3Q09 summary of the UK IT Industry

IT Spending: IT spending, at both global and UK levels, has fallen in 2009, although there have been signs of improvement in 3Q09. The major systems vendors reported revenue declines in EMEA in 2Q09. Hardware vendors reported year-on-year revenue declines. Following the sales declines of the hardware and software vendors, the channel players also announced declines in revenue. The largest ISVs reported revenue declines. Many large services vendors reported modest increases in UK revenues in 2Q09.

Employment: IT companies are cutting back on their employee costs, through headcount, salaries, pensions and other benefits. Certain new IT skills are in demand. A disproportionate number of IT workers from overseas are being brought into the UK.

Acquisitions: Two major hardware vendrs announced acquisitions of significant services companies: Dell is to acquire Perot Systems, which itself acquired the European business of BearingPoint. And Xerox is to acquire ACS.

Servers: The worldwide market for servers crashed in 2Q09, with sales falling 30%, to their lowest level in 13 years. Competitors exploited the uncertain future facing Sun's installed base.

PCs: The PC market has experienced a worldwide decline in shipments of about 5%, but Gartner believes it is now past the worst. HP has lost its No. 1 position in the UK to Acer and Dell. Two important new operating systems—Windows 7 arriving in October and Google in 2H10—could help revive the market.

Software: The principal software story of 3Q09 was the continuation of Oracle's strategy to become a major IT systems player, as exemplified by its bid to acquire Sun. But European anti-trust authorities may prevent Oracle completing the Sun acquisition with both Java and MySQL intact.

Infrastructure: Although many individuals are using online versions of spreadsheets and other office programs, enterprises are reluctant to move their applications wholesale to the Web, whether the offering is called SaaS or cloud computing. It is possible they have been influenced by the sluggishness of Oracle and Microsoft to put their highly lucrative software onto the Internet. Many European governments regard cloud computing as a threat, because the field is dominated by American providers.

Outsourcing: The outsourcing industry is consolidating—i.e. the combined share of the Top 50 is increasing—due to acquisitions and to customers reducing the number of suppliers they use. Accenture is targetting the BPO market for the first time, whereas it has been rumoured that HP could sell off the BPO operation it acquired with EDS. The larger Indian firms sense an impending increase in demand.

Services: With growth in audit and tax work flat, the big four accounting firms are turning to consulting for revenue growth. The support services market is flat for three reasons: competition, customers buying only what they need, and the decline of the hardware market. Dell started the roll-out of its modular servcie offerings in Europe.

Green IT: Companies will opt for green IT if it enables them to cut costs. Although many enterprises want a green project they can publicise, there is no well-known example of a UK company deciding, in the current economic environment, thoroughly to embrace greenness if it would mean a significant increase in costs. But most IT companies are developing green services for their clients.

The UK Public Sector: The UK government has spent increasingly large sums on IT, yet productivity has declined. Given the coming austerity, there will be future opportunities for IT companies. The Conservative Party, if elected to government, plans to cut back on contracts awarded to Capita.

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SERVICES

• Accenture posted a 41% drop in fiscal 4Q profit, as revenue fell across nearly all business groups and the company recorded a hefty restructuring charge. Quarterly revenue slid 14% to $5.2bn. Accenture's EMEA sales reached $2.3bn, a decrease of 20% in US dollars and 8% in constant currency. The restructuring charge was related to 'the realignment of the company's work force' and to global real estate consolidation, the company said in a release. In August, Accenture said it would cut some 336 senior-level executive positions -- about 7% of its senior executives -- and reduce office space. Consulting revenue totaled $2.9bn, a decrease of 19% from last year. Outsourcing revenue fell 7% to $2.2bn. For the full year, total revenues slid 8% to $21.6bn. [1] [2]
  

ACQUISITIONS

• Following in the footsteps of Dell, Xerox is paying $6.4bn for Affiliated Computer Services (ACS). The purchase of ACS will more than triple Xerox’s services revenues to an estimated $10bn in 2010, from $3.5bn in 2008. The combined operation, to be known as ‘ACS, a Xerox Company’ and led by ACS CEO Lynn Blodgett, will comfortably rank as one of the 20 largest global IT services providers, ahead of the newly expanded Dell services business. Xerox is looking to keep pace with the converging IT market. Simply put, hardware vendors with services arms are able to cross-sell both hardware and services, as well as diversifying their business away from hardware refresh cycles. Xerox intends to help ACS, which generates over 90% of its revenues from the US, expand globally. What makes ACS really attractive to Xerox is its BPO capability. Of all the global IT services vendors, ACS generates a higher proportion of its revenues from BPO (79%) than any other. [3]
  
• A European lawyer is proposing that Oracle should not be allowed to acquire Sun without certain restrictions. Shortly after getting the green light from the American regulator for the acquisition of Sun, Oracle passed up the chance to address any lingering EU concerns about the deal, apparently confident that Brussels would follow Washington's lead. Instead, the European commissioner for competition expressed particular concern about the effect of the merger on the market for enterprise databases.
  
  • Sun's business model –- making its money on services and hardware, rather than from license fees –- allowed it to license Java to application builders (and corporate users) for free, and to encourage open-source development of its technologies while retaining intellectual-property rights.
    
  • On the other hand, Oracle is a pure software company which will want to monetise its entire software product line, including what it inherits from Sun. At a minimum, Oracle will want to limit the scope for Sun's open-source software (MySQL database software and the Solaris server operating system) to compete with its own proprietary products. It will also have incentives to hike up licensing fees for Java users, with the IP rights to Java code constituting a potential stranglehold over competitors.
    
  • The European Committee for Interoperable Systems, which counts Oracle, Sun, and IBM amongst its members, is on record as warning against letting a single undertaking gain control over an IT standard, with the attendant risk that it may exclude competitors from the market by limiting their access to the standard. The acquisition of Sun would appear to land Oracle in precisely this position, as sole custodian of Java, yet no press release to this effect has been issued. Some public comment might reassure the outside world that its members are bound by something other than commercial rivalry with Microsoft. [4]
    
  
  

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UK GOVERNMENT SPENDING

• UK prime minister Gordon Brown confirmed that the UK government will cut public spending in order to reduce Britain’s fiscal deficit. His announcement on ID cards indicates that other large projects could become sacrificial lambs within the Deficit Reduction Plan. Local governments are assuming that their budgets will be cut between 10% and 20% and are planning their 2010–11 budgets accordingly. Lower public spending will reduce opportunities and revenues for IT companies. The government has already set out its plans for the next 12 months in the November 2008 pre-budget statement and the 2009 Budget, which announced plans for 3–4% cuts in back-office and IT spending. [5]
  

SKILLS

• A panel assembled by the British Computer Society to consider whether IT could lead the UK out of recession cited the recent CBI report which blamed poor teaching in schools for the shortage of graduates in science, technology, engineering and maths. "If you talk to 12-year-olds they'll say they don't want to work in an office because what they're taught is Word and Excel," said the CEO of the BCS. "They're not taught what this profession is really about." [6]
  

CHANNELS

• Lenovo has finally taken steps to speed up lead times, ensure products are more aggressively priced and minimise channel conflict. As a result of an operational review, Lenovo has also shaken up its rebate structure and vowed to pay resellers within a month of quarter-end on all products in the portfolio, not just those in the Top Seller programme. A Gartner analyst said Lenovo needed to inject some consistency into its channel engagement model: "Execution is the key, resellers have had a tough 2009 but they are expecting a better 2010 and don’t want any uncertainty with vendors in respect of Ts and Cs, the delivery of products or price competitiveness." [7]
  

STANDARDS

• The IEEE has ratified the 802.11n standard for WLAN networks. This will boost confidence in the standard among vendors thinking of supplying related products and among organisations considering adopting it. The main arguments against wireless have been security concerns, throughput rates, cost and health concerns:
  
  • Wireless traffic is easier for hackers to intercept than traffic on a wired network. 802.11n is believed secure for normal business use, but nothing is forever, particularly in security.
    
  • As for throughput, you should get 150Mbps on some WLAN configurations, whereas many wired connections work at 100Mbps. But you are not going to equal the throughput of a gigabit Ethernet connection, which shows the need to retain wired connections in the data centre.
    
  • The cost of 802.11n access points has been five times the cost of 802.11g access points. The ratified standard and the resulting market growth will reduce the cost significantly.
    
  • The generally accepted view regarding health is that there is no significant risk due to the low power of the equipment. The World Health Organisation has discounted any risk. Indeed, the education sector is leading the way in large-scale WLAN deployments. [8]
    
  
  

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IT industry analysis—2009 Week 39—on one page

From Pest

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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]
  

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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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ORACLE

• Oracle announced revenue for the quarter of $5.1bn, 7% down on last year, though the drop was just 1% at constant currency. Sales in EMEA dropped 10% to $1.6bn. New software license sales were down 17% to just over $1bn, but software license updates and product support rose 6% to $3.1bn. Oracle's co-president blamed the fall in Oracle's database sales on the sales declines of other ERP providers, particularly SAP—if their customers don't buy ERP suites, they don't buy Oracle databases. [1] [2]
  
• It looks like Oracle is serious about becoming a hardware business. A full-page ad in The Wall Street Journal promised to outspend Sun on developing the SPARC microchip and the Solaris operating system, and on supporting Sun's hardware business: "We're in it to win it. IBM, we're looking forward to competing with you in the hardware business." If Cisco or HP were planning to pick up Sun's server and storage businesses, they can now think again. Of course, Oracle is trying to preserve the value of the asset it hopes to acquire. HP and IBM have been taking every opportunity to swipe Sun's customers. The dilemma of Sun customers essentially amounts to this: "Will Oracle continue to support and develop these expensive servers, or should we just go buy them from Big Blue and HP?" The longer the process of acquiring Sun takes, the more Sun's business will deteriorate, and the more market share IBM and HP will take away. “I think someone at Oracle suddenly realized that Sun was bleeding so badly that what would be left when Oracle finally got control would be worth a small fraction of what they paid and no one would buy the hardware unit,” said Rob Enderle, an independent analyst. Others still doubt Oracle's commitment: the reality is that hardware takes immense resources to design, qualify, test, manufacturer, and support to compete on the level of IBM and HP. [3] [4] [5]
  

SAP

• It is rumoured that Siemens, one of SAP's largest customers, has submitted a termination notice to SAP related to maintenance contracts for its software. These contracts are a dependable source of recurring revenue for SAP, and they also offer profit margins of up to 90%. Wall Street is concerned that other major SAP customers could copy Siemens' lead. Third-party alternative maintenance providers to SAP include Las Vegas-based Rimini Street. [6]
  
• T-Systems, the IT services division of Deutsche Telekom, has acquired the external hosting business of SAP in Europe, worth around €112m in revenue last year. Ovum estimates that, by 2010, T-Systems will become the first telco-led services provider to produce $1bn in annual revenues from managed SAP services. T-Systems has done well this month: it has acquired the SAP consultancy business of Logica in Switzerland; it has become a certified SAP partner for hosting services in the Netherlands; and announced that Continental, one of the biggest of all its multinational customers, will in future purchase SAP Services from T-Systems. (Continental has 55,000 SAP users worldwide.) Several key accounts such as Shell, MAN and Linde already get their SAP applications over the T-Systems centre in Munich. Under the terms of this deal with SAP, another 90 or more SAP corporate customers will be transferred to T-Systems. But this deal is as much about SAP getting out of the hosting business as it is about T-Systems expanding its existing hosting business. SAP has been looking to offload the European business since at least last year, when BT was reportedly interested in buying it. From the telco point of view, a move into the IT services market via low-cost, low-margin hosting services makes sense. Network operators own the networks, and have strategically located data centres around the world whose utilisation they are keen to increase. They also see the convergence of communications and IT around IP pressing ahead.
  

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SERVICES

• HP has set up a global business unit to boost enterprise sales of managed print services. The aim is to provide customers with a single point of contact for the purchase of services, software and systems, which include products supplied by Canon. HP has expanded its 25-year relationship with Canon by agreeing to jointly market a new range of Canon systems. CEO Mark Hurd estimates the enterprise print market to be worth around $100bn a year, of which the managed print services (MPS) market could be $25bn this year. Some forecast MPS will be a $60bn market by 2013 with at least one out of every three printers being part of a service contract. [7] [8]
  
• Prior to next week's announcement of the Dell bid, Perot Systems, the Texas-based IT services firm, was looking to increase its international activities to boost revenue. Europe, and particularly the UK and Germany, were the top priority, followed by India and China. To establish a sizeable footprint in those markets, particularly in the healthcare sector, Perot Systems is pursuing an initial strategy of partnerships and acquisitions. EMEA is already Perot's fastest-growing region: up 32% in 2008, with the UK in the lead with $123m, up 10%, followed by Germany with $62m, up 72% from last year. Perot has about 1,100 staff in Europe, with approximately 500 in the UK (of which 200 are in healthcare), 300 in Germany and 125 in Romania. It has been active in the UK since 2004, when it won a five-year deal from BT as a subcontractor to an NHS contract for the implementation of healthcare records in the London region.
  

HARDWARE

• Fujitsu Technology Solutions (which arose from the absorption of Fujitsu Siemens) plans to focus on its higher-end product range to increase profit margins and sales, a senior executive has revealed. "The product positioning had to be changed as we were losing money in the low-end business. In Europe we have exited the entry-level market but in emerging markets—that is Russia, Eastern Europe, the Middle East and Africa—these products will continue to be sold." [9]
  

IT SPENDING

• "I haven’t met a CIO or IT director that thinks their budget is going up in 2010," says HP's VP of servers and storage in UK and Ireland. As a result, he says, users will continue to look for cost savings in operations and maintenance. [10]
  

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IT industry analysis—2009 Week 37—on one page

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STORAGE

• The worldwide storage software market fell 10% year-on-year to $2.8bn in 2Q09, says IDC. Storage hardware sales fell 19% to $5.7bn over the same period. [1]
  

SOFTWARE

• Companies are missing out on a major cost-cutting opportunity by not focusing on their Microsoft product licences, according to analysts. A key problem is that the complex licensing system is self-policing, yet the penalties for not buying the correct licences are severe, and board members are liable. As a result companies often overbuy on licences to play safe. With Microsoft offering so many types of enterprise product, companies tend either to buy the wrong licences or sign up to all-you-can-eat enterprise agreements. [2]
  

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• Accenture's advice to ISVs in the current economic environment is to:
  
  • Strengthen their product portfolios rather than cut back on R&D. Poorly performing products should be weeded out.
    
  • Reduce product development costs by increased use of open-source software and capitalizing on feedback from online communities.
    
  • Reduce piracy and ensure all customers comply with their licence agreements. (One ISV discovered it was owed more $1bn in uncollected fees.)
    
  • Piggyback their software with other non-competing ISVs or hardware vendors to increase the number of sales channels.
    
  • Outsource non-core activities such as HR and finance.
    
  • Improve their acquisition analysis and implementation processes. [3]
    
  
  
• Oracle has its customers locked in to high prices, according to BusinessWeek. Some corporate customers are also concerned that Oracle is stifling innovation. Oracle's aggressive acquisition strategy is making it a dominating force in the IT industry and leaving customers with fewer credible alternatives to choose from. One sore point is caused by Oracle's aggressive audits of its customers' compliance with its licence terms.[4]
  

GREEN

• Using the example of SAP's tie-up with EDS, Ovum believes there is a rush by enterprise solution providers to develop the capabilities needed to manage CO₂ emissions. There is a natural fit, says Ovum, between enterprise applications and the management of environmental data, because energy consumption simply provides another stream of data, similar to the streams of business process data already managed by ERP applications. [5]
  

CHANNELS

• Reseller and consultancy Morse saw revenue fall 10% to £0.2bn for the year ended 30th June. [6]
  
• HP is rumoured to be disbanding its channel marketing unit in the UK, the so-called Solution Partner Organisation. The channel teams that manage partners will be merged into the appropriate product businesses. One source called the rumour "shocking", while another said that resellers want predictability and consistency, which HP is not providing. [7]
  

OUTSOURCING

• Just two weeks after Accenture nominated BPO as a strategic investment area, it is rumoured that HP may sell off the Business Process Outsourcing operation it acquired with EDS. BPO economics are supposed to be about scale and process delivery, but in practice, most BPO solutions are non-standard—there are few best practices which work well across mulitiple industries. The promise of 'continuous' process improvements may be too costly to implement. Furthermore the licence and support costs of the ERP software which underlies many BPO solutions are growing faster than inflation. The inattention of the ERP giants to innovation is hurting BPO, wrote a blogger, and that may be why HP is thinking of running away from BPO. [8]
  
• Steria announced 1H09 revenues down 8% to €0.8bn. The UK was down 2% to €0.3bn. Steria has decreased its headcount in India slightly while improving the utilisation of its onshore personnel.
  

VENDORS

• IBM is visiting investors to argue that its stock is undervalued. Earnings-Per-Share is a bogus metric, wrote The Register, but IBM is obsessed with it. Real earnings growth is what matters, especially when you are talking about a company like IBM, whose share buyback programs are akin to a crack habit. 'Wall Street yawned, but it's hard to get excited by revenue declines and financial engineering.' [9]
  
• Negotiations over the redundancy programme at Fujitsu Services, which will cut 1,200 UK jobs, have been interrupted by the mass resignation of the entire consultative committee, in protest at the lack of consultation from Fujitsu's management. Representatives said management action "reflects a culture in the company of keeping employees in the dark and treating them in a patronising way". [10]
  

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IT industry analysis—2009 Week 36—on one page

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[edit]

IT SPENDING

• Next year the USA is forecast to experience a rate of recovery in ICT spending twice the rate of Western Europe. According to Forrester, the USA will see a 8% increase in technology purchases next year compared to 4% in Western and Central Europe. All the major countries of Europe are seeing a decline this year in demand for IT goods and services: -12% in Britain, and -3% in both France and Germany. The European recession has turned out to be deeper than the US recession, with Europe's downturn starting later and probably lasting into 2010. All categories of IT purchases will be down, with computer and communications equipment being especially weak, said the report. [1]
  
• The global market for servers crashed in 2Q09, with sales falling 30% to $9.8bn, to their lowest level in 13 years. IBM increased its share to 34.5% up from 32.7% a year ago. Thanks to the pending Oracle acquisition and the uncertainty that surrounds Sun's hardware business, the company posted a 37% slide in server revenues, and Fujitsu experienced a 35% decline. HP was EMEA's top server vendor for the sixth consecutive quarter. In second place was IBM and growing its market share 1.4% in EMEA, but its mainframe revenues dropped by 47%. IDC is more optimistic about the future: 'Fewer servers have been shipped over the past four quarters than at any time since 2005 and it is clear that the worldwide server installed base is aging rapidly. In the months ahead, IDC believes that IT customers around the globe will begin to focus on the future once again, making strategic platform decisions for the next business cycle, and driving more predictable server demand as market conditions stabilize in the second half of 2009.' [2] [3] [4]
  

[edit]

SOFTWARE

• Procurement technologies being used to streamline the ways that businesses buy goods and services are not delivering the expected benefits. According to a survey by Capgemini, although many companies have been using e-procurement systems and online auctions to purchase products and services for ten years, they are not making the most of them. For 60% of the companies surveyed, less than 20% of their total spend went through procurement tools. Most procurement tools do not suit certain types of purchases, so buyers often avoid them. 'Too often people find ways to bypass the system and revert to traditional ways of transacting; for example, using the phone as an easier medium,' the report said. [5]
  
• There is a new breed of search engine called contextual search (or perhaps more accurately decision engine technology) which claims to be more sensitive to human needs. Contextual search sites such as Hunch, Answers.com, Mahalo and ChaCha work with more metadata—information about the user, the user’s system, and their previous searches. In the future, users will have an increased expectation that their devices understand the context of their search—e.g. location (for mobile devices), task, and time of day. Keyword search isn't going to disappear overnight, but both Microsoft and Yahoo are taking contextual search seriously.
  
• European Union regulators have applied the brakes to Oracle's proposed acquisition of Sun, by launching a formal antitrust probe that shatters Oracle's goal of completing the acquisition this summer. The U.S. Department of Justice has already approved the deal. The investigation is focused on whether Oracle will gain too much power in the market for database software. EU regulators want to make sure Oracle will properly care for Sun's MySQL open-source database software, or let it wither in favor of Oracle's proprietary software. The European Commission now has until 19th January 2010 before it makes a final decision to clear the deal or block it. The EU describes the database market as "highly concentrated", with the three main proprietary software companies—Oracle, IBM and Microsoft—controlling some 85% of the market. Swedish MySQL has just 0.2% share. The regulators question Oracle's incentive to further develop MySQL as an open source database. Oracle may have to sell off MySQL, or make binding commitments so that rival developers can continue to base their software on MySQL code. [6]
  

663 subscribers BACK ISSUES:
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28	Net & Services
27	Realigning
26	Decline
25	Consolidation
24	Transactions
23	Cost-cutting
compiled by:	Gavin Wilson

[edit]

CLOUD COMPUTING

• According to Gartner, the cloud applications space is on the verge of major change. The trigger point for shakeout comes when one or more firms achieve a level of productivity that neither weaker rivals nor potential entrants can match. Gartner doesn't think the shakeout period has started yet, but does believe we're in the last stages of expansion before a shakeout starts. Microsoft Azure, which is a hybrid approach somewhere between Amazon EC2 and Google Apps Engine, will hit general availability soon. Microsoft will become the first major enterprise software player to have its own cloud application platform offering. Gartner doesn't think there's a big enough market for all of the companies producing cloud application platform software to become winners. The other mega-vendors—IBM, Oracle, and SAP—must either launch their own cloud application platforms, or acquire one, or risk being left behind, says Gartner. [7]
  

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SERVICES

• Accenture has announced two multi-year deals to provide computer support and Web services to two European companies. It will provide outsourcing services for five years to Luottokunta, a Finnish card payment firm. And it has signed a seven-year contract with Henkel, the German-based consumer products maker, known for brands such as Dial soap and Right Guard deodorant. [8] [9]
  
• Sopra, the French services company, announced 1H09 revenues down 1% to €0.5bn. Its application services revenues in Europe were down 18% due to a sharp decline in the UK and Spain. But overall these were better results than those of French rivals such as Atos Origin and Capgemini. Sopra is still weak in India, where it has just 600 personnel serving mostly French clients.
  

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OUTSOURCING

• According to a Capgemini poll of Fortune 1000 executives:
  
  • 79% recognised that outsourcing may have a poor public perception,
    
  • 72% said this poor perception has little or no effect on their outsourcing decisions, and
    
  • 74% agreed that outsourcing helps a company survive in today's economy. [10]
    
  
  
• Royston Hoggarth, the UK boss of troubled outsourcer BT Global Services, has resigned after less than a year in the job. Mark Quartermaine has replaced him from BT's public sector business with immediate effect. [11]
  

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OFFSHORE

• It's a common argument that globalization is nothing to worry about because jobs lost offshore, many of them blue-collar, are being replaced with high-tech ones. But according to one US professor, trade can be win-lose. When China gets better at the things the USA is good at, the USA can become poorer. The offshoring of R&D and innovation is clearly happening. When HP took over EDS, it said it would lay off 24,000 workers, but most of the work did not disappear—at least half the jobs ended up offshore. IBM's headcount in India has gone from 6,000 in 2003 to over 90,000 today. Clearly, high-skill, high-wage jobs are moving offshore. IBM is competing its USA workers against its Indian workers. How do those American workers justify their five-times salary differential? CEOs are motivated by profit, and their focus is on the shareholder. It's a systems issue where the interest of IBM or Kodak isn’t necessarily in the interest of the U.S. They’re global companies—why should they care more about their U.S. workers than their Indian workers or their Chinese workers? "These companies have huge influence over policy and the political process. They have millions of dollars they spend on lobbying. They have a huge presence in Washington. But there’s no group that represents the national interest in any way in Washington to counterbalance this. Which is why you see no action in Washington to address these issues. Who represents American workers in this debate? Who represents accountants? Who represents engineers? No-one." [12]
  

[edit]

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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]
  

663 subscribers BACK ISSUES:
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

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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