IT industry analysis—2009 Week 35—on one page

Catch up on the past week's analysis

OUTSOURCING

• IBM has been awarded a major applications outsourcing contract by BP, including the management of all BP's SAP applications. The year-long procurement process emerged from BP's decision to rationalize the number of providers it uses for ADM services from over 40. Accenture will be responsible for SAP application development. TCS, Infosys and Wipro also won contracts with BP. The major loser was (Mahindra) Satyam. BP emphasized that it would not be outsourcing any work that was previously done in-house. By rationalizing its applications services supplier base, the company is looking for standardized processes, deeper relationships with its services providers, and cost savings over the five-year period. Most large organisation are expected to follow BP's example, when rationalizing applications services suppliers, of choosing Tier-1 vendors with a large offshore capability. [1] [2]
  
• Accenture has, for the first time, identified Business Process Outsourcing as a key growth platform. From this month onward, its three growth platforms will be: BPO, management consulting and technology (which comprises systems integration, technology consulting, and IT outsourcing). This confirms the increasing strategic importance of the market, although BPO has proved much more difficult to deliver than IT outsourcing.
  
• Fujitsu will eliminate 1,200 UK jobs, equal to 10% of its British workforce, because of a fall in revenue. The troubled company has been hit badly by the recession and has initiated a company-wide pay freeze, reduced the number of temporary staff and put tight controls on expenditure. Furthermore the Unite union said 87% of its members had voted in favour of strike action over the company's proposal to close its final-salary pension scheme.
  
  • In May 2008 Fujitsu's £0.9bn contract with the National Programme for IT was terminated following failed contract renegotiations. Revenue is expected to fall 7% this year. In the middle of this year it lost to CSC in the number one goal of its central government division, namely the UK's National Identity Scheme.
    
  • Fujitsu has also been distracted by the integration of Fujitsu Siemens and the loss of CEO David Courtley.
    
  • In its global product-led approach, Fujitsu UK does not have strong industry-specific services offerings, nor has it developed a strong value proposition to help clients survive the recession.
    
  • It has not won significant local government sector outsourcing business, and now lacks any clear local government strategy beyond IT shared services.
    
  • Fujitsu UK's IT services business remains infrastructure-dominated, particularly around the desktop, an area which is extremely price sensitive and which has been hit hard in the recession.
    
  • It has lagged in the development of offshore capabilities, believing that it was protected by its public sector business.
    
  • Fujitsu's reputation for quality of delivery has slipped with some customers. [3] [4]
    
  
  

EMPLOYMENT

• In June, Mahindra Satyam—the new name for Tech Mahindra's acquisition of troubled outsourcer Satyam—sent 8,000 employees away on a six-month sabbatical on half-pay. Now, as a sign of a pick-up in business, Mahindra Satyam has recalled 1,000 of these employees. At the end of the sabbatical, it expects there to be about 5,500 employees who haven't been recalled who will then be classed as being "given indefinite leave without pay". [5]
  
• Gartner sees an increasing need in the IT industry for people with skills in the social sciences. Some employees will have 'artistic talents in visual and social schemes that induce the desired behaviours and reactions from consumers'. The usability of applications delivered over the Web will also become a focus. Web psychologists will become increasingly necessary as designers try to study and exploit human behaviour on the web. And information anthropologists will trace the origin, history and evolution of web content in order to check whether it infringes on an organisation's intellectual property rights. [6]
  
• Over 29,000 IT workers from outside the EU were brought into the UK last year by their multinational employers—more than double the number (14,000) of workers from all other professions combined, such as finance and legal. "There is evidence that the intra-company transfer system is being exploited in the IT sector," said the CEO of the Association of Professional Staffing Companies. [7]
  
• UK businesses could save £32bn a year in transport costs if its workforce were encouraged to work from home, according to research commissioned by Orange. 16% of respondents would be willing to take an average of a £6,900 cut in salary cut, and 42%would forfeit their company car if they could work at their ideal location. 27% would forfeit the seniority of their role and 25% their future job progression to make their ideal work-life balance scenario a reality. Futurologist James Bellini said the economy would benefit from people being able to work from wherever they choose: "This will generate substantial economic returns as e-workers of the future will be more productive, better motivated and happier. In turn, the businesses they work for will be more adaptable, more responsive to changing market conditions and more profitable." [8]
  

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IT SPENDING

• The Institute of Chartered Accountants (ICAEW) reports that confidence among UK business professionals has become positive for the first time since 3Q07. The ICAEW UK Business Confidence Monitor revealed a record rise in confidence from -28 to +5, with the IT sector being the most confident. Based on this, the Institute forecasts a rise in GDP of 0.5% in the current quarter, ending five quarters of decline. [9]
  
• Spending on computer hardware by UK businesses has fallen to the lowest level since 2001, when the government began keeping records of private sector IT investment. In 2Q09, UK firms spent just £1.1bn on hardware purchases, down 30% from the previous three months, when £1.54bn was invested. Twelve months ago, the quarterly figure was £1.46bn. The figures reveal the extent to which companies are avoiding costly capital expenditure purchases during the recession. [10]
  

FINANCIAL RESULTS

• Computacenter reported a 2% fall in total revenue during 1H09 to £1.2bn while its pre-tax profits grew by 62%, due to cost-cutting. Services revenues grew 8% to £0.49bn. [11] [12] [13] [14]
  
• Dell's revenues fell 22% to $12.8bn in the quarter ended 31st July. Enterprise sales were down 32% to $3.3bn, SME revenues were down 29% to $2.8bn, consumer revenues were down 9% and public sector revenues down 16% to $3.8bn. Server sales were reported to be up 9%. Dell said it expected near-term profit pressures from aggressive price competition and rising component costs. [15][16] [17]
  
• A regulatory filing has revealed that Sun's revenues fell 31% to $2.6bn in the quarter ended 30th June. It also posted a net loss of $0.15bn. There was no conference call, and no press release. Just some tabulated numbers. The June quarter is traditionally Sun's best, given that it is the company's year-end, but Sun's hardware and software sales continued to collapse. Sun's employees, shareholders, and customers will suffer until Oracle gets regulatory approval for the deal from Europe, wrote The Register. [18] [19]
  
• Oracle is likely to sell Sun's hardware business to HP. Oracle CEO Larry Ellison has made no secret of the fact that he wanted Sun for its software, but he has always denied planning to sell off Sun's hardware business. But now CNN has revealed that talks between Oracle and HP are going ahead. HP would wants Sun's hardware to boost its services business. (HP bought outsourcing player EDS, which was Sun's best customer. By owning Sun technology, HP would improve its profit margins on many EDS deals.) By making the world believe he is not interested in selling Sun's hardware business, Ellison hopes HP will think it needs to offer more money to complete the purchase. [20]
  

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IT industry analysis—2009 Week 34—on one page

Catch up on the past week's analysis

UK PUBLIC SECTOR

• The UK government has thrown increasingly large sums of money at public sector IT, yet civil service productivity is declining. Spending on public sector IT grew to over £16bn in 2007/08, but over the same period the Office of National Statistics found that the productivity of the public sector—the vertical's total output divided by the resources put in—fell by 0.3% per annum. In response, the government CIO says that the £16bn is only 4.6% of total public sector spending, compared to an average of 5.9% for governments across the world, according to Gartner. [1]
  

HARDWARE

• EMEA revenues fell 12% in HP's latest quarterly results, which also showed the USA growing by 8%. Server revenues fell 23% and PC revenues dropped 18%. Thanks to the acquisition of EDS, services were the only growth area for HP. But with HP now viewed as a barometer for the IT industry (because of the breadth of its product range), one investment analyst was sufficiently encouraged to say that "It definitely looks like the worst is behind us". Many pundits now believe the server market is stabilising, and CEO Mark Hurd was optimistic that HP would benefit from the replacement of the ageing installed server base. [2] [3]
  
• Reseller Morse says that all takeover talks have ended. Last month it was forced to reveal an approach from a potential acquirer after a sudden change in its share price. But the offer has now been rejected because it "significantly undervalued" the company. [4]
  

SOFTWARE

• Accenture has published a couple of papers which state the almost obvious:
  
  • Software development is moving towards Asia and Eastern Europe—driven by growth markets, cheaper labour and the need to reduce risk by operating from multiple locations.
    
  • The availability of software developers is declining in the developed nations.
    
  • But in some parts of these mature countries, there may be a high-skill, low-cost pool of labour. Some firms may want to help out local, disadvantaged workers.
    
  • In mature markets such as the USA, ISVs will make more money from maintenance than from new software sales.
    
  • ISVs should ensure they collect the licence fees they are owed. But be careful about demanding cash during these hard times.
    
  • SaaS might enable ISVs to gain more customers, though it also might erode the revenue earned per customer.
    
  • As the Facebook generation enters the workforce (assuming that not all graduate recruitment schemes have been terminated), firms will be obliged to implement Web 2.0 technologies.
    
  • When it comes to hitting revenue targets, indirect channels could be useful. [5]
    
  
  

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SERVICES

• Dell has started to roll out, into the UK and Europe, its modular services offering which consists of three services towers: consulting (ProConsulting), managed services (ProManaged) and support (ProSupport). Although they can be sold and delivered in conjunction with partners, Dell retains a strong element of its direct model. Modular Services provide a menu of options that can be both ordered direct from the Web and delivered via the Web, using SaaS management tools. Ovum says that Dell is still slow to 'localise' its services, particularly for non-English-speaking customers. And these services are only for x86 —not legacy systems. [6]
  
• McKinsey seems no better than Accenture in the depth of its insight. Asked to predict the state of the offshoring market in 2020, a McKinsey executive in Mumbai forecasted that:
  
  • India may lose market share, if the communication skills of its graduates don't improve.
    
  • China and Russia are likely to gain share, with China particularly strong in engineering, design and infrastructure services for North Asia, while Russia is 'outstanding' for software product development.
    
  • But for the USA and the UK, India will continue to be the offshore country of choice.
    
  • In Latin America, only Brazil has a sufficiently large and skilled population.
    
  • Eastern Europe is, apparently, more fragmented by language than both China and India.
    
  • Both Vietnam and Egypt are receiving a lot of government support to promote their offshore capability.
    
  • A few of the Indian top-tier outsourcers will make it into the world's top 10, if their current growth rates continue.
    
  • McKinsey is 'excited' about offshoring by government and healthcare.[7]
    
  
  

EMPLOYMENT

• Accenture is to make 336, or about 7% of its 4,800 senior executives, redundant, and will take a charge of $128m—i.e.$381,000 per executive—to cover the cost. [8] [9]
  
• BT has scrapped its graduate recruitment scheme for next year. BT said it is committed to this year’s graduate intake. Last year BT received 4,800 applications for 130 jobs. The move will leave more graduates fighting over fewer places.[10]
  
• Deutsche Telekom will cut approximately 3,000 jobs (from a 45,000 headcount) at its IT subsidiary T-Systems. The company said that all remaining T-Systems staff will receive a guarantee of employment until the middle of 2012. In its most recent quarter, T-Systems reported a 3% decline in revenue to €2.2bn. [11]
  
• Due to the pain of data leaks by employees, 38% of large US companies now have staff whose main job is to monitor the outgoing email of colleagues, according to a new survey. A year ago, this figure was just 15%. 8% of firms had fired employees because of leaks through social networks such as LinkedIn, Facebook and MySpace. [12]
  

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IT industry analysis—2009 Week 33—on one page

Catch up on the past week's analysis

ECONOMY

• Ecommerce spending has fallen for only the second time in recorded history. Sales fell 1% in 2Q09 to $20bn. "The reality of nearly 10% unemployment and rising gas prices, coupled with an increased savings rate, continues to hold down consumers’ discretionary spending," said the US-based internet metrics firm. [1]
  

SERVICES

• The 50 biggest IT outsourcing companies grew their combined share to 56% of the market in Europe last year, according to IDC. IDC says the industry consolidation will continue, with the merger of Oracle and Sun, and the joining of Fujitsu Services and Fujitsu Siemens under a single brand. The three fastest-growing companies last year were Gruppo Engineering, Steria and Wipro. TCS was the first offshore provider to break into the top 20. [2] [3]
  

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• According to PAC, this year the UK will see a 4% drop in software spending and a 6% decrease in project services. The sectors that will cut software and services investment the most severely are retail, services and manufacturing. [4]
  
• CSC declared a 22% revenue decline (to $0.8bn) in its commercial outsourcing division and an 18% fall (to $1.6bn) for its managed services arm in its latest quarterly results. Commentators say that CSC faces a number of major challenges:
  
  • It is late in its verticalization strategy.
    
  • Its sales organization is not used to selling commercial outsourcing offerings.
    
  • The company has limited experience in emerging markets or outside the U.K. and Denmark in dealing with mid-sized organizations.
    
  • It lags its main competitors in global delivery capabilities. [5]
    
  
  
• HP has told EDS workers worried about 30% salary cuts and lay-offs not to talk to the media. A senior VP said that "if we have to get the feeling that everything that we do will show up in the newspapers tomorrow, you'll get whitewashed statements." But EDS employees said they feel information is already being whitewashed for themselves, as well as customers and potential clients. They said the warning against speaking to the news media is intended to keep issues of morale and the potential impact on customers quiet. EDS employees say morale is low, anxiety is high and productivity is down as many workers spend part of their days on the task of searching for new employment. Workers said they fear every day that they will receive a tap on the shoulder—or an e-mail—informing them their services are no longer required. [6]
  

OFFSHORE

• Shareholders and directors have been hit harder than employees by the economic downturn, according to a study of 750 Indian companies. Directors took an average 4% cut in total remuneration in the year ended March, whereas the employee wage bill rose 20%, and net sales increased by 19%. The problem for directors was that profits remained flat, which affected their bonuses. But with results for the quarter ending June showing signs of improvement, directors could expect another year of multi-crore bonuses. [7]
  
• The larger Indian firms sense an impending increase in demand. TCS, Wipro and Infosys are changing their product offerings and focusing on allegedly ‘recession-proof’ sectors such as pharmaceuticals, healthcare, education, telecom and utilities to tide over the dip in volumes.
  
  • Wipro expects a few outsourcing deals worth more than $100m in the third quarter, in areas such as services, consulting, remote management and BPO.
    
  • Infosys is pursuing 12 to 15 deals worth a total of $1bn.
    
  • TCS is tweaking its product offerings for SMEs. [8]
    
  
  
• When BT announced it was bringing back its back-office operations from India to the UK, its customers probably didn't realise that BT would continue the contract with its Indian supplier. But that is what will happen. Tech Mahindra is simply moving its processes and some of its people from India to the UK. [9]
  
• Infosys is considered the most admired Indian company, according to Wall Street Journal survey. TCS came second. The survey took into account factors such as financial management, vision, corporate reputation, quality and innovation. [10]
  

SOFTWARE

• Google has announced the availability of a tool to migrate Lotus Notes email, calendar and contact information to Google Apps. A rapid move of the enterprise Notes installed base to Google Apps is not expected—there are too many business-critical and business-specific applications within many enterprises and government departments. [11]
  
• A judge in Texas has issued an injunction preventing Microsoft from selling its Word software in the USA after ruling the company’s software violated a patent owned by i4i, and obliging it to pay fines of almost $300m. Not surprisingly, Microsoft has filed an emergency motion to block the order. [12] [13]
  
• In an interview with the New York Times, SAP CEO Leo Apotheker disagrees that customers want to deal with fewer suppliers: "I have never, ever heard a customer expressing the faintest wish for having everything delivered out of one hand." But the NYT is unsure that SAP has a firm grip on what customers really want, either. The company has fallen well behind rivals in building a cloud computing service. Although SAP remains well ahead of Oracle in the $88bn business applications market (with a 10% share in 2007 compared to Oracle’s 7%), Oracle may put SAP at a disadvantage if it can quickly put together a complete solution which uses Sun's hardware. [14]
  

FUTURES

• Gartner forecasts a number of potentially transformational technologies that will hit the mainstream in less than five years, including: Web 2.0, cloud computing, internet TV, virtual worlds and SOA. Beyond the five-year horizon: Gartner predicts that RFID, 3-D printing, context-delivery architectures, mobile robots, and human augmentation could also be transformational. [15]
  

ODDS AND ENDS

• Twitter is being used to send out commands to malicious botnets. A security researcher discovered a botnet which used a Twitter account to send out status updates containing what appears to be a single line of indecipherable text. Once decoded, the text actually points to links where the infected botnet machines can download more malicious code. The account has now been shut down by Twitter. In many ways Twitter is the perfect platform from which to control botnets, as it is able to withstand requests from hundreds of thousands of PCs. Because no legitimate users followed this account, no-one was likely to complain. The only PCs looking for these instructions were the infected PCs. [16]
  

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IT industry analysis—2009 Week 32—on one page

Catch up on the past week's analysis

DEMAND-SIDE EVIDENCE

• As the recession continues to hit the UK's high streets, CIOs are seeing their budgets shrinking dramatically. IT budgets in the retail sector have fallen by around 20% over the past year.[1]
  
• Wipro is expecting a decline in the R&D budgets of its telco clients. [2]
  
• But Infosys has just secured a five-year finance and accounting contract with T-Mobile UK. Infosys says its continued focus on process excellence and operational scalability has been key to forging this strategic partnership with T-Mobile: "Our strong F&A capabilities combined with our understanding of the telecom industry helps us successfully transform businesses of our clients." [3]
  
• Northampton-based Phoenix IT Group has warned that revenue fell 5% in its financial first quarter and its order book 7%. It blames a sharp decline in product sales and associated professional services in the mid-market. [4]
  
• German IT services player Lufthansa Systems said that in 2Q09 its total revenues fell by 5% to €0.15bn, but its external revenues within that total fell by 9%. Its external customers are largely in the aviation industry, which has been badly affected by a sharp drop in passenger volumes, especially in the non-budget traveller segment. [5]
  

Andy Green

• Logica announced first-half revenues down 2% on a constant-currency basis to £1.9bn. UK revenues were up 8%. An improvement in the UK's operating margin was mainly due to property rationalization and the redundancy programme. Logica has also cut its subcontractors by 20%. UK public sector revenue was up an impressive 16%, but Logica is unlikely to sustain this level of growth in 2010 given the general election unless it positions itself better to win local government outsourcing opportunities. Logica has been criticised in the past for not following through with outsourcing deals after finishing consulting projects, but now Logica's outsourcing orders are up 18%. A key problem for Logica is the Netherlands, where revenue fell 13% to £0.3bn due to the troubled banking and manufacturing sectors. Investors have long worried about CEO Andy Green's optimism. Mr Green had a poor track record for margin guidance when he ran BT’s troubled Global Services division. He consistently targeted a 15% operating margin despite significant scepticism from analysts. (Those doubts proved well-founded when BT was forced to write down the value of its IT contracts by more than £1bn.) [6] [7] [8] [9]
  
• But UK software and IT services firms have improved their ability to forecast their financial results. In 2Q08, nine software and services firms issued profit warnings; a year later, that figure is down to three. According to Ernst & Young, IT companies experienced a spending slowdown earlier than firms in other sectors, and they responded earlier too. There is greater stability now. [10]
  

COPING WITH THE SLOWDOWN ON THE SUPPLY SIDE

• Microscope spoke to several channel players to discover how they are coping with the IT recession:
  
  • One reseller is basing its philosophy on one book—Good to Great: Why Some Companies Make the Leap ... and Others Don’t—whose principal advice is to work out what you should not be doing and what business processes you should get rid of. Projects should either be fully funded or not at all. Rather than cutting prices, the firm tends to provide customers with additional services for the same fee when their contract comes up for renewal.
    
  • Another is focussing on boosting cash flow and marketing the right products to the right people. It incents staff with a financial reward if they hit a 45-day target for accounts receivable. It has also been successful by creating 'call-out' days. This involves developing marketing materials such as e-shots, mailers and banner advertisements and sending them out to prospects in specific target verticals. This activity is followed up by sending sales staff to a reseller for a day to help it generate leads. [11]
    
  
  
• The slowdown is hitting India too. Some techies are leaving their jobs and going back to college to enhance their qualifications—by getting an MBA, for example. Said one: "In normal circumstances, we would have got a 20% wage hike every year. But now, increments won't come in the next two or three years." Optimistically, the Indian IT sector believes these ex-employees will return: it will need more skilled manpower if, as it hopes, it is flooded with complex outsourcing jobs, post-recession. Others believe these better-qualified ex-employees could go for superior jobs in the Indian public sector. [12]
  
• The Unite union is asking its 2,000 members working for Fujitsu Services to vote on strike action over closure of the pension scheme. Fujitsu staff are being asked to sign new contracts in September which are identical except for the pension provisions. The union believes the changes to pensions equate to a 15% cut for each employee. [13]
  
• HP is imposing massive pay cuts—some as much as 30%—on EDS staff in order to bring their pay into line with HP salaries. One unhappy EDS employee said: "I know that my career with this company is coming to an end. I can't survive after this kind of hit." [14]
  

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• Unemployment in the UK's IT and telecoms industry has hit a five-year high, according to e-skills. In the first quarter of this year, the unemployment rate among ICT workers hit 5%—its highest level since 1Q04. IT strategy and planning workers could be hardest hit, with a 7% fall in employment rates. ICT job ads declined significantly in 1Q09, with situations vacant down by 27%. But those currently in ICT work are apparently faring well, earning an average of £730 per week: up 4% year-on-year and 40% higher than the national average. [15]
  

AMBITIONS

• PricewaterhouseCoopers, the UK’s largest professional services firm, plans to treble its fees from management consulting to more than £1.3bn within the next four years and hire 2,000 staff, including more than 100 partners. Three of the Big Four accounting firms—Ernst & Young, KPMG and PwC—sold their consultancy arms at the start of the decade over potential conflicts of interest. Although the accounting firms still derive most of their fees from traditional auditing and tax work, there is little room to grow in those practices. The Management Consultancies Association said that the industry generated £9bn in revenue last year, and employed 55,000 people. The consulting market is predicted to shrink next year by 5% as companies spend less on capital-intensive projects. [16]
  
• It has been said for some time that Siemens wants to sell off its services unit. Last week it was announced that Wincor Nixdorf, a leading provider of hardware, software and services technology to banks and retailers, had acquired Siemens' Information Technology Products and Services division. The deal made sense for its keep-it-in-Germany characteristics. But it turns out that this acquisition only affects their subsidiaries in the Philippines. Perhaps the global deal will come eventually. [17]
  
• SAP is considering bidding for US software firm Tibco, according to German reports. Tibco specializes in middleware products aimed at integrating programmes from various software providers. At the end of 2008, Tibco presented its products to SAP management at its headquarters in Walldorf, with the initial idea of selling Tibco products through SAP marketing channels. This proposal has now, allegedly, mutated into a possible takeover offer. [18]
  

CLOUD COMPUTING

• 28% of IT executives with high-performance computing responsibilities are planning to deploy private clouds, according to a new survey, in response to demand for cost reduction and increasing application workloads. 67% plan to run simulation and other modelling applications on these clouds. But 76% of IT executives said that their business did not understand the potential of private clouds. [19]
  
• Many governments believe cloud computing represents as more of a threat than an opportunity. Previously nations have benefited from the growth of global ICT companies, because they have helped establish vibrant domestic ICT industries of channel and services partners. However, cloud computing creates the potential for more complete encapsulation and offshoring of ICT software, platforms and infrastructure than previously possible. This could encourage an unprecedented accumulation of ICT services by US-based global cloud providers, says Ovum. It must be in each country's national interest to have commercially robust onshore clouds, whether achieved through alliances with global providers or through the creation of major national clouds. [20]
  
• Microsoft is the new owner of the office.com domain. The previous owner had been holding onto it for a long time, perhaps aware that Microsoft wants to put its Office software onto the Web. [21]
  

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IT industry analysis—2009 Week 31—on one page

Catch up on the past week's analysis

[edit]

INDIA

• Tech Mahindra has announced revenue growth of 2% at constant currency to $0.23bn for calendar 2Q09. Tech Mahindra is now dependent on BT for 52% of its revenues, down from 63% a year ago. The firm also admitted it has "not yet found the bottom", in its investigation of Satyam's true financials, or in terms of client attrition. Tech Mahindra is using BT to help it revive Satyam: BT is meeting Satyam's clients and improving its cooperation with multinational software groups. [1]
  
• Infosys declared a 3% sequential drop in revenues to $1.1bn. Its utilisation rate, currently at 70%, continues to fall, and a very high proportion (62%) of revenues come from time & materials contracts. BT is both Tech Mahindra's and Infosys's largest client, and the telco now accounts for 4.5% of Infosys's revenues, down from 7.9%. Analysts wonder why Infosys has not cracked the largest public sector in the world (by headcount), namely its home country, India. Its failure to acquire Axon last year points to its innate conservatism, but has left it with a war-chest of over $2bn.
  
• Wipro says it is seeing an increase in demand for shared services for software application management, in which implementation resources are shared across multiple clients. Wipro claims this reduces the cost of application management by 20-25%. Wipro currently has 300 people working for this business, known as FlexDelivery, which is currently available for only one package. [2]
  
• Wipro has reported IT services revenues up 2% (in constant currency) to $1.0bn for calendar 2Q09.
  
• Nasscom, India's software industry body, says that India’s software and services sector is likely to experience single-digit growth in 2009-10, a new low for the $60bn industry that grew 16% last year despite the global economic downturn. High domestic demand is not enough to offset the fall in exports. Driving the decline is lower global spending on BPO and the shortage of mega-deals in the USA and Europe. [3]
  

SERVICES

• Atos Origin posted first half revenues of €2.6bn, down 10%. The UK was up 6% to €0.45bn. NelsonHall forecast that its occupational health business in the UK is likely to grow this year. [4]
  
• BT Global Services posted revenue growth of 4% to £2.1bn for calendar 2Q09. The division made a loss of £0.12bn, despite a large number of senior managers being axed. [5]
  
• Capgemini announced 1H06 revenues of €4.4bn, down 2.2% on a like-for-like basis. Consulting and technology services saw the biggest sales drops, down 13% and 3% respectively. UK and Ireland was down 2% to €0.97bn. Its strength in the public sector—e.g. through the Aspire contract at the HMRC—means that Capgemini is less exposed to the recession. [6] [7]
  
• Capita has announced organic growth of 8% to £1.3bn for 1H09. Its medium-term future is very secure: it has a bid pipeline of £3bn, and none of its contracts is due for renewal before 2012. [8]
  
• Getronics announced external revenues down 2% to €0.50bn in 2Q09. Revenues from Holland were up 3% despite difficult market conditions. Getronics has completed most of its headcount reduction of 1,400 full-time equivalents. Its Dutch parent, said it is assessing the future of the Getronics business in the UK. Having already sold its Spanish and Australian businesses, Getronics managing director said: "The UK market remains our most exposed part of the international business." However Getronics UK itself reaffirmed its commitment to the UK— its customers include Barclays, Deutsche Bank and Dell, it has 2,000 employees and annual turnover of around €250m. [9]
  

658 subscribers BACK ISSUES:
30	PCs + Services
29	CapEx→OpEx
28	Net & Services
27	Realigning
26	Decline
25	Consolidation
24	Transactions
23	Cost-cutting
compiled by:	Gavin Wilson

• Unisys declared worldwide revenues of $1.1bn, down 16% on a year ago. EMEA was down 28% to $0.34bn. Unisys's management focussed on cost-cutting on its call, leaving analysts with little idea how it would increase revenues once the market recovers. [10]
  

e-BUSINESS

• Amazon’s online sales grew more than 14% in the quarter to $4.7bn, but analysts were worried that Amazon refused to break out the revenues of its cloud business, Elastic Computing Cloud (EC2). EC2 is aimed at the lower end of the market, but so far the majority of SMEs prefer terra firma—i.e. in-house operations—for their IT.
  
• Shares in Yahoo! slumped 12% after the company agreed to outsource its search business to Microsoft. Previously its CEO, Carol Bartz, had said she would only sell Yahoo’s search unit for “boatloads” of money. Now she has struck an agreement that didn’t include any up-front payment. Yahoo will use Microsoft's Bing search engine rather than its own, and it will keep 88% of the revenue from ads on its own sites for the first five years of the 10-year partnership. Microsoft CEO Steve Ballmer said that, in Internet search, "scale drives knowledge" which, in turn, fuels innovation. He said there is a particularly powerful feedback loop in search advertising. The Microsoft-Yahoo partnership will now have nearly 30% of the search market. In Microsoft’s thinking, that figure has been significant, as it gets the company into the top three of any market. But by handing over a large portion of its business to Microsoft, Yahoo! risks seeing much of its infrastructure disappear, and losing key employees and properties. [11][12] [13]
  

SOFTWARE

• IBM is to acquire, for $1.2bn in cash, SPSS, the developer of predictive analytics software. Founded 41 years ago, Chicago-based SPSS originally created basic statistics-crunching software that was widely-used by students. Evolving into a cutting-edge data-mining vendor, SPSS coined the phrase 'predictive analytics'. Where BI software answers the historical questions of what happened and why, predictive analytics is focused on taking that information to predict future trends. (A key driver of demand for predictive analytics is the global recession. Companies need to reduce risks and drive business.) Buying SPSS, which had 14% of the predictive analytics/data mining market segment, will enable IBM to leap from 13th to 2nd place, behind only SAS, which dominates the segment with a 33% market share. IDC believes some segments of this market are growing by more than 25%. IBM already has a reseller and OEM relationship with SPSS, so the real test is what IBM will do with the SPSS technology. SAP said that the partnership between SAP and SPSS has been good, and the firm doesn't expect that to change under IBM's ownership. SAP will continue to partner with IBM, it said. [14] [15] [16] [17] [18]
  
• SAP announced 2Q09 revenues of €2.6bn, down 10% on a year ago. SAP now predicts that its software-related revenues are likely to fall by up to 6% this year. [19]
  
• Sage announced a revenue increase of 17% to £0.8bn for the six months to 31st March. Sage's CEO said that its proven business model and large, geographically diverse, customer base gave the company confidence that it is well-positioned for the current economic difficulties and the eventual market recovery. [20]
  

HARDWARE

• Having been overtaken by both Dell and Acer in the UK PC market, HP's interim head of the UK Personal Systems Group says HP will not use price reductions to regain the No. 1 spot in the UK PC market. [21]
  
• Ingram Micro, the world’s largest IT distributor, has admitted its sales are declining faster in the UK and EMEA than its competitors' but has vowed to reverse that trend. Ingram saw EMEA sales fall 32% in calendar 2Q09. [22]
  

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IT industry analysis—2009 Week 30—on one page

Catch up on the past week's analysis

CHANNELS
HP could dramatically cut the rebates it pays to distributors and resellers on enterprise accounts next year. HP is said to be planning the injection of extra complexity into the fee calculation, because it believes it is not getting value for money from duplicate payments for both partners and its own staff. In the past HP has liked to think of itself as easy to work with, but this move could result in a backlash, with resellers no longer taking HP into their accounts. [1]

Dell has lowered the deal registration threshold to include server and storage technologies aimed at SMEs. Previously under Partner Direct, only orders starting at £30,000 that involved PCs, servers or printers could be registered by certified resellers, but that minimum value has now fallen to £20,000 and for EqualLogic and PowerVault storage it is £10,000. Virtualisation has skewed the market somewhat as customers can now virtualise 15 servers on one physical box, meaning that lower value orders have become more prevalent. Previously partners competing for deals that fell below the threshold were invariably given different prices from different Dell staff. Dell will increase headcount in anticipation of a significant rise in the number of deals being logged through the registration tool. The online process enables Dell’s sales staff to see partners’ deals in the pipeline. It should encourage them to collaborate, as the direct sales teams are now compensated on targets that include reseller business. [2]

Cash-rich resellers have been likened to "kids in a sweet shop" due to the high number of distressed competitors available at bargain-basement prices. Research from Plimsoll identified 189 UK resellers which have built up sizeable cash piles that, due to the record low interest rates, are generating nothing. The ICT reseller market is widely regarded as one of the UK’s most fragmented sectors. [3]

PCs and MICROSOFT
According to IDC, total UK PC sales fell 7% to 2.5m units in 2Q09. And HP lost its No. 1 position in the UK PC market to Dell and Acer, after a terrible quarter in which its sales fell 20% in desktops and 29% in notebooks. During the quarter, HP merged its professional and consumer PC businesses to cut costs, which may have resulted in lost sales across EMEA. HP was not actively pushing its netbooks, which is the highest-growth segment of the PC market.[4]

BT is to deliver Microsoft's online Office services to its own customers, and will provide unified communications by integrating these with its Global Onevoice service. BT said that, by integrating Microsoft's product suite into its 21CN network, it can provide integrated cloud-based business collaboration tools and ensure higher quality-of-service levels and guaranteed network performance. [5]

Microsoft posted dismal financial results last week. Revenues of $13bn for the quarter were down 17%, and $58bn for the full year were down 3%. The Windows client division was down 29% for the quarter, the Business division (which includes the Office cash cow and the Dynamics family of ERP and CRM applications, and is the company’s largest segment) was down 13%, and the Entertainment and Devices division was down 25%. Only the Server and Tools segment, was relatively unscathed: down 6%, all the more remarkable given a server hardware market that is down more than 20%. [6]

IDC forecasts that, by the end of 2010, 177 million units of Windows 7 will have been shipped accounting for 1% of worldwide IT spending. Amazon has reported more pre-orders for the operating system in eight hours than Vista achieved in its entire 17-week pre-order period. In its paean to the product, IDC went on to claim that 'The advent of Windows 7 will bring related and cascading economic benefits, from new employment to increased revenues and investments made in local country economies'. [7]

SERVICES
Despite customers hanging onto their hardware well beyond the warranty period, and therefore likely to face more costly down-time, the support services business is not booming. The reasons:

• greater competition. Almost every vendor offers heterogeneous systems support.
• Resellers are desperate to increase their support services businesses to make up for faltering equipment sales.
• customers are choosing different service levels for different types of system. The age of the one-size-fits-all SLA is long gone.
• the cost of maintaining a support field force is increasing.
• warranty upgrades purchased with new systems are in decline because the IT hardware market is declining.

So vendors are increasingly offering a managed services approach to support. These proactive services go beyond the individual boxes to provide integrated hardware and system-level software support, a focus on performance and availability, and a more customised approach to support. The key for the vendor is to be able to offer managed support services across the whole of the customer’s IT infrastructure: PCs, servers, routers, storage, system software and even middleware. The benefit to the customer is that the single ‘managed support services’ contract offers simplicity: one vendor to deal with; one contract; lower cost. The benefit for the vendor comes with increased deal sizes and the ability to upsell additional managed services to offset declining revenues from ‘commodity’ technical support.
The support services race favours the larger players with a global delivery capability and a local presence for on-site technical assistance (to serve the enterprise market), and strong partner programmes (to take their services to the mid-market). [8]

EDB Business Partner declared 2Q09 revenues down 5% to NOK 1.9bn. The fall was blamed on the Easter Holiday and low utilization rates in its application services business.

OUTSOURCING
Capita's revenues climbed to £1.3bn in 1H09 from £1.2bn last year. Although Capita has been a supporter of the Labour government, its CEO believes it will benefit if the Conservative party win the next general election. The company believes it is relatively underweight in central government work because there have been fewer opportunities for outsourcing, due to less severe cash constraints than those imposed on local government. [9] [10] [11]

US outsourcing giant ACS aims to grow significantly in Europe, according to its CEO. In recent years, ACS has added $200m in revenues through acquisitions: small local providers such as UK infrastructure outsourcers Syan and Anix, German IT services provider SDS, and French transport technology provider Ascom. The two key reasons for ACS's European interest are the ability to service key multinational customers in their European markets; and Europe's strong local markets and skills, which ACS can utilise across the group. ACS’s flagship European BPO centre is in Barcelona, from where it provides a range of customer call services. [12]

Next month British Petroleum (BP) will be awarding up to $1bn in outsourcing contracts. TCS, Infosys, Wipro and Mahindra Satyam have been bidding against IBM and Accenture for the business. BP already outsources the majority of its application development, system integration and infrastructure management projects to almost 30 suppliers, but now wants to cut 30% from its IT costs, by working with fewer vendors at lower rates. Each BP business unit runs its IT operations autonomously, with a different set of suppliers. This has led to complexity and a higher cost of operations. With the planned consolidation, BP now wants to work with no more than six vendors globally. [13]

OFFSHORE
Steria intends to achieve double-digit organic growth, thereby consolidating its position among the top ten services providers in Europe, according to its CEO. India will then contribute about 40% of revenues, he said. (In 2007, Steria acquired UK-headquartered Xansa, which had substantial BPO resource in India.) [14]

Tech Mahindra announced a 5% fall in revenue Rs 1,087 crore. [15]

TCS announced fiscal 1Q10 revenues of $1.5bn, down 3%, for the period ending 30 June 2009. The UK accounted for 16.9% of these revenues, compared to 19.5% a year ago. Both TCS and Infosys saw declining revenues from BT, but Infosys suffered more, due to BT bringing call centre work back to the UK. TCS added just 26 new clients in the quarter, and its active client list fell from 985 to 933. [16]

Wipro announced a 5% increase in revenue to Rs 6,274 crore. [17]

Wipro sees a big opportunity in green areas such as clean technology, green lighting and water over the next 10-15 years. Wipro plans to offer consultancy services in water treatment and has a team of over 100 consultants. Wipro has extended its strategy of copying IBM by opening a virtual innovation centre in Second Life. Wipro also has a Consumer Care business, and Santoor, its flagship brand, is now the top-selling toilet soap brand in South India.[18] [19]

EMPLOYMENT
The cost of bringing employees from overseas to the UK could rise by almost 25% next year when tax changes are made. The new 50% rate and loss of personal allowances will be especially painful for employers committed to equalising the net benefits that employees enjoy in their home countries, such as the USA, says experts. This comes on top of the new tax regime for 'non-doms' introduced last year. [20]

EDS staff have been told that if they don't accept a 5% pay cut, they will be replaced by HP people. "Project managers are running around with their heads on fire because there are experienced people leaving the company," said one source. He said contractors have already been offered a 10% pay cut and are now on a four-day week. [21]

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IT industry analysis—2009 Week 29—on one page

Catch up on the past week's analysis

[edit]

GREEN

• According to Forrester, customers are increasingly putting green criteria for supplier selection at the top of their agenda. These criteria include the energy efficiency of products, the use of sustainable materials and manufacturing techniques as well as whether products are recyclable. It also includes vendors’ commitment to sustainable operations such as policies on carbon emission reporting and employee commuting practices. Forrester said most vendors have at least one-quarter of their existing customers planning green IT engagements. Over 40% of the client base of Accenture, TCS and KPMG plan to hire a service provider for a green IT project in 2009. Forrester expects that the global market for such green IT services will grow by 60% a year, peaking at $4.8bn in 2013. [1]
  
• Forrester also says that the enterprise uptake of environmentally friendly IT products has slowed down for the first time since 2007. 11% of companies surveyed plan to slow down implementation of green IT initiatives, due to the recession. On the other hand, 12% of firms plan to accelerate their green IT initiatives. The study found that cost-cutting is the principal factor for companies adopting green IT programmes, followed by the need to conserve space and avoid building new datacentres. [2]
  
• BT has launched a 'Sustainable Workforce Assessment' service. This consulting-led service aims to help customers understand how flexible working arrangements for their staff, such as remote or home working, teleconferencing and hot-desking, can help reduce costs. By encouraging people to work from home and travel less, organisations should reduce energy consumption, CO₂ emissions and costs.
  

[edit]

CHANNELS

• Computacenter reported revenues down 8% in constant currency for 1H09. IT hardware sales are suffering as customers put new projects and system refreshes on hold. This has a knock-on effect on professional and support services: the fewer new systems sold, the less demand there is for the implementation and support services that go with them. Computacenter recognised this earlier in the decade and began to diversify into outsourcing, managed desktop and other contractual services. In the UK, contractual services revenues increased 10% compared with the first half of FY08. [3]
  

[edit]

FINANCIAL RESULTS

• Google declared a 3% increase in revenue to $5.5bn in 2Q09. CEO Eric Schmidt boasted of revenue gains from Google Apps sales, mobile ads, and even YouTube display ads. [4]
  
• IBM announced a 13% decline in revenue to $23bn in second quarter, with EMEA falling 20%. Worldwide STG revenues were down 26% to $4bn. Gross profits were down 9% to $11bn, but net profits were up 12% to $3bn. GTS (strategic outsourcing, integrated technology services, and business transformation outsourcing) was down 10% to $9bn in revenue; and GBS (consulting, systems integration, and application outsourcing) had sales of $4bn, down 15%. [5] [6] [7]
  

[edit]

SERVERS

• Now that Sun shareholders have approved Oracle's takeover, HP is trying to attract Solaris customers and migrate them to ProLiant or Integrity machines running Windows, Linux, or HP-UX. HP says that Solaris customers pay up to 80% more to run certain workloads on Sun iron than on comparable HP iron. HP is offering Sun shops free migration and TCO assessments if they consider ditching Sun iron for HP boxes. HP is also tempting customers with several financial incentives, such as deferrals of payments on leased equipment for 90 days and 0% lease offerings (in the USA and Canada). HP is also offering software discounts of up to 85%, and education discounts of up to 30%. [8]
  

[edit]

PCs

• Intel announced a 12% revenue increase over the previous quarter—its most dramatic growth in 20 years. But the $8bn revenue was still $1.4bn down on the same quarter of a year ago. But enterprise PC spending has not yet joined the party. As CEO Otellini put it: "Consumer purchases led the way, with a strong rebound in mobile-processor shipments." [9]
  
• According to Gartner, worldwide PC shipments totalled 68m units in the quarter, a 5% decline from the same period last year. "PC shipments in Asia/Pacific and the US were better than our expectations, but shipments in EMEA indicated ongoing weakness." [10]
  

[edit]

CLOUD COMPUTING

• Viviane Reding, the European commissioner for telecoms, says that European clouds should be set up to encourage small business take-up of on-demand IT services. Reding pointed out that nearly all cloud services are US-owned and US-based, and complained that "once again, the US has started to exploit a business model before Europe has managed to do so. We cannot let this continue. A recent study estimated that online business services could add 0.2% to annual GDP growth, create a million new jobs and allow hundreds of thousands of new SMEs to take off in Europe over the next five years. So what are we waiting for?" [11]
  
• Microsoft has revealed some details of its Azure cloud computing platform, which offers a pay-as-you-go virtual Windows Server to host .Net-based business applications on the internet. Datacentres in the US, Dublin and Singapore will be open in November to deploy applications on what Microsoft is touting as an inexpensive, massively scalable platform, with no hardware management for users. Azure services will have a service price, a charge for data storage and a charge for data traffic. A standard Windows Azure compute unit is $0.12 per hour, with storage charges of $0.15 per GB per month, with 10,000 transactions costing $0.01. [12]
  
• Microsoft has responded within a week of Google's announcement of the Chrome operating system, by declaring that a free version of Microsoft Office will run on the Web next year. Microsoft risks cannibalising one of its most profitable products. (Its business software division, which includes Office, made $9bn profit from $14bn in sales during the first three quarters of its 2009 fiscal year. According to a Forrester survey, about 80% of firms use Microsoft Office.) Microsoft declined to say how it would make money with the move, but hinted that its business model could include advertising and fees for premium services such as online storage of large files. [13]
  

[edit]

ACQUISITIONS

• Infrastructure ISV Software AG has made a €230m takeover bid for IDS Scheer, a maker of BPM (business process management) software. IDS Scheer, based in Saarbrucken, Germany, had approximately €400 million in sales during 2008. The combined company would have more than 6,000 workers and €1bn in revenue, according to Software AG, which is based in Darmstadt, Germany. Software AG said the acquisition would lead to growth through sales of the companies' combined SOA and BPM products, and through IDS Scheer's strength in SAP consulting services. This is the first major move by Software AG since it acquired webMethods almost exactly two years ago. [14]
  
• Perot has beaten Wipro and TCS to the $700m acquisition of the European business of BearingPoint. PricewaterhouseCoopers recently completed the acquisition of BearingPoint’s North American, Japanese, Chinese and Indian businesses, intended to give the consulting firm a strong presence in emerging markets. The 100-year-old BearingPoint was one of the world’s largest management and technology consultants, which was spun off as a separate firm from KPMG in 1999, but slipped into bankruptcy two years ago. [15]
  

[edit]

CONTRACTS

• Nortel’s contract to provide the networking infrastructure for the London 2012 Olympics has been cancelled and awarded to Cisco. Nortel’s latest strategy of selling off key parts of its business meant it would not be able to honour the contract with the Games’ organising committee. [16]