UKHotviews

New TechMarketView LLP website launched

noreply@blogger.com (Richard Holway) — Mon, 16 Feb 2009 13:29:00 +0000

If you wish to view the latest UKHotviews or to register to receive the daily UKHotViews email, please visit our new website http://www.techmarketview.com/.

UKHotviews will no longer be available via this website.

New TechMarketView launches tomorrow

noreply@blogger.com (Richard Holway) — Mon, 16 Feb 2009 10:05:00 +0000

Tomorrow we launch our new website, our new daily HotViews email and our new subscriber services together with our first major industry report.

Don’t worry though, as we have always promised, there will still be free access to Hotviews – both via the daily email and on the web.As part of this process, we are changing from Feedburner to FeedBlitz for the delivery of the daily email. You will therefore get a confirmation email from FeedBlitz later today. Assuming you want to keep receiving HotViews, you need do NOTHING!

We’ll tell you all tomorrow!

Intec feeling pain in Asia/Pacific

noreply@blogger.com (Anthony Miller) — Mon, 16 Feb 2009 09:20:00 +0000

(By Anthony Miller). Though business in its EMEA and North American regions seems to be holding up, UK-based telecom billing and operations support system software player, Intec Telecom, is now seeing weakening demand in Asia and will cut costs accordingly. In its trading update (see here), management still expects 1H09 revenues and profits to well exceed 1H08 at constant currency (over 90% of Intec’s sales come from outside of the UK). At least management can fully concentrate on the job at hand without the distraction of last year’s takeover talks (see Intec organises for next growth phase).

Fidessa capitalises on financial markets downturn

noreply@blogger.com (Anthony Miller) — Mon, 16 Feb 2009 08:56:00 +0000

(By Anthony Miller). There are two ways to face a downturn: roll over and let it do its worst to your business; or meet the challenges head on and fight back. Fidessa chose the latter strategy and is scoring well on points. Despite (in fact, because) its products sit right at the centre of the financial crisis, Fidessa saw FY08 revenues grow 33% (proforma, constant currency) to £189m though operating margins trimmed 40 bps to 11.9% (see here). However, if you exclude its recent £1m patent dispute settlement, margins tricked up 10 bps to 12.4%, and that still includes the £0.6m Lehman’s write-off. Among the regions, Asia (13% revenues) was most profitable (43% segment margin), with Europe (50% revenues) least so (14.8% segment margin). North American segment margins were 20.4%, the only region which showed a gain (2007: 17.3%).

What seems to have helped Fidessa weather the storm is that it has multiple plays in trading systems, with business lines that address the buy-side, the sell-side, the provision of market data, and network connectivity. In addition, recurring revenues now comprise 77% of the total (2007: 72%), among the highest in the software sector. But of course Fidessa is feeling some pain; smaller customers are increasingly taking workstation-based solutions and pricing is under pressure. It’s also seeing a pick-up in its hosted (SaaS) models as customers look for other ways to reduce operating costs. However, so far Fidessa has only seen small impact on buying cycles and management believes that the very factors that are causing the financial markets turmoil will be just the factors that drive client need for its products. We think management have done an excellent job in sailing Fidessa forwards despite considerable headwinds, and we hope they long continue to do so.

Goodbye Eidos

noreply@blogger.com (Richard Holway) — Sun, 15 Feb 2009 17:54:00 +0000

(By Richard Holway) Sad as it may sound, I’ve been following Eidos since their USM (that was the precursor to AIM) IPO at 100p in Dec 1990. Britain may not have produced an IBM, a Microsoft or an EDS but we were rather good at computer games - and Eidos was the British standard bearer. For most of the 1990s I reported as they bought a dozen or so other games developers with names like Big Red Software, CentreGold and Black Dragon. But, above all, Eidos was known for the ‘improbably curvaceous’ Lara Croft of Tomb Raider fame Most computer games are spin offs from films – Lara Croft did it the other way around!

By the end of 1999, as the dot.com bubble reached its peak, Eidos had a valuation of over £1billion. As other British games producers got bought by the Japanese, Eidos remained doggedly British. Unfortunately the share price went south. Lara lost her charms and sales slumped this Christmas. Profit warning followed profit warning and there were risks that Eidos would breach its banking covenants.

Last week the Eidos board accepted a bid, valuing the company at £84.3m, from the Japanese publisher Square Enix, best known for the Dragon Quest and Final Fantasy role-playing games. The bid was at a 260% premium to the price Eidos traded at a few weeks ago before the bid was rumored.

Ten years ago Britain led the world in computer games. Although analyst group Games Investor Consulting claims that UK-made games were valued at £2 billion in 2008, the UK is now in danger of falling to fifth in the sector's global revenue rankings as Canada and South Korea are set to leapfrog the UK in the rankings. For some reason, HM Government seems to not recognise software development as either manufacturing or the creative arts. So other countries have moved in to provide better tax breaks.

Computer games are the ‘sexy’ part of IT – exactly the area that might encourage more young people to ‘Get into Computing’. Now it looks like it’s another sector where we have needlessly surrendered our lead to others. That must surely be lamented.

Cognizant signals 10% growth in 2009

noreply@blogger.com (Anthony Miller) — Sun, 15 Feb 2009 15:08:00 +0000

(By Anthony Miller). What everyone was waiting to hear from Cognizant’s Q4/FY08 results on Friday had little to do with FY08 – the company had firmly set market expectations for those numbers. What we really wanted to know was management’s guidance for 2009. And the answer is ... 10% revenue growth and broadly flat margins. I must say, in the current economic climate it’s a pretty bold move to put a stake in the ground so far out when most other players are reeling their lines in (to mix a metaphor or two). Just a few of days ago, Capgemini said they can’t see business with any real confidence beyond June, guiding towards a ‘modest’ 1H09 revenue and margin decline.

Cognizant’s revenue guidance number is also interesting in that it includes a near-2% sequential revenue decline this quarter (i.e. to March) much as did Infosys. This is mainly because of the ailing banking sector, about 30% of Cognizant’s business. Even so, this would still give them 14% yoy growth in the quarter, hardly sluggish. Management expects its banking business to pick up again from Q209, which frankly I feel rather nervous about. However, when I ran the numbers, the guidance implied that aggregate revenue growth for the 9 months Apr. – Dec. ‘09 would need ‘only’ be 9% yoy, which is hardly outlandish by Indian SI standards. Nonetheless, as no one else (let alone us) is yet prepared to ‘call the bottom’, there’s still plenty of room for ‘surprise’ – in the worst sense.

Cognizant is traditionally the fastest growing Indian SI – indeed its 32% FY08 growth comfortably outstripped Infosys over the same period (+20%). Clearly a 10% growth call is hugely downbeat compared to what they are used to. But it’s hugely upbeat compared to our expectations for the marketplace (i.e. negative). If there is no further deterioration in global economies then we’d say Cognizant’s 10% growth is not impossible. But we just don’t think that’s the case. Indeed, management concurred with views from Indian peers that even where IT budgets had been ‘fixed’ they are still flaky and would be cut again if things get worse.

Indian offshore IT/BPO industry association Nasscom is forecasting 15% cagr offshore services growth in FY10 and FY11 (see our comment here) based on 16-17% growth this fiscal year (to March ’09). As I said then, this is also not impossible but it does look optimistic. But however it pans out, we still expect Indian SI growth to beat local players’ hands down, Satyam or no Satyam!

And for the record, Cognizant finished the year with $2.8bn in revenues, of which about $540m came from Europe. We estimate Cognizant’s UK business represents about two-thirds of Europe.

Morse – Walking the walk

noreply@blogger.com (Anthony Miller) — Sun, 15 Feb 2009 15:05:00 +0000

(By Anthony Miller). It’s one thing to talk the talk – quite another to walk the walk. Morse executive chairman Kevin Loosemore and recently promoted CEO, Mike Phillips have clearly put their money where their mouth is, buying tranches of Morse shares last Friday. Loosemore upped his 1.75m shareholding by another million shares, while Phillips bought 550K shares. Non-exec director Paul Shelton bought nearly 50K shares. The price on all transactions was close to 7.5p.

I had a long chat with Mike Phillips after Morse announced its interim results (see Morse – And then there were four) and I really feel they have got the strategy dead right. Each of the remaining businesses is getting a lot of management ‘TLC’ to knock them back into shape, and I got no sense at all of a ‘fire sale’ mentality to get rid of them at any price.

Back in September, Loosemore and Phillips (then just appointed as CFO) reiterated their ‘medium term’ 7.2% group margin target after recording a 4.4% margin pre-nasty bits. I must admit to being sceptical at the time (see Morse still aims for 7.2% margin). But even if 7.2% is, shall we say, an aspirational target, especially given that the company reported an operating loss at half-time, you have to wonder what the number could be if they could focus and run each business properly. Thankfully I no longer have to ‘run the DCF’ to come up with a share price target – but clearly the Morse top team firmly believe the answer is somewhat higher than 7.5p!!

CSC UK ‘steady as she goes’

noreply@blogger.com (Anthony Miller) — Sun, 15 Feb 2009 15:01:00 +0000

(By Anthony Miller). I spoke to CSC UK CEO, Nick Wilson and COO Kevin Brown on Friday to try to ‘square the circle’ over CSC’s global outsourcing 3Q revenue decline (see CSC bucks trend with outsourcing decline). I’m pleased to report that it’s very much ‘steady as she goes’ in CSC’s UK business and I wouldn’t be at all surprised if they just about squeezed double-digit growth (in local currency, of course) by their year end in March.

What really helps is CSC UK’s strong skew towards outsourcing and public sector, both of which are growing well in the UK Even in the private sector CSC is winning new large deals, which they can’t talk about just yet. Nonetheless, Wilson and Brown made it clear that it’s getting tougher out there so they are trying to focus their services propositions on cost saving and cash management (as they are also doing for their own business, of course). No new news on the NHS NPfIT – “still tracking to plan”. Wilson also has the Nordics region in his aegis and is also seeing double-digit growth, which must surely mean they are gaining share.

Big changes at TechMarketView

noreply@blogger.com (Richard Holway) — Fri, 13 Feb 2009 10:10:00 +0000

Next week we launch our new website, our new daily HotViews email and our new subscriber services together with our first major industry report.

Don’t worry though, as we have always promised, there will still be free access to Hotviews – both via the daily email and on the web.

As part of this process, we are changing from Feedburner to FeedBlitz for the delivery of the daily email. You will therefore get a confirmation email from FeedBlitz in the next few days. Assuming you want to keep receiving HotViews, you need do NOTHING!

We’ll tell you more next week! Exciting times for us here at TechMarketView.

MoD awards slew of contracts

noreply@blogger.com (Anthony Miller) — Fri, 13 Feb 2009 09:49:00 +0000

(By Anthony Miller). The UK Ministry of Defence has been dispensing its largesse to multiple UK IT services players over the past couple of days, with three contract awards totalling some £14m. The main beneficiaries appear to be Logica and recruitment firm S.com (one of the 20+ brands in UK-listed staffing conglomerate, Impellam), which got a slice of each award. Detica, Northgate, Vega, SciSys and Parity were among the other winners. The industry really will rely on public sector IT spending to mitigate the more extensive downturn in the private sector, though this will not be enough to keep the UK software and IT services market above the waterline, as we will reveal next week!

Smartphones, smartphones everywhere

noreply@blogger.com (Richard Holway) — Fri, 13 Feb 2009 09:43:00 +0000

(By Richard Holway) I know how interested HotViews readers are in their smartphones. Rather than a debate on the merits of Cloud or the state of the L&P BPO market, most of our conversations turn to Blackberry Bold v iPhone! (I effectively have both as I couldn’t decide between them).

Problem is that Nokia doesn’t really have any effective smartphone competitor. The N97 still seems months away but there are rumours (see Slashgear) of the launch of the E75 at next week’s Mobile World Congress trade show in Barcelona. I’m rather hoping Simon Ainslie at Nokia will come through with his offer of a demo version. Then I can tell you what it’s like to carry three devices with you!

However, the smartphone ‘route to riches’ is getting more difficult by the month. RIM (the Blackberry makers) issued a profits warning which saw their shares tumble another 17%. See Blackberry turnover in the FT. Although unit volume is up 20% as Blackberry move into the consumer arena, unit revenues fall. And, of course, the high margin corporate sector is pretty constrained at the moment.

Media enterprises and the cloud

noreply@blogger.com (Richard Holway) — Fri, 13 Feb 2009 09:31:00 +0000

(By Richard Holway) I was very interested to read in Silicon.com yesterday how The Guardian has moved to Google Apps. They have migrated 2300 staff to Google Apps Premium Edition “reducing the need for IT support” and presumably saving a fortune on Microsoft licences.

The Guardian director Andy Beale, said “one of the main benefits is the flexibility Google Apps offers due to being browser-based. With around 300 staff working in other countries or away from the main London.We operate all around the world and we have lots of disparate users and a web-based solution makes a lot of sense."

The media sector, with its large number of both knowledge workers and mobile staff, seems a natural for the Cloud – something I think I may have said myself on a few occasions in the last few years!

BT Global Services - Part 5 - What the Papers Say

noreply@blogger.com (Richard Holway) — Fri, 13 Feb 2009 08:57:00 +0000

(By Richard Holway) Following on from BT Global Services Part 4 post yesterday, I thought I’d today bring you a collection of quotes from other media.

In the FT, Ian Livingston joined the hoards of bankers this week that queued up to utter the ‘S’ (or in this case the ‘A’) word. “He said 2008/09 had to be the year that the group cleaned up Global Services. He added: “I wish we had done it quicker . . . frankly. I apologise.”

The Times was the first to put some scale to the problem “Writedowns relating to Global Services could eventually top £1.7 billion and would probably not be less than £800 million, sources close to the company indicated.”

There seems to be confusion over which is the second contract, other than the NHS, which is the subject to renegotiation. The Guardian says “one is believed to be a five-year outsourcing deal with Credit Suisse” whereas The Telegraph suggests it’s “ a contract with Thomson Reuters, the global financial data provider, and will be even greater than the £336m charge.”

In Forbes, "Michael Armitage of Blue Oar Securities said that, in spite of years of restructuring, BT was a big, lumbering organization, and Global Services was the "last uncontrollable monster" in the group."

Richard Mahony from Ovum in BT Global Services grapples with demons produced (inadvertantly?) The News Quiz quote of the week “The operations review, which BTGS chief executive Hanif Lalani said three months ago would take 90 days to reach step-change, is ongoing.”

Finally, here’s one from me from a recent private conversation with an “extremely high source at BT” who said “Our current problems have the fingerprints of previous management all over them”.

It’s interesting, isn’t it, that the only BT Global Services ‘previous management’ ever quoted in the press in connection with the current problems is Francois Barrault. But surely it is testing the ability even of a Frenchman to wreak such havoc in such a short period of time?

So I’ll end with a rare quote on HotViews from the Daily Mail.

“Under Livingston's predecessor, Ben Verwaayen, business boomed as BT snaffled a series of huge contracts from under the nose of IBM and other technology giants. But it appears that the Dutchman and sidekick Andy Green - now chief executive at IT group Logica - allowed the thirst for deals distract them from the bottom line.
Insiders say Verwaayen valued some of the big contracts, notably a landmark deal with consumer products giant Unilever, using assumptions that proved wildly over-optimistic.
The rationale had been that after signing up scores of multinational companies, economies of scale would kick in, sending profits soaring. However, Verwaayen and Green promised tailor-made services to too many clients, which were extremely expensive to deliver, according to sources”

Micro Focus ‘making do’ nicely

noreply@blogger.com (Anthony Miller) — Fri, 13 Feb 2009 08:13:00 +0000

(By Anthony Miller). One of our favourite UK software plays, Micro Focus, looks on a ‘steady as she goes’ course, according to its Q3 IMS today (see here). CEO Stephen Kelly reiterated recent guidance of a flat H2 compared to H1 on an organic basis though recent acquisitions will give a slight revenue boost. Margins sound like they should come close to H1’s 42.7%.

Yesterday Micro Focus also announced a new framework agreement with UK BPO leader, Capita, who will use Micro Focus’ tools to ‘modernise’ its Life & Pensions systems. As we have said many times before, if you are going to hang on to anyone’s coat-tails, you can’t do much better than the UK BPO market leader! As we have also said many times before, Micro Focus is once again a company for the times, fitting in ever so sweetly with the ‘make do and mend’ imperative that CIOs are pursuing in the quest to maintain and modernise legacy applications on lower IT budgets.

Capita is no different from any other commercial enterprise in looking for cost-efficient IT. Indeed, last month Steria UK announced a 5-year deal to develop and maintain Capita’s L&P systems (see here). The work will be done offshore by virtue of Steria’s acquisition of Xansa back in 2007. Capita’s relationships with Micro Focus and Steria clearly suggest it is taking very seriously the emerging threat from TCS and HCL, both redeveloping their UK L&P processing platforms, TCS via Pearl/Diligenta and HCL via Liberata. However, these Indian players still have a long way to catch up with the UK market leader.

Pioneer gives up on plasma

noreply@blogger.com (Richard Holway) — Thu, 12 Feb 2009 16:10:00 +0000

(By Richard Holway) News that (see FT 12th Feb 09 - Pioneer quits TVs and cuts 10000 jobs ) Pioneer is to stop making plasma TVs is pretty shocking. The Holway household boasts a 50 inch Pioneer plasma in our home cinema room and it’s pretty awesome – as was the price! We’ve has it for nearly three years now and the price of an equivalent screen is probably down by two thirds.

Three years ago I felt pretty comfortable – as did most of the population. Can’t say I feel that way today. I certainly wouldn’t have spent anything like that now. But the real issue is that I wouldn’t have needed to. I was hardly likely to install a bigger screen than 50 inches after all!

So the Holway household is a pretty good example of the awful ills affecting the consumer electronics sector. Consumers lack the confidence to buy the big ticket/high margin items AND the unit price (and associated profit) has fallen like a stone.

Capgemini sees offshore ‘core’ to strategy

noreply@blogger.com (Anthony Miller) — Thu, 12 Feb 2009 10:19:00 +0000

(By Anthony Miller). It was virtually Capgemini CEO, Paul Hamelin’s opening statement in the company’s FY08 results concall this morning, and it was a theme echoed throughout the presentation. Capgemini now has over 20,000 employees in India (+21% yoy), the lion’s share of its 25K-ish offshore headcount. Highest offshore growth (+37%) was in Poland, where Capgemini now has over 3,000 staff. Indeed, over 40% of its 22,500 new hires last year were offshore, helping to bring group average remuneration costs down 4.5% (currency adjusted). This was in spite of 9% (local currency) offshore salary increases and 4% onshore. Outside of Consulting and the Sogeti bodyshop operation, 36% of Capgemini’s effort was delivered offshore; this should rise to over 40% this year. Offshore mix reached nearly 80% in Financial Services (thanks to Indian SI, Kanbay, acquired in 2005) but even in Southern Europe, Cap’s SI business reached 10% offshore content. By the way, group margins grew 110 bps to 8.5%. Get it? Got it! Good!!

Now, onto the UK. FY08 revenues (including Ireland) were just under flat in constant currency (ccy) terms, at €1.92bn. However, surprisingly, revenues grew 1% yoy ccy in Q4, though were 2% down compared to Q3. Revenues from the all-important Aspire contract fell 8% last year though are expected to be broadly flat this year. UK margins rose from 6.8% to 7.8%, ahead of France (7.3%) and North America (5.8%) but way behind Benelux (14.2%) and Germany/Central Europe (14.0%), which have a higher proportion of bodyshopping.

There’s lots more to go through and I may well update this later.

BT Global Services Q3

noreply@blogger.com (Richard Holway) — Thu, 12 Feb 2009 08:51:00 +0000

(By Richard Holway) There weren’t any more real surprises from BT Global Services in the Q3 results announcement this morning. Revenues for the quarter increased by 15% to £2.25b. But, as foreign currency gains contributed 9% of that and acquisitions the other 6%, organic growth was flat at £1.96b. Even then, the only growth came from outside the UK. UK revenues declined 3%.

Order intake “remained steady” at £1.8b and BT expects longer lead times in customer decision making. Good news included an extension to the Liverpoool City Council contract and a new contract at Sandwell.

There was no further news on the fate (and associated right downs) on the two largest contracts. The review will be completed in Q4 and “may result in further substantial one-off charges in the current financial year” to add to the £336m writedown on the first 15 contracts already announced.

On top of all that, the ongoing review into all aspects of BT Global Services could result in additional one-off charges. The labour force has already been reduced by 1500 and “further reductions are expected”. Excluding all the bad stuff, BT Global Services is now breakeven (£17m) on the EBITDA level; where all the previous excuses are cited: high costs, slow delivery of cost savings, continued decline in high margin UK business ‘changes in assumptions and estimates on some major contracts’ etal.

So nothing to change anything we have said in the past (see BT Global Services Part 1 and BT Global Services Part 2) BT’s review must decide what BT Global Services is for and either acquire (extremely unrealistic!) or divest accordingly.

BT shares have opened nearly 5% lower and, at 99.9p (9.00am), have just broken the very physiologically important £1 level. Down nearly 30% YTD.

The Big Debate helps raise £10K for Prince's Trust

noreply@blogger.com (Richard Holway) — Thu, 12 Feb 2009 08:19:00 +0000

(By Richard Holway) Great to see so many of you again last night at The Big Debate at Fujitsu’s Baker Street HQ.

It was extremely well attended with around 100 present to hear both my and Richard Christou’s views on global tech development in the next 10 years. You can always tell how well something has gone by having to curtail the questions from the floor and find that people are still talking (and drinking and eating) long after the allocated end time!

This single event raised over £5K and the Fujitsu Million Makers team has now raised over £10000 for the Prince’s Trust. Much praise and thanks to Mudassir Husain from Fujitsu for his initiative in putting this together – he will go far!

Picture L to R: Mudassir Husain, Richard Christou, Richard Holway, Jamie Webb

CSC bucks trend with outsourcing decline

noreply@blogger.com (Anthony Miller) — Wed, 11 Feb 2009 09:22:00 +0000

(By Anthony Miller). Somewhat contra to other players’ experience, CSC saw outsourcing revenues decline 3% (constant currency, ccy) in Q3 (to 2 Jan. ’09), yet business solutions and services revenues grew 7% ccy. CSC’s North American public sector business also grew 3%. Chairman, president and CEO (that’s a heck of a day job) Mike Laphen attributed the outsourcing decline to contract decision deferrals, though currency movements turned the -3% into -13% as reported.

What this suggests is that CSC has been unable to get much (any?) extra ‘out of contract’ work in its existing outsourcing client base and has to rely much more on winning new deals to keep the business growing. Traditionally, ‘add-on’ work has been the ‘cream’ on large outsourcing deals, both in terms of revenues and margins, but with the clampdown on discretionary projects, CSC seems to have been caught a bit short. However, Laphen said that order sales were up on last year for the 9 months YTD. Net net, total Q3 revenues rose 2% ccy to $3.93bn and operating margins expanded 110 bps to 9.4%. Sounds pretty reasonable in that respect.

CSC’s strongest verticals were Publics Sector and healthcare – a theme I think we are going to hear repeated quite often from other players in the next few quarters.

Morse – And then there were four

noreply@blogger.com (Anthony Miller) — Wed, 11 Feb 2009 08:35:00 +0000

(By Anthony Miller). Or seven-and-a-bit, depending how you count them. That is, the number of discrete businesses remaining in the fold assuming the sale of Morse’s UK & Jersey investment management consultancy business, CSTIM, to US consultancy Navigant, completes as planned (see Morse closer to consulting exit). The ‘bit’, by the way, is the one remaining contract at South Tyneside & Gateshead in Morse’s defunct Education business, now being separately managed.

In reporting the company’s interim results (see here), executive chairman Kevin Loosemore also announced that FD Mike Phillips is to immediately step up to the CEO role, and that Loosemore will go non-exec when a new FD is found. Phillips - who we really rate - was FD at Microgen at the time the two companies were fighting to buy SAP consultancy Diagonal back in 2004. At the time, Morse had revenues of some £350m and Diagonal about £56m. Morse won, though this turned out to be rather a Pyrrhic victory. Diagonal’s revenues dropped over 20% yoy to just under £14m in 1H09 (to 31st Dec. ’08) and remains saddled with a number of “problem projects”. When you think of the premium HCL paid to buy UK SAP consultancy Axon, you wonder where Diagonal could have been in an alternative universe.

Just for the record, only Morse’s UK Infrastructure Services & Technology division remains truly profitable (i.e. including restructuring charges etc), at a 2.2% margin; the lion’s share of revenues (~70%) comes from product sales. However, this is better than Computacenter’s UK business which reported a 1.3% margin at its first half in June.

I suspect that the fate of much of the rest of Morse’s businesses will be as for CSTIM, i.e. sold at bargain-basement prices with the only other option to close them down. Messers Phillips and Loosemore (and the new FD) have a hard grind ahead, but there will be buyers out there ... at ‘realistic’ prices.

Jolly hockey sticks

noreply@blogger.com (Richard Holway) — Tue, 10 Feb 2009 22:28:00 +0000

(By Richard Holway) Good to meet many readers at the Regent Conference yesterday.

This was the 14th Regent Conference and I think I have attended 12 of them. Each year the CRO from one of the world’s largest research firms presents their forecasts for global IT spend. During those 14 years, IT growth has been greater than in the preceding year in 8 years. No wonder we all got very used to ever increasing growth! But growth rates reduced in three years and growth was negative in another three years.

However, checking back through my Regent Conference folders, I can’t find any forecast growth chart from any of these firms which shows anything other than continued high growth or a ‘hockey stick’ return to growth in the year to come. There was never any forecast of negative growth. In other words, these firms have got the trend line seriously wrong over 40% of the time.

At this year’s Regent Conference John Gantz from IDC (who I have both known for a long time and have considerable respect for) presented the forecast in the chart below. IDC have revised these forecasts down several times in the last six months. In Aug 08, IDC were forecasting Worldwide IT growth in 2009 of 5.9% (an increase on 2008) (By the way, Forrester at last year’s Regent Conference forecast double digit growth for 2009 and 2010 - see my Hope is not a Strategy post earlier this week) Now IDC is forecasting growth of just 0.7% for 2009. But, as you can see, the classic ‘hockey stick’ chart again shows a return to 4.5% growth in 2010 and ever higher in the following years.

I publicly took issue with Gantz over this. I think it is too optimistic and many in the audience seemed to agree with me. I think we will see declines in 2008, 2009 AND 2010 with a return to very modest growth in 2011. It’s not just the economic downturn to blame – it’s a major change in how and what IT people buy.

Trouble is that all this really matters. Organisations will take decisions based on these forecasts. If they see this kind of bounce coming as soon as 2010, they might put off taking the hard decisions needed to be taken now.

Unisys – in dire need of a raison d’etre

noreply@blogger.com (Anthony Miller) — Tue, 10 Feb 2009 21:45:00 +0000

(By Anthony Miller). Reporting ‘read them and weep’ results (see here) , new Unisys CEO Ed Coleman could do little other than lay out yet another plan to restore the fortunes of what used to be one (OK then, two: Univac and Burroughs) of the most respected names in the ‘old world’ IT industry. There’s nothing intrinsically silly about narrowing focus to key markets and offerings, and generally cutting costs, but we've been here before. Unisys really seems to be in need of a ‘raison d’etre’; it didn’t find it in boom times so what hope now? Its stock has fallen 80% over the past year and the company is now worth little over $250m (yes, that’s millions, not billions). How the mighty fall.

Nasscom sees 15% two-year offshore services growth

noreply@blogger.com (Anthony Miller) — Tue, 10 Feb 2009 07:43:00 +0000

(By Anthony Miller). Nasscom, the Indian IT/BPO services trade body, has decided to take a two-year view on its usually conservative forecasts for Indian offshore services growth in light of the “volatile environment”. Nasscom is expecting 16-17% offshore IT/BPO services growth this fiscal year (to March ’09) to $47bn. This should be pretty much a done deal seeing as we are almost at half-past February. As usual, the top-tier players such as TCS and Infosys will probably come in somewhat higher, around 20%. The Indian domestic IT/BPO market is also expected to grow around 20%.

But Nasscom then jumps two years hence and predicts 15% compound growth to March ’11. Given that we are expecting barely double-digit offshore services growth in calendar 2009 (India’s FY10 to March ’10), this is reasonable but probably the upside case, implying a demand pick-up in late calendar 2010. Frankly, our crystal ball gets a bit hazy by then, but it’s not a bad stake in the ground. The mists should clear over the next couple of quarters when we get a better idea how much longer world economies are going to decline.

But whether the growth rate is 15% or 10% - or even 8% - this is faster than we are expecting for the UK IT services sector. We will be publishing our authoritative forecasts next week and they don’t make comfortable reading (but there again, our forecasts rarely do!). In other words, we believe the Indian offshore services players will gain share in global IT services markets – despite any fall-out from the Satyam scandal – although hardly the 30%, 40%, 50% type of growth rates they had been used to up until a year or two ago.

Nasscom’s annual Leadership conference starts tomorrow in Mumbai. There really should be only two main topics for discussion: growth and governance.

Morse closer to consulting exit

noreply@blogger.com (Anthony Miller) — Mon, 09 Feb 2009 19:42:00 +0000

(By Anthony Miller). Morse has found a buyer for the largest part of its investment management consultancy (IMC) business, selling CSTIM to the UK arm of US management consulting firm, Navigant. Morse acquired CSTIM in April ’04 for some £6m and will get £1.3m cash up front from Navigant with another possible £400K profit-based earn-out. CSTIM fell into loss in Morse’s H1 (to 31st Dec. 08) and revenues had declined to £3.2m, so I wouldn’t necessarily be placing huge bets on the earn-out bit. The deal was ‘do or die’ for CSTIM – Navigant would only buy if Morse agreed to terms without the delay of going to shareholders, for which the UKLA gave approval - otherwise Morse would have had to close the business. The rest of the IMC businesses will be closed down or sold off.

Despite the ‘take it or take it’ nature of the deal and the associated £14m goodwill write-down, this was absolutely the right thing to do. As we said back in September (see Morse still aims for 7.2% margin), there’s really little option left for Morse CEO, Kevin Loosemore, other than to knock the five (soon to be four) Morse businesses into best possible shape and get the best possible price for each. So, one down ...

Kofax documents more restructuring and layoffs

noreply@blogger.com (Anthony Miller) — Mon, 09 Feb 2009 09:50:00 +0000

(By Anthony Miller). Document capture and management player, Kofax, signalled another £2.2m in restructuring charges and 50 redundancies as first-half growth (to 31st Dec. '08) failed to meet expectations (see here). Both the software and hardware divisions saw revenues decline in constant currency (ccy) terms, dragging group revenues down 6% ccy to £90m. Operating margins fell from 7.9% to 5.3%. Part of the problem was that Kofax was rather blind-sided by scanner overstocking in its OEM business; this sounds like a ‘one-off’ rather than (we hope) a sign of more pervasive ‘channel stuffing’. These results make management’s double-digit revenue growth target look tough to meet, though CEO Reynolds Bish still expects FY results in line with “current” expectations.

These are tough times for Kofax, a 20-year veteran in the market. Despite analyst reports (not ours, I hasten to add!) indicating that the document capture market is likely to be more recession-proof than other segments, it’s pretty clear, as Bish reports, that the deteriorating conditions are in fact seeing scanner purchases weaken. Frankly, we don’t see this market as ‘non-discretionary’ spend, so we are not in the least bit surprised. Indeed, you only have to look at the recent trading statement from (much smaller) document management software player, Invu (see here) how sales cycles have lengthened in this market.