a vendor perspective, on average IT services vendors with an onshore background will not grow their ITO revenues beyond 0% to 1%. Meanwhile, some India-centric majors will continue to enjoy growth of 20% and above in the short term.
-- -------
NelsonHall tracks the ITO market on a continuous manner, through 2 ways: contract awards and spending in the previous quarter. Those two metrics are complementary.
In short, ITO bookings provide indications on future trends. Spending help refining our analysis, based on historic data. With those 2 KPIs, we think we are as much equipped as one can be to understand how IT outsourcing spending is going to evolve in the next quarters.
NelsonHall provides –freely- - the finding of its analysis on the short-term future of ITO spending, as part of its quarterly ITO Index Calls. For more information, please refer to Guy Saunders or attend our quarterly ITO Index calls:
]]>In an article by Les Echos, Mr. Eric Blanc-Garin, CEO of CS provided further details about the agreement with Sopra:
CS is a public sector and aerospace specialist providing IT and engineering services e.g. embedded systems; real time applications; PLM services; cyber-security. The company is headquartered in the suburbs of Paris and has a large office in Toulouse.
CS had in 2013 revenues of €162m down 6.2% at CC/CP in 2013. Headcount was 1,791. Operating margin was 0.2%. Application service account for 90% of revenues. 80% of revenues are fixed priced. The company is heavily focused on defense spending, with its largest clients accounting for 29% of revenues in 2013.
The company derived in 2013
CS has faced in the past years a decline in revenues from its key clients in the defense sector, as the French Army reduces its spending.
The company has take several measures including
CS has been on restructuring mode for several years. in the past 2 years, the company has raised capital through several means including, in 2012 the sale of its transportation unit (for €15m), a capital increase in 2013 (€15m raised) and now through this convertible bond issue (€12m).
In 2014, CS has accelerated its transformation plan with:
Sopra continues its M&A activity after the recent offers to acquire Steria and the HR Access service line of IBM France. CS has been struggling for year and has only returned to break-even operating profitability in 2013. As a result, CS has a low market cap, €36m before the announcement. At this point however, it is still unclear how much Sopra will spend in total to acquire the full CS.
CS has a different profile from Sopra. It is more positioned on technical IT and engineering services e.g. real time applications and embedded systems, where Sopra has a background in services around business applications. Sopra is only marginally present in embedded systems, servicing mainly client Airbus. CS is therefore a nice service expansion for the company. It also expands the vertical capabilities of Sopra into the defense sector.
The companies have worked together in two significant contracts:
The challenge for Sopra will be to restore the profitability of CS, which CS has struggled to achieve in years. With Steria, Sopra had mentioned it was hopeful its own sales activtity was likely to absorb the bench of Steria. In all likelihood, Sopra believes it can do the same with CS, whose headcount is just 1,700.
The French IT services market is going an incredible acceleration towards its consolidation. Major 2014 M&A transactions include Atos with Bull; Sopra with Steria; Capgemini with Euriware. Last year, Econocom had acquired Osiatis while TCS had purchased Alti. While many had announced the consolidation of the French IT services market, it had been slow to occur, until this year. Nevertheless, France still has a high number of mid-sized standalone IT service vendors: GFI Informatique. of course, but also Devoteam, Neurones, Groupe Open, Aubay, Businesss & Decision, or SQLI.
]]>Bull had 2013 revenues of €1,262m and an adjusted EBIT of €45m, a margin of 3.5%. It had a net cash position as of end of 2013 of €213m. Headcount is ~9k, of which 5k in France. It would bring to Atos a tax loss carry-forward of ~€1.9bn (mostly for its French and German operations), which Atos is currently examining.
Bull has a very wide portfolio of offerings ranging from hardware, software and services. It also has a vast geographical presence with operations in 50 countries. The company has a portfolio of 1,900 patents of which 600 in the U.S. Bull spends 6% of revenues in R&D and employs 700 R&D personnel.
The company was until 2013 aligned around three main business units:
The company recently announced its 'One Bull' program to re-balance its portfolio (around complex systems integration, high performance computing, security and big data), reduce its cost structure and simplify its personnel contracts (with notably the standardization of contracts and internal mobility). Part of the One Bull program also relied on divesting geographical operations where Bull was breaking even or loss-making or transforming then. Overall Bull, expected 2017 revenues to remain at the same level as 2013 but its adjusted operating margin to double to 7.0%.
Service capabilities brought by Bull include:
Atos is to:
Overall, Atos is expecting 1% organic growth through cross-selling and a more dynamic service portfolio resulting from the acquisition.
Atos is estimating cost synergies to €80m, of which:
Atos is to:
After the acquisition, Atos will have pro-forma revenues of €9.9bn, of which
​From a financial perspective, Atos is making an expensive acquisition. The €620m values Bull (based on its 2013 performance) at a PER of 41. The company has a history of flat revenue growth and limited net margin (net margin of 0.8% in 2013). However, Bull is financially sound with a net cash position of €213m.
The stated rationale for the acquisition has centered on cloud computing, big data and security, (35% of revenues of Bull, including hardware and software). Yet, Bull brings a very wide portfolio that includes computing products, a legacy mainframe product and OS base, as well as security software products. Thierry Breton, CEO of Atos is a former Bull CEO and he therefore must have a strong opinion on what Bull could bring to Atos. One big question mark is to understand what is left of the legacy products into Bull's current offering: NelsonHall estimates it at ~€200m. Also, the HPC line of products (NelsonHall estimated: €170m in revenues) seems to have been successful but requires significant R&D effort. We therefore expect divestments targeted around non-core hardware elements, and potentially software. Bull would reduce Atos' dependence on IBM or HP hardware, potentially making it more price competitive in cloud deals.
The impact of the €1.8bn tax carry forward element is to be fully understood. It may represent a significant tax reduction incentive in its French and German operations for Atos.
Atos' management continues to pursue a very bold M&A strategy: buying Bull, maintaining its offer for Steria, and ready to use the forthcoming June IPO of Worldline for acquisitions in the payment sector. Meanwhile, Atos remains committed to growing in the U.S. With Bull, Atos is now almost the size of Capgemini: something that was unlikely several years ago. There is no question that Thierry Breton has brought Atos to the European tier-one league. Logical next steps for the company are expansion in the U.S. market and the adoption of a sizable India-centric delivery model.
]]>Sopra's rationale for the acquisition includes:
Sopra is to launch a public exchange merger where Sopra offers 1 share of its stock for 4 Steria ones. The offer values each Steria share at €21.5 (based on a Sopra Group share at €86.16), a 40% premium to last Friday’ value of €15.74, and about 12 times Steria's forecast 2014 earnings.
The combined entity will have Sopra's founder and president Pierre Pasquier as chair and Steria's Francois Enaud as CEO.
The acquisition will be a major service expansion for Sopra, which had remained very application service centric: systems integration accounted for €730m in revenues in 2013, consulting: ~€95m; and application management: ~€530m.
In the past three years, since the IPO of Axway, Sopra Group has made several ISV acquisitions, of which the major ones were Callatay & Wouters in Belgium, and HR Access in France. In 2013, software products and related IT services accounted for ~€340m in revenues.
By comparison, Steria has an extensive portfolio of services, including IT infrastructure management (~€526m), BPO services (€316m), consulting & systems integration (~€649m) and application management (€263m). In fact, Steria brings Sopra capabilities in areas where CEO Pierre Pasquier had in the past expressed it did not want to go into e.g. IT infrastructure management for margin reasons. in todays presentation on the merger presentation, Pasquier's position on IM had changed, commenting that more clients are asking for AM services or SaaS applications together with the underlying IT infrastructure services.
In all likelihood, the potential acquisition of Steria for €722m in shares was a deal Sopra could not refuse. If we look back to 2007, Steria acquired Xansa for €680m in an all cash transaction. Today's valuation includes all the operations of Steria in France, Norway and Germany.
The big benefit of the Steria acquisition from a Sopra perspective is that it finally solves the company’s lack of internationalization. While Sopra Group has been successful in its domestic market with good organic revenue growth and operating margins, it has struggled to grow its U.K. and Spanish operations (both have remained at ~€80m in revenues). And Sopra's profitability in the U.K. and Spain has been hurting the company for several years. Steria brings a U.K. business with revenues of €692m and a 10.0% adjusted operating margin that is on the verge of high growth thanks to the ISSC2 contract.
Steria also brings a good country unit in Norway which has been performing decently.
The big question market remains its operations in France, where Steria had ben preparing for significant redundancies in back office and support activities. Interestingly, Steria France has put on hold its job redundancy program as Sopra France is expected to absorb some of the personnel on the bench through existing contracts and through removing subcontractors. SSG appears confident of being able to resume growth in Steria France rather painlessly.
Looking back, Steria has had a rather successful journey since 2002 and its first major acquisition, that of Integris/Bull. The company managed to increase its profitability year after year in spite of an unfavorable economic environment, adoption of industrialization and standardization and offshore. The acquisition of Xansa was a strategic (and expensive) move but it was impacted just nine months later by the U.S. subprime crisis impacting the global economy. However, Steria was was not able to cross-sell BPO and offshore to its client base in Germany and France. The company has clearly a competitive advantage it was not able to make us of. Currently, Capgemini now uses an Indian offshore leverage of 20% in its French operations. Steria does not. That is possibly the most major drawback of Steria’s performance in the past 15 years.
Sopra/Steria combined will become the third largest European IT services vendor, though some way behind Atos and Capgemini.
Consolidation within the European IT services market has been on the cards for some time, so today's news should not be too much of a surprise. Will we see further mergers or strategic partnerships in Europe this year?
]]>CEO Mike Norris referred back to 2002 and the acquisition of Compaq by HP, which led to it losing a major source of revenues and profits and which forced a change in its strategy, to become a services- rather than product-led business, backed by hardware.
Computacenter has grown through a number of acquisitions, the most important of which was that of GE / Compunet in 2003. This brought in a presence in the key European market of Germany, which today accounts for 41% of Computacenter’s global revenues - the same as its traditional stronghold of the U.K. A recent key decision was to implement a company-wide SAP ERP system to help it achieve consistency across geographies. The implementation has just been completed with a rollout in France, its third largest geography, in 2013.
Today, Computacenter is a £3.07bn business with a headcount of 14,000. Despite its increased focus on services since 2002, they still account for under a third of total revenue today. The company has no intention of giving up its reselling business; the emphasis is on cross-selling services to its client base.
There is a clear focus on the desktop (hardware, software and services):
Computacenter has traditional strengths in field services, with 2.5k field engineers in Europe. The company has a slightly larger headcount in its service desk operations (~2.6k). The company is looking to increase the productivity of its service desk business. Computacenter notes that around 30% of inbound Level 1 calls are password related, and another 15% are related to end-users calling and following up with requests. In response, Computacenter is taking several steps including:
Computacenter is introducing new services largely around mobile device management and the convergence of management software around mobile devices and enterprise workplaces. It is planning to deploy its device management service internally with the intent of offering the service to external clients soon. Along with traditional end-user role-based and related application mapping, the company is taking a centralized view of applications, sometimes through corporate app stores. It is also investing in increasing its capabilities around security and networking.
Computacenter has been fine-tuning its client segmentation. The company now primarily targets
Computacenter included three client presentations in its event: Lloyds Banking Group (LBG), Daimler and Sanofi, all of whom mentioned Computacenter’s flexibility and partnership approach. These clients between them cover Computacenter’s three largest geographies.
Computacenter performed relatively well in 2013 with services revenues up 3.7% at CC and supply chain up 2.0% at CC. But the margin clearly shows its continued dependence on h/w reselling: its EBIT margin was just 1.6% (adjusted EBIT margin 2.7%). Margin was also impacted by poor performance in France.
Computacenter has ambitious targets to further improve its profitability from 48 pence per share in 2013 to £1 per share by 2020. Levers to improve profitability include:
One distinct attribute of Computacenter is people-related, in particular their ability to discuss both strategy and go deep in terms of service offerings or technical attributes. This combined market and technical understanding within in service offerings remains uncommon in the industry.
In spite of the shift become service-centric for over a decade, Computacenter is still primarily a reseller. Acquisitions (in Belgium, Switzerland, Germany, U.K. and France) have been reseller centric. Computacenter appears to have been opportunistic in some of these, purchasing several companies at attractive prices. The company claims it does not now want to acquire another reseller addressing the mid-market, as the focus is more clearly on large accounts. Will we see an IT services acquisition in Continental Europe (where several local champions are struggling), as Norris hinted?
]]>Amazon Workspaces features include:
Workspace offerings are:
Amazon WorkSpaces is the latest standard virtual desktop offering to be launched in the past few years. These standard offerings are pre-packaged with a set of pre-available office and personal productivity applications, virtualization software hosted in the datacenter of the vendor, single-tenant or multi-tenant, and have cloud features including fast provisioning and an opex model. The success of these offerings has been rather limited despite the quality of such offerings and their relative low prices.
There are several reasons for this lack success: several of such offerings are targeting SOHOs and small businesses. In spite of their low prices, such offerings have had to compete with the continuously dropping prices of traditional laptops and desktop prices. Amazon’s Standard offering starts at $420 per year: the pricing is therefore similar to laptops with similar characteristics in the U.S. and shipped with Microsoft Office. In other words, Amazon WorkSpace’s price for a year is similar to brand new hardware. This is too expensive.
Large enterprise clients would have stronger interest in desktop and application virtualization than SMBs, as they have more sophisticated needs. However their adoption of standard virtual offerings has been limited. Cost is one inhibitor to such adoption of standard offerings. Lack of interest in overall in public cloud, as compared with private clouds, is another important inhibitor. Success for this offering is likely to be marginal.
Meanwhile, Amazon has launched AppStream, an application virtualization. See separate article.
NelsonHall recently launched a new report on virtual desktop services and BYOD. For more information, please contact [email protected].
]]>Financial objectives for the 2013-2017 period include:
Organic revenue will come from:
The margin improvement will come from revenue growth, and Worldline implementing its TEAM program (consolidate datacenters, delivery centers creation and consolidation, application consolidation). The intent of TEAM is to maintain costs under control while revenues grow.
Worldline is structured into three global service lines:
Its intent is to roll out each service line in all geographies. The company believes that with the integration of several SIS units and its past growth, it now has large enough service lines to grow organically while covering SG&A costs.
Geographical priorities are:
In addition Atos is to provide an additional entry point to 25 other countries where Worldline is not present. The company is also looking at addressing larger clients, especially in the Financial processing business to 69 large accounts.
In detail, the action plans are:
Worldline and Atos management expressed strong confidence in the future of Worldline, and highlighted its size now permits a service line approach to the geographies in which it operates, in a profitable manner. The carve-out of Worldline will also bring flexibility and timeliness for inorganic moves as well as for any partnerships. Acquisitions is a clear priority. Worldline's targeted growth over the next three years means revenue of ~€1.36 - €1.47bn in 2017. Given the scale of Atos, higher growth in Worldine will not have a major impact on the revenue growth of Atos overall.
Worldline currently comprises a set of country operations with very different businesses; there is a lot to do before Worldline is able to go to market with a broadly similar portfolio in its core geographies, let alone achieve its ambitions for global expansion.
Ultimately, the IPO is about giving financial power to Worldline. NETS, the second largest payment services in Europe is reported to be on sale for an amount ranging from €1bn-€2bn. NETS had 2012 revenues of ~€800m and a net profitability of ~€92m. This gives an idea of the market capitalization of Worldline.
Dominique Raviart and Rachael Stormonth
]]>Managed Services
Managed Services (MS) is planning to grow at a 5% 2013-2016 CAGR with a slight organic growth. The unit has stabilized (organic growth 2011: +1.7% ; 2012; +2.4%; 2013 Q1-Q3 -0.6%) in spite of having absorbed SIS' MS unit, whose revenues were declining due to SIS reducing revenues from loss-making contracts. The legacy Atos Origin MS itself was a relatively flat growth business line.
MS is still being impacted from its decision to exit or renegotiate loss-making former SIS contracts. Those contracts represent ~€450m in revenues currently and should stabilize from 2014 to ~€250m. Atos is therefore expecting a 1% organic growth for MS in 2014 and then an acceleration in its business in 2015 and 2006, driven by large wins.
MS is aiming to increase its adjusted operating margin by 30-60 bps by 2016, from 2013 (H1 2013 8.1%). MS intends to continue its effort on productivity (aiming to gain efficiencies in the 15%-30% range), global delivery (from 35% to 50% of headcount between 2013 and 2016) mostly in India, Poland and Philippines, driving its delivery center personnel to be servicing multiple clients as opposed to being client-dedicated. Meanwhile, MS is consolidating of 2/3 of its datacenter estate, closing 14 of those and opening 5 new ones. The unit is planing to have all datacenters be tier 3 by 2016.
The unit is launching a new effort on further improving its service quality, based on the understanding that further quality will help driving down incidents and effort, and increase client satisfaction. Specifically, Atos MS is working on a zero incident program on its top 100 accounts to reduce incidents by 15% in the next 12 months.
MS is also adjusting its portfolio by focusing on several offerings including service integration, security, vertical offerings, project services (expand from NL and U.S. from datacenter consolidation, US and desktop virtualization) and cloud computing (largely though Canopy). Examples of recent service integration contracts include NSN where Atos MS is coordinating 44 suppliers and the U.K. Post Office. Examples of verticalized MS offerings including for the manufacturing sector Siemens MES applications and the underlying IT infrastructure.
In addition:
Systems Integration
Systems Integration (SI) has the ambition to
The service line is focused on several initiatives
Atos is putting a renewed focus on its AM business, which represents one third of revenues of SI. AM has resumed growth in its business, gaining its first non-Siemens AM mega-deal (~$1bn, by NelsonHall's estimate) with a large network equipment manufacturer. It is also interested in small to midsized AM opportunities where there is the possibility to grow the account.
Meanwhile, AM is refreshing its service portfolio with a three-tier offering: core application maintenance and support, focused on cost reduction; business transformation of applications embedded in multi-year contracts; and IT modernization and cloudification in cooperating with Canopy/
AM is also introducing vertical-specific run-build-run offerings. Examples include:
AM continues its push towards global delivery with the intent of reaching by 2016 65% of personnel in low-cost countries (up from 50% in 2013).
Together with its effort in MS and SI, Atos continues its Sales Strategic Engagement (SSE) activity, focusing
Atos has provided some information on how its two main IT services unit Managed Services and Systems Integration will grow in the coming years. To some degree, Atos is moving to a financial model similar to CGI, where margins are relatively high. The comparison with CGI ends here: margins of Atos MS in particular may reach ~9%, at the upper range of the traditional industry margin range.
Systems Integration, traditionally higher margin than MS, will continue under-performing MS in 2016. This is unusual and signals Atos being conservative in its guidance, or acknowledging the impact of Indian vendors on prices or a long-lasting reinvention of its SI business. Atos highlights that by 2016 around 50% of its headcount will be located in low-cost countries. Unlike Accenture or Capgemini, Atos is more centric around non-Indian countries. Unlike CGI, Atos SI has not developed a large ISV business (which Atos has put into Worldline). AM is where Atos may find most success within SI: the company has now two AM mega-deal references (with Siemens and a large network equipment manufacturer). Atos' focus on large deals, traditionally in IT infrastructure management, may also pay off in AM: it has recently won two deals against competition from both IOSPs and global SIs. In the AM business, Atos has strong industry credentials in manufacturing and in nuclear energy, but there is work to be done in developing vertical offerings in financial services sectors, in retail banking somewhat surprisingly, given the heritage of Atos.
Finally, Atos, again net cash positive, is turning back to its former business model, of relying on acquisitions to fuel revenue growth.
]]>Capgemini MS has designed this offering to be as affordable as possible: the offering is marketed at a price of €1/$1.11 per device per month. It is based on SAP Afaria (acquired by SAP through the 2010 Sybase acquisition), but is not SAP back-end systems dependent; available on a SaaS model; and is hosted on AWS. To favor its adoption, the offering includes a 30-day trial.
Functionality includes MDM and reporting. The offering supports devices running Android, iOS, and Windows Phone 8 operating systems. Administration is done through a self-service portal.
The service exists under three options:
Service delivery is India-centric, representing 75% of the effort.
Capgemini stresses that the three parties in the offering will make a profit. The company considers the €1 price will be attractive to clients, providing a base to drive additional conversations and services marketed by Capgemini Mobility Solutions.
Capgemini MS claims strong early success for its offering. In the first two months, the offering has 185 clients on trial representing several hundred thousand devices. Early clients include Lubrizol (2010 revenues of $5.4bn and headcount of 6,900) and Sun Products Corp. (revenues of ~$2bn and headcount of 3,000).
The company announced the creation of its Mobile Solutions business unit in March 2012. The unit is part of Capgemini’s top line initiatives (TLI), which also includes testing, the recent cloud computing SkySight offering, and BIM. TLI can be considered as an incubator for new service lines or services that require coordination across several Capgemini units. Capgemini MS draws on personnel and offerings from several business units including App Services 1 and 2,and Sogeti.
Capgemini MS has a headcount of 3,000. It was built on the 2010 acquisition of Abaco Mobile, an Atlanta-based vendor specialized in SAP mobility software and services. Abaco had a headcount of 100.
The unit has a worldwide focus, with notable growth in France, Germany, the Netherlands, North America, the Nordics, Southern Europe and Brazil. Capgemini has ambitious growth plans for Mobile Solutions, targeting a triple digit growth in new revenues by 2015.
Approaches being taken by Mobile Solutions include:
Capgemini MS has a comprehensive service portfolio that expands from its MDM service. Services offered include
MS has centered its effort around:
It will be interesting to see how Mobile Solutions evolves. The unit has several options: focusing on mobile apps, potentially working alongside the several Digital Services units that Capgemini has in its Consulting Services business, or aligning further with its IT infrastructure services unit around virtual desktop services and BYOD services offerings.
]]>Traditionally, there were two main end user outsourcing offerings in the market:
Interestingly, in spite of quite compelling business cases, packaged “cloud” offering have not had much market take up to date. One reason for this lack of success is that market maturity was not ready for a packaged service: clients still purchase custom services and want to integrate with Active Directory and their existing IT.
Client demand thus centered on a custom service, though the drivers were largely cost savings-driven. Simply-depicted, it centered on application presentation/server-based computing as opposed to VDI technology. Demand for VDI-based virtual desktops has been based on features (or “use cases”), whether for IT needs (e.g. security, centralization of applications for deployment), or business needs (e.g. providing access to a number of applications to people on the move).
Meanwhile, the big news in recent years has been client interest in BYOD and in enterprise mobility.
But examples of BYOD contracts, in the PC space, are still not common: companies are not rushing to implement BYOD policies, sometimes because of lack of end-user interest, sometimes because of legal, and tax allowance impacts. However, what has emerged is the notion of choose your device (CYD): enterprises still purchase PC hardware but are giving more freedom on the type of PC that employees can select. The practice is still not common, particularly in large enterprises. NelsonHall believes that the CYD approach is more likely than BYOD, which has too many tax and HR implications, especially in Europe.
Enterprise mobility (for PCs) certainly is one of the reasons why deployment of virtual desktops has accelerated in the past 12 month. Clients are adopting a mix of VDI and server based computing virtual desktops to address task workers, information workers, mobile workers and executives in different ways. Depending on the client, physical desktops, largely notebooks still represent up to ~30%, server-based computing 60% and VDI 10%.
Meanwhile, enterprise mobility around smart phones is a different discussion: clients are quickly enabling their personnel to access enterprise applications from their personal devices. The move is pragmatic but certainly does not involve any policy regarding allowances to the end-user and tax considerations. Clients are empowering their personnel but certainly not funding their personnel investment in smart phones.
Looking ahead, the big next step is when IT services vendors will stop to address the mobility needs of their clients from two distinct offerings: virtual desktops and enterprise mobility. To some extent, the future lies in a mobile-enablement of PCs applications are to be accessed through many models, including stored on the local hard drive, through application presentation and steaming, through a VDI service or by using native mobile apps. The emergence of Windows 8 with its co-existence of traditional client-server applications and apps will help in the long term towards this direction. Managed services that include a mobile/PC OS convergence such as Windows 8 are likely to be extremely attractive to enterprises with large mobile professional workforces.
]]>The Q1 FY 2014 information is consistent with their Q4 FY 2013 (TCS: ~24%; Infosys +16%).
Infosys and TCS obviously have had somewhat different performance in their testing activities in calendar H1.
Yet, the two companies are giving the industry a clear signal that spending on software testing remains very healthy in calendar H1 2013 in spite of the macro-economic concerns and GDP slowdown. Spending is in line with H1 2012 performance, with a slight acceleration in growth (+4% for combined TCS and Infosys).
Interestingly, spending on software testing in 2013 is holding up much better than during the subprime-time crisis of 2009, when testing revenues of the combined TCC, Infosys and Wipro had grown by ~+9% only
Looking ahead, the question is whether clients will keep on increasing their testing spending. Prices are under pressure and a number of services, including manual functional testing and automated testing are commoditized and offshored. Meanwhile volume is still up significantly. Growth rate in the industry is slowing down but it is unclear yet whether this slowdown is due to the macro-economic conditions or to the market reaching over time maturity.
Discussions with client suggest that new contracts still represent a majority of opportunities, as opposed to renewals of existing contracts. Client spending is therefore to keep on increasing in the short to mid-term.
]]>