Tuesday, June 9, 2009

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



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

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

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


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

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

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

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


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

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


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


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

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

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


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

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

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