IT industry analysis—2009 Week 39—on one page

From Pest

Catch up on the past week's analysis

IT SPENDING

• Vendors have seen an uplift in customer orders and a shortening of the sales cycle in recent weeks, according to a CRN poll. One reseller said that customers have suddenly started approving purchase orders at pre-recession rates, in sharp contrast to earlier this year: "During the downturn, the amount of hours required to put together a deal quadrupled, because clients asked for quotes, then they requested a meeting and then they took time to think about it again." Another said that most sectors, such as construction, healthcare, legal and media are still cautious. The channel is expecting a 'huge' take-up of Windows 7 and Microsoft Server 2008 R2 in 1Q10, but these anticipated products are slowing down sales this month: "I would say 90% of customers are waiting for that to be launched next month before they even think of a refresh," said the MD of Eurodata. [1] [2]
  
• The worst of the recession is over for the PC market, according to Gartner, which raised its expectations for 2009, predicting a contraction in global sales of just -2%. (This compares to a -6% decline in sales for the year which Gartner had forecast in June.) The improvement arises from stronger than anticipated shipments in the US and China. However the UK sector may lag behind in the recovery. “We don’t expect the release of Windows 7 to significantly influence PC demand at year-end,” said a Gartner director. "At best, it may generate a modest bump in home demand and possibly some added demand among small businesses." Large corporate customers, Government and educational institutions are not likely to buy the operating system until late 2010. "We’re actually more concerned that vendor will overestimate the initial demand for Windows 7 and end up carrying excess inventories into 2010," he added.
  
• HP expects IT sales to rebound in the coming year and says it will record overall sales growth of 3-4% in 2010. "We think we have the best portfolio of technologies and services in the industry," said CEO Mark Hurd. "We're pretty well positioned to go out in the marketplace and win. I think HP's best days are ahead of it, not behind it. Our current view is that the IT market will return to growth in fiscal 2010." HP is forecasting that sales from its personal systems group will grow 3-5% in fiscal 2010, but sales from its imaging and printing group will be flat. Enterprise systems and storage technology sales will grow 2-4% in fiscal 2010, as will HP services. HP's software sales will grow between 7-9%, he said. [3]
  

663 subscribers BACK ISSUES:
38	ERP
37	S/W
36	Buying?
35	Jobs + H/W
34	Productivity
33	Offshore & Soft
32	Slowdown+Cloud
31	2Q Results
30	PCs + Services
29	CapEx→OpEx
28	Net & Services
27	Realigning
26	Decline
25	Consolidation
24	Transactions
23	Cost-cutting
compiled by:	Gavin Wilson

SERVICES

• Some big companies are starting to move their spreadsheets, WP and other productivity programs off their PCs and on to the Web. About 20% of respondents to an IDC study say the Google Docs offering is widely used in their organization, up from 6% a little more than a year and a half ago. The suite is proving popular as a tool which enables several co-workers to edit content in real time. "A healthy percentage of Google Docs adoption is coming from ad hoc usage," said an IDC analyst. "It's the classic case of employees making use of free consumer services to get their work done, without asking permission." [4]
  
• HP will leave the EDS brand behind and rename its IT services business HP Enterprise Services. "This is a fairly significant bet for HP. They are continuing the integration plan to bring EDS into the HP culture but also taking a bet that the HP brand will be better at bringing in business than the legacy EDS name," said a TPI employee. "HP is betting this will be a positive move, and it’s too hard to tell yet if it is a brilliant or a bad move to leave the EDS brand behind." The website has been flipped, www.eds.com is no more, and even the signs were changed overnight on the Plano, Texas campus. Few customers will be under the illusion that the rebranding isn’t about the vendor wheeling in HP equipment to replace their non-HP kit. Some will worry that selling HP server, software and network technologies will take precedence over the customer’s right to choose their technology suppliers and control their IT strategy. [5] [6]
  
• Wipro has entered into a co-development agreement with Oracle to develop industry solutions using Oracle Application Integration Architecture. Under the arrangement, both partners will co-develop end-to-end process solutions for five different industries: communications, retail, consumer products, hi-tech, and manufacturing. [7]
  
• Wipro has announced the expansion of its facility in Reading and opening of a new office in London. The centre at Reading was officially opened by the city's mayor. [8]
  
• TCS’s UK division, the flagship for its BPO services business, provided a strategic update on BPO last week. TCS generates $680m a year from its BPO division, with more than $250m of that coming from Citigroup. The UK, accounting for 29% of revenues, is TCS’s most important market because it contains prominent clients on platform BPO deals: Pearl Group on TCS’s BaNCS financial services software; media business Emap on its finance and accounting platform; and Deutsche Bank on TCS investment reconciliation utility Aspire. Ovum says these deals were won through TCS's focus on building a business development team in the UK which can engage at a senior level with clients. TCS has also acquired onshore delivery capability. The company now wants to replicate this model in the USA and continental Europe. [9]
  
• Civica’s purchase of the IBS OpenRevenues business from Capita for £10m was an excellent move, says Ovum. It takes Civica from a niche front-office player in the local government revenues and benefits space to a major player with both front- and back-office applications. Capita is putting on a brave face after the Competition Commission’s decision to force the sale. Local authorities are mandated by central government to administer benefits, but only a handful of authorities use shared services centres. This is a guaranteed source of recession-proof revenues for vendors, because more people claim benefits during economic downturns. Over the years, in-house software has given way to commercial software, and this trend will continue. Today 414 authorities are using commercial software. Socitm, the local government IT managers association, estimated that before Capita’s takeover of IBS, 47% of authorities were using Northgate/Anite software, 28% Capita/Academy, 15% IBS OpenRevenues, 5% Civica and 2% in-house. [10]
  

ACQUISITIONS

• "I would like us to be the successor to IBM," says Oracle CEO Larry Ellison. "But we want to be TJ Watson’s IBM. Not Gerstner’s IBM. Not Palmisano’s IBM. That’s when IBM really was the dominant software company. TJ Watson’s IBM was the greatest company in the history of enterprise in America because its combination of hardware and software was running most of the enterprises on the planet. We think with the combination of Sun technology and Oracle technology we can succeed and beat IBM. We have no interest in competing with Dell," he continued, contrasting selling big iron with selling big solutions. When asked if Oracle planned to keep all of Sun existing systems, Ellison was adamant: "We are keeping everything. We're keeping tape. We're keeping storage. We're keeping x86 technology and SPARC technology—and we're going to increase the investment in it." [11] [12]
  
• Dell has agreed to pay a 68% premium, in cash, for Perot Systems in a $3.9bn acquisition. According to 24/7 Wall Street, Dell wildly overpaid for Perot, and shareholders should be outraged. But CEO-founder Michael Dell may not have had much choice, due to the shortage of potential targets for acquisition in this arena. Tim Prickett-Morgan described the acquisition as 'a fun-sized version of the HP-EDS deal'. Dell is acquiring Perot in part because it hopes it can leverage Dell's broader presence to diversify Perot out of the health-care and government sectors, where most of its revenues reside. The deal is highly convenient from an integration standpoint, because the two companies are located 200 miles apart in Texas, and they have partnered with each other for many years. Dell is paying a steep valuation for what amounts to potentially higher sales growth and better margins. Dell's been hit much harder by the downturn than Perot, with revenue falling 22% in the most recent quarter, double the decline at Perot. Dell's position in services will be tiny even after the deal. Dell projects $8bn annually in services revenue from the combined companies. Michael Dell said that over the summer, talks between himself and Ross Perot Jr. intensified and that the two worked out a deal that gave Perot Systems the premium that the Perot family and other key shareholders wanted. Dell could acquire the services business of Sun from Oracle and maybe acquire the same business from Unisys and spin out its mainframes to IBM, Fujitsu, or Hitachi. These are moves that Dell can afford to take. [13][14][15]
  

RESULTS

• Linux distributor Red Hat reported sales up 12% to $0.2bn in the second quarter of its fiscal 2010. Direct sales accounted for 31% of the total, with channel partners such as HP, Dell, IBM, and Fujitsu pushing another 41% of sales. The Americas accounted for 56% of sales, compared to 25% for EMEA. [16]
  
• Northamber said its sales fell 22% to £139m in the year to 30th June. Staffing levels fell from 190 to 165. And during the year, Northamber parted company with Lexmark, 3Com and Lenovo. [17]
  

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