IT industry analysis—2009 Week 27—on one page

Quote of the Week: "Six months is the new twelve—no question about that."
(David Gee, EDS VP of marketing, describes the current horizon of CIOs when calculating return-on-investment.)

IT SPENDING

• Based on feedback received from IT departments, Forrester is now saying that global IT spending for hardware, software, and services by companies and governments will drop by 10.6% to $1.5 trillion in 2009. (Forrester reckons that global IT spending rose by 8% last year to $1.7 trillion.)
• According to the Office for National Statistics, UK spending on hardware and software was cut back drastically in the first three months of 2009. Business investment totalled £33.4bn—10% lower than the same period a year ago. Software was down 9.5% and hardware down 9%.
  
  SERVICES
• Indian vendors are starting to believe that they have weathered the worst of the global economic downturn. Deals are beginning to come in again, albeit in smaller sizes of about $25-30m. And the domestic Indian market looks attractive despite lower margins relative to international markets. But Gartner says that "multinational IT companies are still winning new contracts because of the effectiveness of their marketing teams which are focused on selling business needs. In comparison, Indian sales staff are focused on selling technical needs." One reason for that could be the lack of top-end skills and consulting capability. To plug this gap, Indian companies are looking for acquisitions.
• Despite previous official statements, PricewaterhouseCoopers did not audit the balance sheets of the corrupt Indian firm, Satyam. The work was subcontracted to Lovelock & Lewes, the CEO of PwC India revealed under questioning last week.
  Capita’s strength comes from its balance of large and small BPO-focused contracts, says Ovum. While its largest competitors have struggled with the erratic nature of large BPO contract flow, Capita rides out lulls in the market through its involvement in much smaller BPO deals. But Capita needs to build its IT capability fast. IT skills are increasingly important in winning BPO deals, not least because many of them require service providers to integrate, modernise or web-enable clients’ existing software platforms. This pressure to build up IT capability explains Capita’s other acquisition in June: it paid £36m for Carillion IT Services.
• But if the next UK government is run by the Conservative party, Capita may find it harder to win public sector contracts. Says its leader, David Cameron: “At the moment in the civil service there’s a sort of mentality of ‘no one got fired for giving the contract to Capita'. We’ve got to have a culture that’s a little bit more experimental and is prepared to take a bit of a leap sometimes with a small organization.” Capita has been criticized in the past for its closeness to the governing Labour Party.
• The integration of HP and EDS is about two-thirds complete, according to EDS's VP of marketing. EDS would "really have struggled" as a stand-alone company, he added. EDS had a "stagnant business" with a "low single-digit" operating margin. HP gets no more praise either: its services business was "necessary but not efficient in terms of size and scale".
  
  CHANNELS
• While its antecedent Fujitsu Siemens liked to think of itself as the most channel-friendly of hardware vendors, Fujitsu Technology Solutions has upset the channel by supplying 400 tablet PCs to Imperial Tobacco direct. (Previously Fujitsu has fulfilled even the largest contracts, such as the huge PC roll-out with the Department for Work and Pensions, through the channel.)
  

SOFTWARE

• Microsoft is gradually scaling back its reach. In recent months it has announced the end of the Encarta encyclopedia and its Money personal finance package. Now Microsoft is rumoured to be putting up for sale its ad agency, Razorfish. The original intention for Microsoft's acquisition two years ago was to give it a presence in the Internet advertising business and help promote its rich media and its video plug-in Silverlight. The agency is based in Seattle, has over 2,000 employees and its clients include Dell, Disney, and Nike.
• Oracle plans to lay off up to 1,000 workers in Europe, or about 1% of its global headcount, according to a French news agency. This would make the world's No. 2 publicly held ISV one of the last major technology companies to undertake significant layoffs in this downturn.
• Ovum says the demise of SaaS business intelligence provider LucidEra will intensify the pressure on other BI start-ups, both to raise funds and to fend off competition from larger and more stable BI vendors, which are bound to be more popular with risk-averse decision-makers. LucidEra had been unsuccessful in raising the lifeline of funding it needed to stay afloat.
  

CUSTOMER RETENTION

• One analyst believes Cisco has missed the point by announcing new enterprise servers, thereby alienating HP and IBM. Long-term success in the IT market comes from controlling the destiny of your customer base.
• That is why HP bought EDS. To become the management layer of their customers' technology assets. Once you manage it, you can replace it with your own technologies.
  In the SMB space in the USA, Dell is doing the same thing with its alliance with ATT and its ProManage offering. If successful, Dell will manage the infrastructure, and not just sell the equipment.
• Most ISVs are creating versions of their products that are 'good enough' for the cloud. The goal is to snag new customers by lower the cost of entry for them. Once snagged, they are largely owned. And SaaS and cloud computing are the perfect ways to control the destiny of your customer base.
• Components to provide the infrastructure of the cloud will commoditize over time. Competition is fierce. You have to own the customer's infrastructure, manage it, deploy it, and replace it.
  

SOURCES USED IN THIS ISSUE

• Bloomberg (www.bloomberg.com)
• CNET (news.cnet.com)
• Computing (www.computing.co.uk)
• Economic Times (economictimes.indiatimes.com)
• Gerson Lehman Group (www.glgroup.com)
• MicroScope (www.microscope.co.uk)
• Ovum (www.ovum.com)
• The Register (www.theregister.co.uk)
• Times of India (timesofindia.indiatimes.com)
• ZDnet (www.zdnet.com)