IT industry analysis -- 2009 Week 25 -- on one page

SERVICES

The era of a two-tier UK IT outsourcing market may well be over, wrote Ovum. The ten biggest UK ITO providers—HP-EDS, Fujitsu, IBM, CSC, Capgemini, BT, Atos Origin, Logica, Computacenter and Siemens—saw the total contract value of their ITO deals grow an impressive 31% in 1H09, even though the total number of deals was down 17%. The UK IT outsourcing market is heavily weighted towards the large providers, so the mid-sized and niche players such as Steria, Northgate, Phoenix and Agilisys have a smaller potential ITO opportunity to address. Tier-2 and tier-3 players are finding life very tough in the current climate.

Wipro, TCS and Infosys are refocusing on the Middle East and Asia to compensate for falling revenues in America and Europe, says The Times.

Alcatel-Lucent is about to transfer 1,000 of its employees to HP, which is taking over the bulk of its IT operations in a 10-year deal. The two firms will also push communications solutions to medium and large enterprises and the public sector, via HP resellers or as managed services. These offerings will see Alcatel Lucent's IP telephony, unified communications, mobility, security and contact centre offerings bundled with HP's IT offerings. Staff may be concerned about moving from a previously nationalised firm to the more aggressive approach of HP's HR policies.

Capita has acquired Carillion IT Services, the external IT delivery unit of Carillion plc, for £36m. The business, with its 440 UK employees, will be renamed Capita IT Services.

Negotiators are being too cautious when agreeing new contracts, according to a new survey. The top negotiated terms are: limitation of liability; indemnification; price changes; intellectual property; protection of confidential data; service levels and warranties; delivery/acceptance; payment; liquidated damages; and jurisdiction. The report says that:

• 'The global economy has swung increasingly towards services. Most major manufacturers have sought to avoid the pressures of commoditisation by moving towards packaged solutions and services. These relationships demand outcome-based commitments, weakening the traditional principle of caveat emptor and making the ability to bear and manage risk into a source of competitive advantage.
• 'Today’s focus is wrong because it concentrates on assumed failure. It does not manage risk because it fails to enable opportunities, growth, and mutual benefit. The focus of negotiation today stifles collaboration, and results in many contracts being dangerously incomplete when they are signed. This is because battles over the allocation of risk frequently prolong negotiations and divert attention from the real issues, which are what the parties want to achieve and how best they can do it.'
  
  SAP

SAP has announced a benchmarking programme under which it will defer 30% increases in its maintenance prices until it can document cost efficiencies enabled by its new enterprise support programme, using 12 agreed performance indicators at 100 nominated customers.

The worldwide market for business intelligence, analytic applications and performance management software in 2008 increased by 22%, from $7.2bn to $8.8bn, says Gartner. Industry consolidation has resulted in customers accelerating their migrations and upgrades. SAP was the top BI company, with a 24% share in 2008, following its acquisition of Business Objects.

HARDWARE

Despite its CEO's claims that it wants all of Sun, Oracle has continued to try to sell Sun's hardware business since the announcement of the acquisition, but the asking price was "unrealistic", say sources close to the deal. It is also rumoured that Sun has cancelled development of the Rock processor, which would have powered its high-end Solaris servers. The budget for the project had shrunk as Sun lost market share, and key employees left Sun, causing the chip's planned 2008 launch to be delayed.

And between 25% and 30% of Sun's direct sales force in the UK are likely to be made redundant this month, as the company hands more customer accounts over to resellers.

MOBILE PHONES

Collective intelligence could be the biggest revolution in IT since the advent of the Internet. Mobile phones have evolved into handheld computers which record the details of our lives:

• GPS in the handset reveals where we are, when we go to work, when we get home and where we go at weekends. Online calendars show where we have been and where we will be next. Social networking reveals who our friends are, and location services reveal where they are. Our online search history reveals our interests. when we start paying bills with our mobiles, they'll record our purchases. Because we take our mobiles everywhere, they create a crucial bridge between the real and virtual worlds.
• Logica demonstrates a scenario in which shops sense the arrival of a particular customer in a shopping mall and send a discount coupon to her mobile. Later the phone notifies the woman that two of her Facebook friends have entered the mall.
• TomTom, the Dutch sat-nav firm, no longer tracks traffic conditions through roadside cameras but instead measures the speed at which mobile phones in cars are travelling. So TomTom can spot traffic jams as they happen and predict their likelihood by calculating the number of cars due to arrive at a pinch-point.
• The big issue is, of course, privacy, with many users unwilling to hand over their digital footprint to third parties. Operators defend their proposals by saying they will be 'opt-in', and that each user will be known by a string of data, not their real name.
• One analyst says that collective intelligence has all the right qualities to spread rapidly: “History shows that market-changing technologies are ones that enable a broad class of people to do what, previously, only an elite class could do. That’s exactly what the network does. It gives individuals and companies access to the kind of information only previously available to the likes of governments and vast corporations.”
  

SOURCES USED IN THIS ISSUE
Channel Register (www.channelregister.co.uk)
Hi-Tech Scotland (www.hi-techscotland.com)
Information Age (www.information-age.com)
Managing Automation (www.managingautomation.com)
MicroScope (www.microscope.co.uk)
Silicon.com (www.silicon.com)
The Times (www.timesonline.co.uk)

IT industry analysis—2009 Week 24—on one page

IT SPENDING
According to a Gartner survey, about half of CIOs have changed their IT budgets since the start of this year, and 90% of them said the change was negative. They've cut back on consultants, software and hardware purchases and they're renegotiating vendor contracts. In the data centre, the average cost of a transaction continues to fall, but the volume of transactions continues to grow by 10% to 15%—hence the growth in storage shipments. In the past, as revenues grew, so did transaction volume. But since the start of this year, CIOs began reporting that relationship is broken. Transactions continue to grow even though revenues are flat to down. In banking, for example, balance inquiries are one of the fastest-growing transaction types. It doesn't generate any revenue, but it does generate a lot of work. When the economic recovery begins, IT budgets will lag by one or two quarters, because IT spending is a trailing indicator.

SERVICES
Outsourcing providers experienced business as usual for the first six to eight months of 2008 but then encountered the beginning of the downturn, cccording to Gartner. This surprised the firm's analysts because the potential cost savings from outsourcing usually keep the segment buoyant. The Indian vendors were affected early in the economic downturn, as they rely heavily on the financial sector, and typically lead with offshore application development projects which can easily be delayed in tough times. Gartner believes the global IT services market reached $806bn in 2008, up 8%.

According to IDC, the European IT services market is set to enter negative growth (down 0.6%) this year as support, training and project revenues fall. Project revenue is predicted to drop 3% while firms have get cold feet about investing in major deployments or costly upgrades. Outsourcing is still expected to grow this year, with revenue projected to hit 4%. Support and training will have a particularly awful 2009, with revenue dropping almost 5%. IT training market will plummet by 10% as firms book education only when course are needed.

In contrast to some of their western counterparts, neither TCS nor Infosys is slashing jobs in response to the slowdown. TCS claims it has advantages over competitors, including skills with the latest technologies and a highly motivated, skilled and mobile workforce. The company is currently selling its services as packages to appeal to cash-strapped customers. "Customers are looking for integrated solutions such as IT, infrastructure, BPO and testing services from one supplier," said a TCS executive. "Over one-third of the deals we won last year were for two services or more." About 30% of Infosys's staff are known as 'bench workers', which means they work full-time when a project is on but are retained even when there are no client projects. Then they are do things such as building new platforms for Infosys. It is only a matter of time, wrote Computer Weekly, before Indian suppliers overtake western competitors through competitive advantages such as flexibility, ambition and employee commitment.

In its last set of results as a separate entity, Fujitsu Services reported revenues of £2.8bn (up 7%) for the year ended 31st March. Its order book was down to 6% to £6.7bn. Revenues in the UK grew 4% to £1.7bn. Fujitsu Services did not win a single large deal last year.

HARDWARE
The worldwide storage market fell 18% to $5.6bn in the first quarter, according to IDC. The total capacity shipped rose 15% to 2.1 petabytes. HP led the market with a 17.4% share, with EMC second on 15.5%, IBM third on 14.4%, and Dell fourth on 11.7%.

Distributors expect the number of reseller collapses to increase later this year. The CEO of Ingram Micro expects to lose about 15% of its reseller population this year, compared to a usual churn of 5-10% a year. While some resellers might be able to hold on for six months of downturn, he said, 18 months was not viable. In a downturn, it is often the lack of credit that administers the killer blow to resellers.

TRANSACTIONS
Dell has achieved more than $3m from Twitter followers who clicked through its posts to its websites to make purchases. Dell says it posts 6-10 times per week to its DellOutlet account, which is where the majority of Twitter-based sales have come from. Almost every post includes a coupon or a link to a sale, and about half of the posts are Twitter-exclusive deals. The PC maker, which has about 600,000 followers, is one of the Top 100 most-followed accounts on Twitter.

Many iPhone applications cost a few dollars to load onto your iPhone. Although some iPhone apps have generated hundreds of thousands of dollar sales, most developers have barely broken even. But soon Apple will enable developers to take further payments within applications sold through the iPhone App Store. This will change the economics of the mobile application market, and is likely to increase Apple's market share because, until they have exploited this enhancement, developers will be in no hurry to work with rival platforms such as the Google Android or Palm Pre. Apple's App Store uses a well-established ecommerce platform, iTunes, to bill customers, which has helped make downloading and paying for applications as easy as purchasing and downloading a song. By contrast, Apple's competitors have had to build their own mechanism for discovering and paying for new applications from scratch. And as a result, virtual storefronts, such as Google's Android marketplace, have been slow to get off the ground.

...AND FINALLY
The FT listed seven signs of corporate inertia—indicators that the board is too locked into its past:

1. Your CEO appears on the cover of a major business magazine. Praise from the press reinforces management’s attachment to their commitments.
2. Management gurus single out your firm for special praise. Just remember the curse of In Search of Excellence.
3. The CEO writes a book while still in his post.
4. Building a grand corporate headquarters often signals that executives have declared victory. The best giveaway is an indoor waterfall.
5. Have a sports stadium named after the company.
6. Competitors share the same zip code. Entire communities of similar companies can fall prey to active inertia.
7. Top executives look like clones. A homogeneous group of top executives often selects and promotes other managers based on their adherence to existing commitments. They also lack the diversity to envision alternative way of competing.
   
   SOURCES USED IN THIS ISSUE

• Channel Register (www.channelregister.co.uk)
• Channel Web (www.channelweb.co.uk)
• Computer Weekly (www.computerweekly.com)
• Financial Times (www.ft.com)
• Forbes (www.forbes.com)
• Nelson Hall (www.nelson-hall.com)
• The Register (www.theregister.co.uk)
• Silicon.com (www.silicon.com)

IT industry analysis -- 2009 Week 23 -- on one page

HARDWARE
There is a bloody price war going on in the server market, wrote The Register in reviewing Gartner's 1Q09 server estimates, and it will worsen during the rest of the year. It will be very tough for any server maker to get a dollar to the bottom line this year. And Moore's Law will make the price war even worse: the vendors will have to sell more iron to get the same revenue. Among the 'highlights':

• Yet again Sun didn't make it into the top five x64 vendors.
• IBM is the top Unix vendor by revenue, gaining three points of market share. (IBM's Unix revenues fell only 14%, against HP's 19% and Sun's 27%.)
• The once booming Eastern European market was particularly awful, with sales plummeting 48%.
• Western Europe was only slightly better, with revenues down 34%.
  

CEO Michael Dell said that, with technology firms currently receiving relatively low valuations, the economic downturn provides a good opportunity for Dell to digest a big acquisition.

EMC has started a bidding war with its storage rival NetApp for data de-duplication specialist Data Domain. This a defensive move by EMC, which seems to be prepared to pay a premium to keep Data Domain out of NetApp’s hands. De-duplication is already extremely useful when dealing with backups, because it can dramatically shrink what are often huge volumes of backup data. Data Domain is a very strong player in data-centre backup de-duplication, and by some estimates last year owned two-thirds of that market. (Neither EMC nor NetApp have such a product today.) The other high-profile company in this sector was Diligent. Last year IBM snapped up Diligent for a reported $200m, which is now looking like a very good move.

IT SPENDING
British Airways has slashed its IT budget by nearly a third as the airline struggles to cope with high fuel prices and the slump in passengers caused by the recession. Last month, the firm reported its biggest loss in more than two decades and is reviewing all areas of the business where savings could be generated. During the review, BA decided to postponed a number of projects, including a company-wide ERP rollout, which began last year.

OUTSOURCING
The global outsourcing market is predicted to grow by more 8% this year as businesses look to save money on IT expenditure, yet according to two new reports, companies are likely to emerge from the recession lacking in innovation and locked into cheap-and-not-so-cheerful contracts that are expensive to renegotiate or cancel. Some companies are going to suppliers and saying: 'Look, you've got this contract, but we need 20% off it. So how are you going to do it?' But you can't cut costs by 20% unless you don't do certain things. Other cost-cutting practices include:

• Companies bundling contracts together into one supplier so that they can ask for a much greater cost reduction or by going to more contractors, slicing it even smaller, and then going for the lowest bid on each contract.
• If you are an organisation that wants to save money and are looking at how you might cut costs, then it might look attractive on the surface to break up large contracts or, indeed, to move work you have done in-house into this multisourced environment. Companies need to invest in staff to manage the relationships with suppliers.
• One professor says there are cost-cutting alternatives to outsourcing IT to survive the recession. These include simply slowing down delivery of the IT strategy, outsourcing other functions, such as HR, accountancy or procurement instead of IT, or even moving those functions offshore.
• If you must outsource IT, restrict it to fewer than five suppliers, the professor advised, otherwise it starts to become unmanageable and costs begin to soar.

More than half of companies and clients polled for the Black Book of Outsourcing said they expected spending to come back to the pre-recession levels by the end of the year. But clients will be looking for short-term projects of less than six months and will steer clear of complex pricing deals.

SERVICES
HP has enhanced its managed enterprise services with new licensing options. Proposed structures include multi-tenanted systems where all users are supported with a single configuration, subscription plans based on individual usage, and long-term, perpetual service offerings. "Customers can do more with flat or shrinking IT budgets when they have a choice of procurement models for software and services," said HP's VP of worldwide alliances and software and solutions.

Phoenix IT Services, which provides services to enterprises and the public sector in the UK, reported sales growth of 4% to £104m for the year ended 31st March. The firm's chief executive said there had been fewer multi-million pound, multi-year contract opportunities; consequently new business wins were smaller. Customers are taking longer to reach purchasing decisions, renewal rates declined from 86% to 66%, and the order book had dropped 17% to £142m.

Channel companies must step up to the plate and take their transformation from box-shifting middlemen more seriously, according to industry players. Resellers have become very keen in recent years on identifying with terms such as solution provider but their practices are often not matching up. Many are still relying on a core of product sales, and merely wrapping a few services around the hardware or software, he claimed. At the solutions or managed services level, a far greater degree of consultancy should be apparent, focusing directly on customer needs, and little or no emphasis on selling product. Product margins will continue to erode and end-user businesses are increasingly demanding a single point of contact for IT provision. These things must force change in the channel. One of the biggest obstacles to this channel transformation is the vendors themselves. Vendor incentive and channel reward programmes are almost invariably linked to product sales, in some form or other. Vendors need to figure out how to reward VARs for selling SaaS. A successful sales team at this end will not ever talk vendors and speeds or feeds, but will focus directly and clearly on customer needs.

SMEs
SMEs are suffering more in the UK than elsewhere, according to research by AMI. Slower payments, cash flow issues and tightening credit are worldwide problems, but 76% of UK SMEs are seeing slower payments compared to 49% for the world as a whole, and nearly half of British firms seeing tighter credit, as opposed to the worldwide average of 36%.

CONTRACTS
Derbyshire County Council has signed a £6m contract with Capgemini to replace its mainframe technology with SAP systems, scheduled to go live by April 2010. The implementation will be carried out by a team of 25 people based at the council's offices in Matlock. But Capgemini will also use staff based in India as well as in China, Poland, Morocco and Latin America.

The value of BT's contract with NHS Connecting for Health (CFH) has increased by over £500 million over the last year. Written parliamentary answers revealed the lifetime value of BT's contract is now expected to be over £1.5bn. BT declined to comment on 'the commercial detail' of its contracts. BT originally underpriced the contract—at the time IBM's rival bid for the London contract was rumoured to be £1.4bn, according to Ovum. In its haste to secure a landmark IT services deal, BT underestimated the challenge the London contract represented. BT had NHS CFH over a barrel during contract renegotiations. As one of just two remaining providers, BT's very public threat to walk away from the contract carried real weight. Health minister Ben Bradshaw's response to the parliamentary question also revealed that BT's spine contract is now worth £889m (up from the original contract value of £620m over ten years).

EMPLOYMENT
BT has been accused of laying off expensive UK contractors and replacing them with Indian staff. Workers brought in using intra-company transfers are replacing contractors for about half the price, a contractor told BBC Radio 4. According to a contractor working for BT Global Services on the National Programme for IT, the NHS project, workers from Tech Mahindra earn about £220 a day whereas UK contractors earn £400 a day. BT said that it was looking to cut its dependence on expensive contractors and that anyone brought in from India was a specialist; intra-company transfers are meant to be for people with skills not available from the British workforce. It said it had not replaced any permanent staff with Indian staff.

SOURCES USED IN THIS ISSUE

• Computing (http://www.computing.co.uk/)
• CRN (http://www.channelweb.co.uk/)
• Kable (http://www.kable.co.uk/)
• Microscope (http://www.microscope.co.uk/)
• Ovum (http://www.ovum.com/)
• The Register (http://www.theregister.co.uk/)
• The Times (business.timesonline.co.uk)