Tuesday, 31 March 2009

Celebrate Success!

(By Richard Holway 9.00pm 31st March 09)
Today was the last day of my two year stint as Chairman of the Prince’s Trust Technology Leadership Group and I spent it in the company of Prince Charles, Alesha Dixon, Rob Brydon, Michael Sheen and others at the Odeon Leicester Square for the Prince’s Trust Celebrate Success Awards. Actually the REAL STARS were all the fantastic young people who the Trust has helped. Their stories were both uplifting and gut-wrenching. Gina Moffatt was serving six years in Holloway when the Trust literally picked her up at the prison gates and helped her to form her flower business. Or Louise Firinne (who won the Capgemini Enterprise Award) who had been seriously abused when young, was homeless before being helped by the Trust to form Simply Rouge – a wedding stationery business. Or Ben Armstrong who was bullied at school and fared little better at home – until he attended one of the Trust’s XL programmes and now has enough GCSEs to go to Sixth Form College. I could go on…

It has been a fantastic two years for me. My involvement with the Group since its inception in 2002 has personally been hugely rewarding and enjoyable.

I’d like to think it has been successful too.. In the last year we have raised over £2 million for the Trust; up around 60 per cent on the previous year. Indeed, that means we have raised £3.5 million in my two years as Chairman and £7.5 million (or over £9 million if pledges are included) since the Group started.

In the current downturn, The Trust and the disadvantaged young people it helps, need our support even more than ever and I’d like to think we have made a major contribution to The Trust’s work.

In the past two years we have been particularly successful in growing our relationship with our supporters as evidenced by the number that have progressed from Member to Patron. Also, we have really raised the bar getting tech entrepreneurs to give individually to The Trust.

I’d like to think that we have built a ‘must join’ network too. Our events are now really well attended; particularly by CEOs and the very top executives in the sector. The Gala Dinner at Windsor Castle, attended by HRH Prince of Wales was, I think, the high spot in the whole history of the TLG.

I am also particularly pleased that BT have, for the fifth year, agreed to sponsor my ‘State of the ICT Nation’ presentation and the TLG’s ICT Leaders dinner atop BT Tower to be held this year on 21st September 2009. Please put the date in your diaries.

I’d like to think we have had great fun too! Who ever said fundraising had to be boring?

Finally, a BIG thank you to everyone who made this happen. A real team effort with the committee, our members and the good people from The Trust, in particular Jamie Webb who heads the TLG, working hand-in-hand.

Adam Hale from Russell Reynolds takes over as the Chair on 1st April 09 - with Fiona Timothy of COA Solutions as his Vice Chair. They will make a great team carrying the Trust to even greater heights.

Bond not sticking its head in the sand

(By Anthony Miller – Tuesday, 31st March 2009 9:40am). Recruitment and HR software and services player, Bond International, which announced its 2008 results today (see here), makes an interesting case study on the challenges that small software firms face in a recession, and the initiatives they take to surmount them. Bond’s approach is a combination of diversification and new business models, both of which come with some pain.

We spoke before about the strains that Bond’s move from a traditional ‘up-front licence fee + support’ model to a software rental and SaaS model is incurring (see New Bond model strains margins). These now represent 17% of Bond’s revenues, up from 14% in 2007. But this move, coupled with a the general downturn, saw Bond's margins dive from 24% to 17%. But this move is not an option. We talk more about this in our forthcoming AnalystViews notes on Cloud Computing tomorrow.

Bond also diversified from ‘pure’ recruitment software into HR and Payroll software and services (seems a logical extension) and, more controversially, into Web Services. To be honest, this latter business, called Abacus, seems a little out of left field to me, primarily serving Media and Public Sectors. Management says that Abacus also helps their core R&D teams with web interface design, but I’m not sure that’s sufficient justification, given that Abacus has the lowest margins in the group (14%). Nonetheless, at least management is not just sticking its head in the sand and hoping for the best; that’s our worst fear for software players as the storm ‘clouds’ – in every sense of the word – gather.

Mouchel ticks most of the right boxes

(By Anthony Miller – Tuesday, 31st March 2009 9:00am). ‘Serco-lite’ – more accurately known as UK-based BPO player, Mouchel, substantiates the case that outsourcing in general, BPO in particular, and public sector especially, are safer havens in these stormy seas. Half-time revenues grew 11% organically (see here) to £366m, with the Hedra and HBS acquisitions pushing headline growth to 19%. “Adjusted” margins (sans nasty bits) rose 90bps to 6.8%, though true margins jumped 200bps from 3.5% to 5.5%.

There’s not a huge amount of Mouchel’s business we’d call software and IT services (SITS) ‘within the meaning of the act’, but with over 40% of its revenues coming from the UK public sector, Mouchel are sure to bump into Capita, Liberata, et al from time to time. Being more oriented towards infrastructure projects (e.g. highway maintenance), Mouchel is seeing some early benefit from the Government’s ‘fiscal stimulus’ package. We think the more traditional SITS players will have to wait longer to see the effect of these initiatives flow through as IT projects.

The only major bad news I could see in Mouchel’s results was a fall-off in its Middle East business, where it experienced “a sudden slowdown in demand for infrastructure development in Dubai”. ME is just 10% of Mouchel’s revenues.

The other highlight of Mouchel’s results was the successful renegotiation of its banking facilities, to the tune of £190m over the next three years. I would assume businesses that can show a high proportion of long-term recurring revenues from ‘assured’ sources will get a much more favourable hearing from banks than others!

Fujitsu’s new Global Business Group

(By Richard Holway 10.01pm 30th March 09)

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An interesting year for Richard Christou
It has been, to say the very least, an ‘interesting” year for Richard Christou. Before I get on to the announcements which take effect to Fujitsu’s Global Business Group on 1st April, let’s recap through the items you could have read on UKHotviews.

Christou had taken on the CEO position at ICL in 2000 in equally ‘troubled times’. One of his first acts was to accept that ICL was a wholly-owned division of Fujitsu and not ‘an IPO or MBO in waiting’. It was soon renamed Fujitsu Services and David Courtley joined from EDS to run it. I’d rather expected Christou (now Executive Chairman) to retire and was suitably surprised in 2007 when he told me over a lunch at Mosimanns that he’d been invited to take on responsibility for much of Fujitsu’s operations outside Japan. Indeed, in Oct 08 (see my post Richard Christou 22nd Oct 08) Christou was appointed Corporate First Senior Vice President with overall management responsibility for Fujitsu's global business. Even at that time, it was a mighty big job - 60,000 people and upwards of €18b revenues.

Then in Nov 08 (see “One head better than two” at Fujitsu Siemens 4th Nov 08) the job got even bigger with Fujitsu paying Euro450m for Siemens part in the Fujitsu Siemens JV. This acquisition becomes effective on 1st Apr 09 and adds c€6.6b to Richard’s responsibilities.

Then we received another surprise on 10th Dec 08 when it was announced that David Courtley had departed Fujitsu Services 10th Dec 08

The Solutions-led model – the Christou Vision
We had a long interview with Christou at that point (see “Think Fujitsu” – the Christou vision 11th Dec 08) which gave a pretty clear indication of how Christou would run the Global Business Group.

Basically (as I reported in November) Christou believes that in many markets and geographies, Fujitsu’s future lies in Solutions-led sales NOT Services-led sales. In my 40+ years in IT, I have seen the pendulum swing. In the late 1960s/70s I was deeply involved in Hoskyns (now Capgemini’s) turnkey sales operations. We sold solutions based around our own software packages and DEC VAXs; all packaged with our wrap-around support – from front end consultancy through to post implementation hardware and application maintenance. We did very well – as did its sister HP3000 division.

But since then, we have seen the evolution of the SIs –Accenture, CSC, Capgemini etc – where the Service-led model has dominated. Various degrees of the solutions-led model continued with HP and IBM – both companies, of course, with strong hardware operations.

The Christou vision now sees Fujitsu moving more to this Solution-led model. Christou argues strongly that this is the only approach that works in the all important developing markets of China, India etc as well as parts of Continental Europe. Here, the outsourcing model, which might be appropriate in the UK, is not the right approach.

The New Fujitsu Global Business Group
A few weeks ago, Christou briefed me on the new operating model to become effective from 1st April. Christou will introduce an operating model where the regions are responsible for “selling and delivering integrated product and service offerings” with Fujitsu Siemens being integrated vertically within those regions. On top of that there will be delivery units providing global functions (like marketing, business management etc.)

Running through the regions:

Fujitsu Australia and New Zealand – CEO Rod Vawdrey. cA$1.2b operation. Christou thinks that this is the ‘model region’ where the management of products and services is already well integrated.
Fujitsu ASEAN - CEO Laurence Wee. c$400m business serving Japanese multinationals in the region.
Fujitsu China (North) - CEO Masayuki Tomimuro
Futitsu China (South and Hong Kong) CEO Yau Kan
Futisu North America - CEO Farhat Ali. This will integrate three major Fujitsu companies in North America.
Fujitsu UK and Ireland - CEO Roger Gilbert. Many readers will know Roger. He now takes on an integrated Fujitsu and Fujitsu Siemens operation with revenues of c£1.75b. I was surprised about how much customer overlap there was between FS and FSC in the UK.
Fujitsu Nordics - CEO Bengt Engstrom. Pretty self-contained already and profitable! Lots of solutions selling particularly around SAP
Fujitsu Continental Europe - CEO Kai Flore Essentially the Fujitsu Siemens operations in Germany but now embracing Fujitsu’s operations in France, Benelux and Spain.
Fujitsu Telecommunications - CEO Andy Stevenson

…and the functions

Global Marketing – Philip Oliver
Global Client Management – tba
Global Delivery - Paul Tasker
Global Business Management - Akihasa Kamata


My view?
This could be a risky and, certainly some think, a controversial move. Many believe that the Service-led model leads to a high quality business with high margins and would look to Accenture as the ‘role model’ here. Many customers believe that product-led companies will always promote their own products regardless of what is in the best interests of the customer. Many believe that hardware is increasingly a low (or no) margin business. Indeed, we have already seen IBM jettison its own PC business. The only way with hardware is…out.

I’ve never believed that ’one-size-fits-all’. Even in Europe, what sells best in the UK (one of the most ‘services-led’ markets in the world) is different to Germany and quite, quite different to China. Christou argues that his new structure caters for that. That the structure provides a framework for his mantra “Think global, act local”. Philip Oliver (Fujitsu’s 'new' Global Marketing Director) told me last night “the combination of the transnational model we are establishing, which gives the flexibility to the regions to sell in the way most appropriate to their local market, is far more important than full blown solution selling. In the extremes, in China product sales are all and locals deliver the services except to multinationals, whereas in the UK very few products are sold without a service wrapper of some sort. We are definitely not talking about only selling massive SAP or bespoke style apps deals here, this really is horses for courses”.

Christou is now in charge of a €25b+ organisation with around 14 really significant direct reports. That’s a big personal undertaking.

And, of course, this is all being undertaken against a backdrop of the worst economic downturn in my lifetime; affecting many of Fujitsu’s markets particularly badly.

Christou sees his role model as IBM and HP – although both took decades to built a network of ISVs and, indeed, undertook a series of pretty significant acquisitions to get to where they are today. Maybe that’s what Christou now needs to consider – but where are the resources to do that going to come from in today’s troubled markets?

Footnote – Sorry that this is a rather longer note than we would normally publish but we know how many of our readers are really interested in this (not least our many Fujitsu subscribers) and know the personnel – Christou, Oliver and Gilbert – well. These longer, exclusive briefing notes will normally only be made available to our subscribers.

Monday, 30 March 2009

Dunfermline Building Society still banking on Temenos!

(By Anthony Miller – Monday, 30th March 2009 6:30pm). The interesting side story to the collapse of Dunfermline Building Society (DBS) is the contribution made by “unfortunate decisions on technology” as mooted in today’s FT (see here). The article reports that DBS was forced to make a £9.5m write-off on last year's £11m profits because of a failed IT system. This echoes an intriguing article in Scotland’s The Herald newspaper a few days ago (see here) which suggested that DBS had ploughed £31m into its IT subsidiary, Dunfermline Solutions.

When I followed the trail, I came across an article in the IBS Journal (see here) which explained that DBS had signed a deal back in 2002 with Switzerland-based banking software firm, Temenos, to implement its Globus banking product (since superseded). IBSJ thought DBS’s choice risky, saying: ”While Darlington (another building society referred to in the article) has opted for a tried and tested solution, Dunfermline Building Society is doing the opposite, having signed for Temenos’ Globus at the end of 2002. This will be the first UK building society to use the system, but the Dunfermline is confident of its applicability, to the extent that it has created a subsidiary company with the intention of marketing the system on an outsource basis to other societies once it is live.”

I spoke to Temenos and understand that DBS signed a new contract with Temenos in Feb. 2008 to implement Globus’ successor product, T24, and that this system went live successfully in November. It is not clear whether Globus itself ever went live at DBS, although it was apparently only part of a much larger and ambitious IT programme. I suspect that DBS’ new owner, Nationwide, would likely continue with T24.

It’s really hard to say what contribution the failed IT programme made to DBS’ collapse with such scant information. Was there a problem with Globus? Or was it just that DBS management were so dead set trying to turn Dunfermline Solutions into a third-party outsourcer that they forgot who was actually paying the bills? Temenos has a pretty good reputation with T24 as far as I understand. Indeed, IBS ranked T24 top in its 2008 Sales League Table of core banking system sales for the second consecutive year. I’m sure we will be hearing more.

New this week from TechMarketView

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Harvey Nash founder resigns

(By Anthony Miller – Monday, 30th March 2009 7:15am). David Higgins, one of recruitment-cum-offshore services firm Harvey Nash’s founders, has stepped down as Deputy Chairman with immediate effect. I first met David quite some years ago when he was CEO; he handed the reins over to then CFO, Albert Ellis, in 2005. As it happens, I bumped into David just a couple of weeks ago at German testing company SQS’s St Patrick’s Day celebration (!) and he seemed very chipper. Not sure of the background to David’s exit so will do a bit of digging.

UPDATE (12:30 pm)

I spoke to Harvey Nash CEO, Albert Ellis, and the parting seems to be entirely amicable. Indeed, David Higgins is not cashing in his shares (I think he holds a little under 10% of the company’s stock). We wish him well.

Sunday, 29 March 2009

Accenture update – and why we love outsourcing

(By Anthony Miller – Sunday, 29th March 2009 8:15pm). When you peak under the covers of Accenture’s recent results (see Accenture feels the effects of the downturn too) you can really see how consulting dropped off a cliff last quarter ... and how reliable outsourcing has been. The chart shows Accenture’s consulting (includes SI) revenue growth vs outsourcing over the past year at constant currencies (ccy). Outsourcing now represents 43% of Accenture’s revenues compared to 40% a year ago.

Dig down even deeper and you see that not all vertical sectors suffered. Whereas consulting revenues dived 14% ccy in Financial Services (20% of total revenues), they grew 15% in Public Sector (13% of total revenues) and 14% in Resources (18% of total revenues). Outsourcing growth was strongest in Products (+16%) and Resources (+14%).

We can only reiterate Accenture COO Steve Rohelder’s comments on the concall: “Companies are rethinking their priorities, looking at projects that will provide an immediate return on investment, deferring large, new, transformational IT projects, and turning to outsourcing to lower their cost structures”. Exactly!

Apocalypse now?

(Richard Holway 7.00pm 29th March 09) DK Matai sent a link to a really thought provoking article in Advertising Age by Bob Garfield Apocalypse Now . It is a stompingly good opinion piece on how a combination of the recession and the move to online entertainment is causing chaos in the media sector.

In Newspapers, Garfield makes the point that far fewer people buy newspapers but more are viewing online. Great. So all the newspapers are trying to increase online viewers with the hope of boosting online (banner) ads. But “nobody clicks on ads”. So the model just ain’t working. And, as the Wall Street Journal and the FT have found, nobody is really prepared to pay for subscriptions either. Result? We will see a huge increase in newspapers filing for bankruptcy.

On TV networks, the rampant use of DVRs (where viewers miss out the adverts) coupled with a significant reduction in advertising spend, has led to major reductions in production spend. Indeed, we have seen this only too well at ITV in the UK. So TV networks eventually will not produce programmes. Which rather begs the question of what they are there for? Which eventually means they will disappear.

But it was when Garfield turns his attention to the online publishers that it gets really interesting. The problem is that most of the content here is user produced and therefore each piece has a limited audience. Although Search revenues are clearly a great model (for Google…), Advertising revenue is still miniscule. Google paid $1.65b for Youtube which managed just $90m in ad revenue in 2008. Facebook (what’s it worth? $15b? $3.7b?) had ad revenues of just $300m in 2008. And Twitter had zilch.

So, here we have all these ‘channels’, all attracting more and more subscribers but none of them having any decent model on how to monetise them. At the moment it feels great. As a subscriber, I now read all the daily newspapers for free on line. I can play all the music I want and watch all the videos I want, for free. I can keep up with all my friends and family on Facebook – for free. I can waste hours reading drivel on Twitter – for free. Indeed, closer to home, many of you read UKHotnews for free each day too!

Just like the model used by the banks (and the government) in the last decade, it cannot last. Most of the current ‘free players’ will fail. Unless new models to monetise are produced, we will all lose out as the very free services we currently rather like disappear.

More signs of maturity for tech

(By Richard Holway 6.00pm 29th March 09) In my Laughing all the way to the…SITS company? piece last week, I made reference to the ‘maturity’ of IT companies with particular reference to the growing numbers that were now paying quite decent dividends. This was occasioned by Oracle’s decision to pay its first dividend since its 1986 IPO.

I was therefore intrigued to notice another example of tech’s growing maturity as (according to Reuters) Google, Cisco, and Apple are among the names being considered for possible inclusion in the Dow Jones Industrial Average. The Dow, which serves as an indicator of the stock market by tracking the stock prices of just 30 of the largest, most widely held companies, has lost 25% of its value so far this year, prompting calls for changes in the companies it tracks. Citigroup and General Motors are two of the companies that will likely be removed from the Dow, as their stock prices have slumped.

Thursday, 26 March 2009

Accenture feels the effects of the downturn too

(By Richard Holway 10.00pm 25th March 09) Given that Accenture operates at the highest end of the IT value change, it is salutary to learn that they are starting to suffer too. Accenture reported revenues down 6% (+3% in local currency) at $5.27b for the Q2 quarter ending 28th Feb 09.

Accenture’s CEO William Green said that the “uncertain environment has had a dramatic impact on some of our clients”. Accenture said its consulting business, particularly systems integration, has been hit by a slowdown since January and that several of its operating groups experienced either a decline or slower growth in revenue during the second quarter.

Accenture lowered guidance for the full year to between flat and 4% growth. Total new bookings in the three-month period fell 7.1% to $5.98b yoy. In a microcosm of the fortunes of the sector as a whole Accenture’s Consulting bookings dropped 10% to $3.14b, while outsourcing contracts gained 7.2 % to $2.84b.

EMEA suffered particularly badly because of the $ exchange rate - with a 13% decline (+1% in local currency) to $2.415b

Financial Services was the worst hit – down 5% in local currency. Public Sector (+12%) and Resources (+14%) fared best.

Accenture’s shares fell 6% in after hours trading.

But there was some good news for Accenture today. They won a $100m/2 year deal with Santander to assist in integrating Abbey’s IT operations onto its proprietary banking IT platform, Partenon.

Media Democracy

(By Richard Holway 6.00pm 26th March 09) I’ve just been reading Deloitte’s “The State of the Media Democracy Survey”.

As regular readers know, I am very interested in how the use of technology varies by generation. One of the most annoying points that my own Baby Boomer friends make to me is “Why do the young spend so much time in front of their computers – why don’t they go out and do things like we did”. The problem is that the facts don’t stack.

When I came in from school in the 1960s and later, when my own children came in from school in the 1970s/80s, they slumped in front of the TV watching Neighbours! The Deloitte study indicates that whereas my own generation spends 18.7 hours a week watching TV, Generation Y (here defined as the 14-25 year olds) spend just 10 hours a week watching TV. It’s just that the computer has taken over as the entertainment device of choice. 79% of Generation Y find the computer more ‘entertaining’ than the TV. So what does Generation Y do when they are not watching TV? Well, playing computer games, social networking and texting/IM. Actually, they multitask – probably doing all these things at the same time!

This multitasking is a nightmare for advertisers. Across all age groups, only 36% said that when watching TV they did nothing else! And, as Deloitte’s say, isn’t it interesting that advertisement breaks are exactly the time needed to make a cup of tea.

But for all the various ways and times that we can now watch TV, it is rather comforting that 66% of respondents would rather watch their favourite TV programme at home, on the TV, when it is first transmitted.

The shared TV experience is still the best – whether it was me and my kids watching the Generation Game or today watching Strictly Come Dancing. And that is still the best way for advertisers to get at their customers.

If you would like to see more of the Deloitte report, Click here where you can download a summary or contact howarddavies@deloitte.co.uk.

Keep it Simple, Stupid

(By Richard Holway 1.00pm 26th March 09) Without giving away too many confidences, last year one of the boards on which I sit as a director discussed allowing the fund manager to use derivatives. I was against this. As it turned out, this was an extremely astute decision on my part as many other funds who went down the derivatives route have since found to their (and their shareholders) cost.

But, if I was being extremely honest, the reason I was so against deriviatives was simply that I don’t really understand them. I’ve had a long standing principle that I will not invest in things I don’t understand and I will not sit on boards where I don’t understand the product or service being offered. This isn’t a universal recipe for success either – in that things I thought I understood initially have sometimes turned out not to be so!

I therefore read the article - Daddy, tell me, what exactly is a derivative? in today’s FT - with great interest.

Let me quote what James Carville says in the last couple of paragraphs:

"As someone who has prided himself on being able to reduce complex problems to simple messages, I am totally stumped by derivatives.


After hours of research, they seem to be something rich, greedy bankers thought up to make more money selling them to other rich, greedy bankers. They did not understand what they were selling. Buyers did not understand what they were buying and insurers did not understand what they were insuring. Now the taxpayer is stuck with these things that no one can explain.

I thought Mr Obama did a good job on Jay Leno explaining the AIG situation until he used the word “leverage” (translation for laymen: financial shovel that people use to dig themselves into a deeper hole), a term that escapes 97 per cent of the public. It is not that Mr Obama is not communicating as well; it is that what he is communicating is too complex to reduce to simple words, especially when in the last 40 years, the length of a TV soundbite has dropped by 40 seconds. That being said, try this experiment. Contact an engineer and ask him what a bridge is. Or contact a doctor and ask what surgery is. Then walk into your local bank and ask your friendly banker what a derivative is."

In our own sector, the reason I liked companies like Capita, Sage and Autonomy is that it is really very simple to understand and explain to others what they do. That is NOT the case with many other SITS companies who have overly complex businesses. I remember visiting the old Trace in the 1990s only to be confronted with a presentation containing over 40 different business streams!

I’d always thought that Banks borrowed money from savers and lent it to house buyers and businesses for a slightly higher interest rate. Such a simple model seemed to have worked for most of my working life. I also thought that Investment Trusts invested in companies where they believed in their medium-long terms prospects. I was wrong here too as clearly short selling and derivatives have turned many Investment Trusts into little more than gambling clubs.

Personally, I’m in the KISS club. If I’m not bright enough to understand complex instruments or companies, then so be it.

Troubles in the Nordics?

(By Richard Holway 9.00am 26th Mar 09) Logica shares have fallen by 6% since Monday mainly as a reaction to the warning put out TietoEnator. Tieto warned of lower sales and a 12% fall yoy in Jan/Feb.

Tieto reported "Decline in demand, especially in the telecommunications and banking sectors, has continued during the first months of 2009. Additionally, the weakened currencies, especially the Swedish krona, have continued to have a negative impact on Tieto's net sales in euros." TietoEnator shares slumped 20% on the warning.

Tieto makes over 70% of its revenues from just Sweden and Finland. But Logica has a major exposure to the Nordics too where it makes c28% of it revenues (c£1b) and 33% of its profits. But given Andy Green’s positive comments last week, maybe investors are being a bit too harsh in making this ‘read across’ with Tieto.

IBM to fire 5,000 – and ‘hire’ 45,000 – or even 78,000?

(By Anthony Miller – Thursday, 26th March 2009 8:00am). According to today’s FT (see here) IBM is to lay off 5,000 staff in its US operations, many from Global Services. The media is also buzzing with stories that IBM has indeed thrown its hat into the ring to take control of Satyam, using a law firm to register its interest. Satyam used to have some 52,000 employees but more recent speculation puts the number nearer 45,000. Meanwhile, it’s all quiet on the Sun front, so to speak. Should that deal materialise, there’s another potential 33,000 FTEs to add to IBM’s payroll – well, in the short term, anyway!

Wednesday, 25 March 2009

Will Ratan Tata’s big stick hurt TCS UK?

(By Anthony Miller – Wednesday, 25th March 2009 2:30 pm). Tata Sons Chairman Ratan Tata’s veiled warning to cut more UK jobs at Jaguar Land Rover if Tata Motors doesn’t get Government loan assistance (see Sky News India article here) does not sound like an especially constructive way to engage with the UK Government. Tata is quoted as saying, "If funds are not available a company will not be able to run so layoffs will take place, redundancies will take place". The message seems pretty clear, though as ever, it’s worth reading the rest of the article to see the context.

This statement comes at a crucial time for India-based IT services companies – none bigger in the UK than Tata’s own TCS – which are desperately vying against each other to get a slice of the Government IT pie, the only segment of the UK IT market still growing strongly. I really can’t see how our Government will feel terribly well disposed to awarding IT services business to TCS when the chairman of its parent company is standing over it wielding a big stick!

Twitter - again

(By Richard Holway 11.00am 25th Mar 09) My foray into the wonderful world of Twitter has created a very interesting ‘postbag’. Clearly there are a few HotViews readers who think that any Twitter doubters are Luddites. There again, a majority of the responses I get seem to agree with me. My last report – McKinsey joins the Twitterers on 17th March 09 – ended with the words “Life is seriously too short to wade through this sea of flotsam and jetsam in the hope of finding a pearl of wisdom”. That seemed to strike a chord with many readers!

The FT today carries an interesting report - Small businesses find big value in Twitter website – purporting to show that UK smaller businesses have embraced Twitter (700,000 UK SMEs sending 3m messages a day) but larger companies have not. “Just 19 of the UK’s top 100 technology companies are using Twitter”.

The problem is that Twitter is fast turning into a corporate PR channel. You might think you are following an individual – but more and more of Twitter’s content is being put out by PR companies or marketing departments. Some Twitters suggest that we should post HotViews items on Twitter. But is that really what it’s for?

I’ve not looked at (or updated) Twitter for a week now. But I still get more and more followers! I expected interesting stuff from fellow analysts. But those self same analysts only seem to publish banal extracts from their lives (waiting at T5, lentils for dinner, fire alarm’s gone off etc)

I’m sure this post will elicit another set of “you are missing the point” comments. But, clearly, I am!

Footnote - A reader sent me a link to Steve Rubel's post - Twitter is Peaking. I suspect there might be a lot of truth in that!

Government CIO: Quotable quotes

(By Anthony Miller – Wednesday, 25th March 2009 8:45am). I whiled away an interesting and, yes, entertaining couple of hours last evening at the ASAPTech (Association of Strategic Alliance Professionals) event hosted by Ernst & Young. The guest speaker was John Suffolk, who, to give him his full title in all its glory, is Her Majesty’s Government’s Chief Information Officer for Transformational Government – but let’s just call him the Government CIO. The avuncular Mr Suffolk certainly put on a good show, speaking without the aid of slides, script or safety net (i.e. Chatham House rules did not apply!), giving his very personal perspective on how IT vendors should go about ‘partnering’ with Government (some would say the very definition of an oxymoron).

The evening was replete with witticisms and ‘bon mots’ interspersed with thoughtful insights into the joys of trying not only to win Government contracts, but making them work. Here’s some of Mr Suffolk’s musings – sort of verbatim, as shorthand is not my strong suit – along with my comments:

On the pace of technology development: “We are inventing things we cannot keep up with” (how true!).

On government offshoring: “I am getting a request if not every week, certainly every month to put some operations offshore to reduce costs” (no question the demand is there if there is the political will is there)

On Cloud computing: “A bit like driving at speed without your lights on in a fog” (I’m really not sure that’s the right analogy but it sounds good)

On the recession: “Recessions are when we see the rise of the next generation of entrepreneurs ... afterwards you never go back to the old ways of doing things” (dead right – we’ve been banging this drum for ages)

On Government outsourcing: The Government is already 65% outsourced – we will never bring that back in house” (so, 35% to go?)

On the ID card project: “The Bill changed 40% from the time it entered the parliamentary process till the time it came out the other end” (This is the crux of the problem dealing with major Government “IT” programmes)

On bidding for Government business: “The average tender process takes 76 weeks and vendors can spend up to £10m on their bids ... this all but precludes SMEs bidding in their own right” (Both these issues also strike at the heart of the problem)

I have to be honest, I’m not sure IT vendors took much solace from the evening as the ‘problem’ of partnering with Government appears almost intractable. Our IT industry association, Intellect, published a paper on this subject six years ago and is still engaged with the Government and industry trying to develop “new partnering models” to deal with matters like handling PQQs (pre-qualification questionnaires) and the involvement of SMEs. Many in the audience asked Mr Suffolk how he thinks industry can move the ball forward, and his almost stock response was “knock on (Trade Secretary) Peter Mandelson’s door”, a solution which rather teeters between being sage advice and a bit of a cop-out.

Perhaps the problem will never be satisfactorily resolved. After all, the motivations on both sides are quite different. When IT vendors engage with the private sector, they have a common ultimate objective – to maximise profits. When IT vendors engage with Government, the IT vendors aim to maximise profits; the Government aims to maximise votes. Trying to find the intersection between these goals – especially when the posts are continually moving – is just never going to be easy.

If you haven’t heard John Suffolk speak – and I can assure you he really is worth a listen – do come along to the Prince’s Trust IT security debate on Tuesday 7th April at the Royal Academy of Arts. For more information contact Jamie Webb, Head of the Technology Leadership Group - Jamie.webb@princes-trust.org.uk 020 7543 1317.

L and T: If we don’t get Satyam we’ll buy someone else!

(By Anthony Miller – Wednesday, 25th March 2009 8:00am). I caught up last week with Sudip Banerjee, since September 2008 the CEO of Larsen &Toubro Infotech (LTI). I had met Banerjee a few times previously while he was one of Wipro’s top executives running its largest business division. Knowing him to be a fiercely ambitious man, there was no way that he was stepping down from his multibillion dollar-a-year empire to run a $400m a year upstart just because he was looking for a quiet life! By all accounts, LTI are the front-runners in the race to take control of Satyam, partly because they are already Satyam’s largest shareholder, holding 12% of its stock. TechMarketView subscription service clients can read the full story – and some thoughts about who else LTI might buy if their bid for Satyam fails – in the latest issue of OffshoreViews, available now in the subscriber-only section of the TechMarketView website.

Tuesday, 24 March 2009

Professional Services Index Launched

(By Richard Holway 3.00pm 24th March 09) Interested to learn today of the Launch of a new Professional Services Index to cover law firms, management accountants etc. "The Managing Partners’ Forum (MPF), representing senior managers in professional services firms, organised the launch of the index that brought together 35 companies, including: Penna Consulting (support services), WS Atkins (support services), M&C Saatchi (media); and DTZ Holdings (property). To qualify, 80 per cent of the company’s core business had to require specialist knowledge, they must be regulated by a professional body or licensing authority, have an ethical code and provide infrequent, technical or unique services. Listed companies operating in financial services or with a market capitalisation below £20 million or above £1 billion were excluded."

The constituents of the Professional Services Index initially have a market value of £3.9b. Alex Magni, head of research at Noble, said "There are no specialist funds dedicated to professional services firms. Even in challenging market conditions, professional firms are fairly resilient.” Using historic data the index has outperformed the FTSE AIM 100, but shows more volatility than the FTSE 350 Support Services and FTSE 350 indices, according to MPF.

Indices are important. The absence of any tech indices on the LSE in the 1990s handed a major advantage to NASDAQ. TechMark was launched at the very height of the dotcom boom – and has suffered ever since. The fact that there hasn’t been a Professional Services Index before is amiss. Afterall it is said to represent c8% of GDP (tech is c10%). The overlap with our own tech sector will be significant. WS Atkins is a player in many of the outsourcing contracts we track. Some companies might well prefer to be in a Professional Services index than in a Tech index.

Charities face bleak future

(by Richard Holway 8.00am 24th Mar 09) Through my own involvement with the Prince’s Trust, I know that many HotViews readers are greatly interested and involved in CSR issues. As the recession deepens the need for the support that charities like the Prince’s Trust provides to the most vulnerable in our society actually increases. Conversely the funding reduces. Yesterday, the FT published the results of a survey from YouGov which revealed that corporates were planning a 34% reduction in charity donations in 2009 – equating to a £500m drop (based on £1.4b donations last year) See Company donors propose big cuts in giving.

I’ll give you a round up of my two years as Chairman of the Prince’s Trust Technology Leadership Group when it ends on 31st Mar 09. Many of you attended The Big Debate helps raise over £10K for Prince’s Trust with Richard Christou of Fujitsu and myself back in February. I’m very pleased that Mudassir Husain who ld the Million makers team at Fujitsu, received 1st Prize for the ‘Most Inspirational Chairperson Award’ at the London and South East regional finals.

Finally, there are still a few tickets left for the Prince’s Trust IT Security Debate, sponsored by Canon, on the 7th April at London’s magnificent Royal Academy of Arts.

Speakers include HM Government CIO and Technology Leadership Group committee member John Suffolk, Group Security Director Mark Hughes from BT and Chief cyber Security Advisor Ed Gibson from Microsoft will offer their perspectives. The debate will be chaired by the Co-Chairman of the Information Assurance Collaboration Group and Director of SBL, Colin Williams.

The evening starts at 6.30pm with drinks and after the debate will include a private viewing of the Canon sponsored Utagawa Kuniyoshi exhibition.If you are already a Technology Leadership Group member you get a free ticket but we would welcome non-members at £195 (to the Prince’s Trust, so all in a great cause).

For more information contact Jamie Webb, Head of the Technology Leadership Group - Jamie.webb@princes-trust.org.uk020 7543 1317

Private equity bid values TIG at 200%+ premium

(By Anthony Miller – Tuesday 24th March 2009 8:10am). Barely two weeks after Andy Roberts assumed the chair at insurance software and services player, The Innovation Group (TIG, see Andy Roberts takes chair at Innovation Group), the company has received an indicative 15p per share bid from private equity giant, Carlyle Group. TIG’s shares closed last night at 4.3p, 4% down on the day.

It would be fair to say that our coverage of TIG has not usually been flattering – we think with due cause. Indeed, I was invited to attend a private ‘therapy’ session with CEO Hassan Sadiq this very morning until I received a call a couple of days ago saying that he would not now be available.

For us this is a no-brainer. The TIG board rejected private equity approaches late last year mooted to value the company at 15-20p per share (see Innovation Group should "Take the Money") on the basis that “this was not at a level acceptable to the majority of the Company's shareholders”. The share price was then 3.45p. TIG shares peaked at a little over 7p in January before restarting another almost unremitting decline.

Far be it from us to give investment advice - indeed we are not 'authorised' to do so. But at the risk of repeating our musings, we really do believe Innovation Group should indeed “Take the Money”!

Monday, 23 March 2009

Logica - Two very different views

(By Richard Holway 10.00pm 23rd March 09) Readers interested in the fortunes of Logica have two rather contrasting reviews to contemplate. The FT (19th Mar 09) Busy Logica says IT orders holding up well has some pretty sceptical quotes from analysts such as “Anyone can sign contracts, the trick is [to keep] them profitable. The problems at BT Global Services have really shaken faith,” said Adam Wood, an analyst at Exane BNP. Or “Last April he promised 6-8 per cent revenue growth. He revised it down in August and now he is saying it will be flat. Who is to say he won’t revise it to minus 2 next month?” said Julian Yates at Investec.

Conversely, those that want the rose-tinted, completely non-critical, some might say even sycophantic version, should read Implementing change means there is no time to rest for Logica chief in The Times today.

Satyam sale moves to shortlist stage

(By Anthony Miller – Monday, 23rd March 2009 8:15am). It’s not perfectly clear which firms submitted formal expressions of interest – and ‘showed the money’ – to buy a controlling stake in Satyam last Friday but, as expected, media reports tag Larsen & Toubro, Tech Mahindra and Spice Group among them, though none have issued a formal press releases as far as I can see. Also mooted to have submitted EoIs are private equity players KKR and Texas Pacific (probably fronting other IT services players), but it appears that a PE-backed bid from iGate has not gone forward and that IBM and HP have also decided to pass. The Satyam board is expected to announce the lucky winner by 30th April.

Now it really becomes interesting as short-listed players get access to Satyam’s as yet unpublished restated accounts and operating metrics. There are all sorts of stories about staff losses and revenue declines, plus an estimated $100m worth of lawsuits, and who knows what other skeletons there may be lurking in closets in sunny Hyderabad. But I think the Indian Government will make whatever assurances and concessions it needs in order to save the Satyam business. My money (not literally, I hasten to add) is on one of the Indian players, and having met up with L&T Infotech CEO, Sudip Banerjee last week, I know they are very keen to take control. But the race is far from run.

Sunday, 22 March 2009

Laughing all the way to the...SITS company?

(By Richard Holway 4.00pm 22nd March 09) Last week, in my article about Oracle’s results, I ended with “In an interesting new twist, Oracle is to pay its first dividend since its 1986 IPO. Now there was a time when only boring old institutions like Banks paid dividends. Their place has been taken by 'boring' old software companies. Indeed, even our very own Boring Award holder, Sage now pays a dividend.”

I’ve been banging the “IT is now in its Maturity Stage” drum since 2002. Paying a dividend is the epitome of ‘maturity’ in my books. When IT was in its development stage dividends were unknown – you invested for capital growth. Many thought that concept went out of the window post 2000 and, after that, one-by-one SITS companies started to pay dividends. Now dividends are the rule – not the exception. Sage was one the last converts and now yields 4.3%. Logica is on 4.3% and Microgen on 4.8%. Of course, there are some much higher yields but they tend to be from companies where one suspects the dividend is not long for this world! The average SITS yield is currently 2.14%

A few years back, it was the banks that paid the dividends. Not any more!

The other thing that has changed is that actually SITS has been a very good place to put your money. A darned sight safer than the banks – as shares or deposits, one might add! Over the last 12 months, you would have lost 2/3rd of the value of your banking shares whereas your SITS shares would have lost just 8%.

Currently, it’s looking even better. In 2009 YTD, the FTSE SITS Index is UP 9.9% compared to the FTSE100 which is DOWN 13.3% but the FTSE Banks Index is down 33%.

Laughing all the way to the SITS company still doesn’t quite have the ring though, does it!

Market for mobiles getting really ugly

(by Richard Holway 4.00pm 22nd March 09) On 12th March 09, I published an article entitled Major slump in mobile phone shipments. The article was based on IDC Predicts Worldwide Mobile Phone Shipments to fall 8.3% in 2009. I remarked “the sharpness of the downturn almost takes your breath away. An 11.6% decline in Q4 2008 and 10% global decline forecast for ‘traditional mobile phones’ 2009 but a 20.3% decline in the US”.

This week the ugly evidence of this hit hard. Sony Ericsson announced that it expected to ship just 14m phones in Q1 – down a staggering 37% on a year back. Their shares plunged 9% as a result. Nokia announced some 1700 job losses and their shares fell 6%. The Telegraph suggests Motorola, the fifth biggest player, is thought to be on the verge of bankruptcy”. The pain was felt throughout the mobile phone supply chain too. This weekend, Vodafone has sent emails to its UK staff saying that bonuses will not be paid and wages are to be frozen. Vodafone has already made 500 staff redundant.

Gartner reckons that the manufacturers are being hit even harder as it is inventories held in the supply chain that have been reduced. In that respect, it’s a bit like car dealers who are desperate to shift stock before ordering any more. There is also mounting evidence of the other point I made – that users were now more interested in getting a better carrier deal than in a new phone. Indeed, the move by subscribers towards more data use – eg via dongles and smartphones – is also dramatically affecting the conventional mobile handset makers.

New this week from TechMarketView

We really are delighted with the reception that the new TechMarketView subscriber services have received in the first month of launch. Indeed, we are so, so pleased to welcome so many paying customers from some of the world’s largest companies. Thanks for your demonstration of support!

As well as the first edition of MarketViews, last week we released the first edition of OffShoreViews. This week we add to that with an interview with Sudip Banerjee and review of his company L&H Infotech – much in the news right now as lead contender to acquire troubled Satyam.

There is a whole programme of research coming on line in the weeks and months to come. Indeed a number of brand new initiatives on top of what we told subscribers they would be getting.

If you too want to join our ever-growing subscriber list, please drop us an email on sales@techmarketview.com.

Sophos – battling the giants

(By Anthony Miller – Sunday, 22nd March 2009 1:50 pm). They have been in business for over 20 years and are one of the largest privately held software companies in the UK. Indeed, you may be surprised to know that enterprise security firm Sophos has British roots (Oxford, actually), albeit they now carry a 20% private equity investment from Boston-based TA Associates, and a 10% stake from a German PE firm by virtue of Sophos’ recent acquisition of Frankfurt-listed Ultimaco.

At a £40m per quarter (say $225m p.a.) revenue run rate, Sophos is tiny compared to global players McAfee ($1.6bn p.a.) and Symantec ($6bn+ p.a.). Sophos registered operating losses for the past couple of years (to March ’07 and ’08), mainly due to its subscription-based licence model, but operating cash flow margins exceed 22%.

I recently spoke with Sophos CEO Steve Munford. Unlike its larger peers, Sophos does not go after the consumer market at all. Also, given its UK roots, Sophos has a strong relative position in Europe, especially since acquiring Ultimaco; some 50% of its revenues now derive from Europe (mainly UK and Germany), 30% from the US and 10% from Asia. The problem is, of course, that just about every enterprise has some form of antivirus software, so the only way Sophos can grow is by winning share. This it appears to be doing, with growth claimed at double the industry average for the past four years. Of course, Munford and his investors have their eye on an IPO when markets eventually turn favourable again. I guess the question is, will they have been snapped up by a competitor before then?

Smile – you’re on Gigapan!


(By Anthony Miller – Sunday, 22nd March 2009 11:30am). We received several comments on our Friday posting When does ‘innovation’ become intrusion? generally echoing our sentiments. Of course, it’s unlikely that you or I are likely to be able to afford, let alone implement, Logica’s facial recognition technology. But there’s good news – you may not have to! Our thanks to UKHotViews reader Geoff Chaplin for bringing to our attention this picture of Barack Obama’s inauguration on the Gigapan website. It is actually made up of 220 separate photos stitched together into a, wait for it, 1,474 megapixel image (makes my 6MP Canon 300D look a bit sick) with Google Earth-like navigation to zoom in to show individual people’s faces. If you were there, I do hope you were smiling!

Now, in case you think this technology is also out of reach to the masses, you’ll be pleased (or horrified) to know that the Gigapan robotic mount costs just $379 (including software) and, according to the blurb, “works with most point-and-shoot digital cameras”. I assume you send your cheque to PO Box 101.

Friday, 20 March 2009

The myth behind electronic medical records

(By Anthony Miller – Friday, 20th March 2009 9:15am). Equally scary commentary (but for quite different reasons) from Panmure’s George O’Connor this morning about the potential efficacy of electronic medical records (EMR) systems. George refers to recent opinion pieces in the Washington Post and Wall Street Journal which dismiss Barack Obama’s increased funding for EMR as potentially "harmful" and offering "no real benefit." If I may requote Drs. Jerome Groopman and Pamela Hartzband, "there are no compelling data to demonstrate that such voluminous documentation translates into better outcomes for their sick patients."

We have written many times around this topic, both in the context of the UK NHS National Programme for IT, and about the prospects for our two largest software companies that play precisely in this market; Misys (now through Allscripts) and Sage (via its Emdeon acquisition). Both see EMR as a key growth driver on the back of Obama’s funding initiative. Frankly, my problem is less to do with the benefits and more to do with the costs. I am glad that when I visit my local GP practice it doesn’t matter which GP I see, he/she can call up my medical records right then and there (though I’m just not at all happy that my records should be ‘freely’ accessible by anyone else.). I don’t know how much it cost them to implement this system but I am pretty sure they haven’t keyed in the many, many years of handwritten scrawl from my (late) GP when I was growing up. In fact, I’m not even sure they have these records at all, now I come to think about it!

I’m sure that the few thousand dollars that US physicians can claim as a grant to implement an EMR system will be welcome. But I suspect this would only cover the technology procurement and software implementation. However, the ‘value’, as ever, is in the data. Surely the cost of transcribing the mountain of paper medical records into the EMR systems will turn out to be, if not a show-stopper, at least a limitation on how quickly the full benefits of the EMR system – whatever they may be’ – can be realised.

When does ‘innovation’ become intrusion?

(By Anthony Miller – Friday, 20th March 2009 8:30am). I’m not so sure I’d go as far as calling it ‘serendipity’, but two ‘innovations’ were brought to my intention yesterday which individually sent shivers down my spine – and together caused my spinal column to turn to ice! They are Google Street Views (which I shall call GSV as I’m a lazy typist), and new facial recognition technology that Logica is trialling in Denmark, which they demonstrated (sort of) to a bunch of us analysts in their swish new London HQ.

Let me first put on record that I just hate the word ‘innovation’ (dictionary definition: ‘something newly introduced)’. It is now so overworked that everything anyone does is ‘innovative’. For goodness sake, isn’t anything we do ‘routine’ anymore?

Putting that aside, let’s talk about GSV. I have mixed views (I know; analysts shouldn’t sit on the fence, but there we go). I like the idea of being able to plan a trip and actually be able to see the roads I can drive down (and those I probably shouldn’t!). But what about my personal privacy? I checked my home address (of course) and our house is there with my car outside – the number plate tastefully blurred, though if you zoom in close enough you can see the last couple of characters. On the TV this morning, Google’s UK MD (sorry – I missed his name due to especially noisy conflakes) claimed that the Met Police didn’t expect GSV to result in increased crime. Though isn’t it handy to be able look for streets with the nicest cars parked from the comfort of your own PC? I know it’s not real-time but it’s a good place to start if I were researching my next heist.

Logica’s facial recognition technology is scary, but the Danish team presenting it tried hard to put a ‘kinder, gentler face’ on it. Basically, it can recognise people pretty much on the fly (not literally, I hasten to add!). It’s being trialled commercially as a ‘gatekeeper’ system at an amusement park so that only customers who have paid their entry fee can re-enter the grounds. Logica is not the only company working on such technology, of course, but they seem to have it in a pretty advanced state of development – with some 96% recognition accuracy, we were told. I’m still not sure what’s wrong with an automated, ticket-based re-entry system, which would surely be far less Big Brother-ish.

But here’s the good news. Put the two technologies together and we solve the problem for which Capita has just won a £25m contract – the 2011 census. Instead of sending out millions of forms, why don’t we just have Google’s GSV camera vans perpetually touring the country (a bit like US AWAC aircraft continuously flying the skies; oh my goodness – there’s a thought!) equipped with Logica’s facial recognition technology and simply count the population. Heck, we could sort them by height, weight, race, dress sense, and who knows what else. Might come in a lot under £25m too.

Thursday, 19 March 2009

Learner Support contract comes home to Capita

(By Anthony Miller – Thursday, 19th March 2009 8:25am). Capita confirmed today that the contract to administer various government education grant schemes, including the Education Maintenance Allowance (EMA), has now been signed. It’s worth £68m over 4 years with an additional two-year option. Capita picked up this ball after Liberata ignominiously dropped it at the end of last year. The original six-year deal, which Liberata signed in 2007, was worth £75m. Capita originally won a £48m/5-year contract just to run the EMA back in 2003. We’ve heard little new news from Liberata in recent times, though they still appear to be extending existing contracts, such as with Barrow and South Lakelands Councils, City of London and North Somerset Council. Down ... but not out!

Wednesday, 18 March 2009

Oracle pleasantly surprises but forecasts steep decline in new software sales

(By Richard Holway 11.00pm 18th March 09) Oracle shares are up over 7% in after hours trading tonight as it pleasantly surprised the market. Revenues were up 2% at $5.5b. But it was the eagerly watched sales of NEW software that declined much less than expected. It was still a 6% drop to $1.5b - but analysts had expected a 12% drop. However, the decline next quarter (Q4) is expected to be much steeper - minus 17% to 27% if currencies stay where they are (-5% to -15% at constant currency). Total Q4 revenue growth should fall somewhere between -3% and +2% (ccy).

The results were pretty much in line with what we here at TechMarketView had expected for the sector as a whole in our recently published MarketView report. With resilience in the 'Make do and Mend' departments (e.g. add on sales to existing clients, maintenance and support) offset by weakness in new project-type sales. Indeed support revenues were up 11%. This is certainly helping to drive operating margins - now 36% (+54bps). On the concall, Oracle president Safra Catz reiterated Oracle's 50% (yes, that's five-zero percent) margin target and didn't even see that as a ceiling.
On Demand ("Cloud") revenues barely moved up compared to the previous quarter but were 10% higher yoy. However, at $191m, this is still under 4% of the total. As you might expect, Consulting revenues went backwards 10% yoy (and sequentially); Education revenues were even worse - down 23% yoy. Even mighty Oracle can't resist these ebbing tides.

In an interesting new twist, Oracle is to pay its first dividend since its 1986 IPO. Now there was a time when only boring old institutions like Banks paid dividends. There place has been taken by 'boring' old software companies. Indeed, even our very own Boring Award holder, Sage now pays a dividend.

Public Sector IT - Still the place to be

(By Richard Holway 7.00pm 18th March 09) Our friends and partners at PAC have just released their forecasts for UK Public Sector IT spending. These show a 3.7% increase in SITS spend in 2009 compared to a decline in overall UK SITS spending of 1% as we reported in our own MarketViews report last month. The contrast is even more marked for total IT spend (i.e. including hardware and personnel). Here UK Public Sector IT spend will rise 2.8% against a 1.8% contraction in UK IT spend as a whole.


One of the key growth engines will be investment in new outsourcing and shared services programs in local government as they respond to Central Government mandates to deliver improved levels of public service despite a reduction in tax income resulting from the recession.

PAC has identified more than £8.5bn worth of new outsourcing contracts that are set to be awarded in UK local government over the next two years. The largest single opportunity will come in Essex, where the council has short-listed consortia led by IBM and T-Systems to outsource 'any or all' public services as part of a deal potentially worth up to £5.4bn. The Essex deal will follow other recent large council outsourcing engagements, including South Tyneside (£300m deal with BT Global Services), Glasgow (£256m deal with Serco) and Birmingham, which is aiming to save £1bn over ten years through a deal with Capita.

In the Central Government area, IT spending will continue to be driven by the National Identity Scheme (NIS). Two contracts have already been awarded, with Thales winning the £18m interim National Identity Register contract, and IBM the £3m immigration casework management contract. However, the largest parts of the framework are all yet to be awarded. These include the £350-£400m Application and Enrolment contract, the £250-£350m Card Design and Production contract and the £200-£250m National Biometric Identity Service contract.

With all three of these contracts due to be awarded in 2009, the National Identity Scheme alone is set to drive considerable growth in IT expenditure this year. With other government IT programs such as FLIS, MIDAS and Ocean also in the pipeline, PAC expects many SITS suppliers to offset pressure in the commercial segment with an increased focus on public sector opportunities.

Maxima warns again

(By Anthony Miller – Wednesday, 18th March 2009 6:15pm). Maxima CEO Kelvin Harrison’s cautious tone in last month’s interim results (see Maxima – a question of focus) has turned into a full blown profit warning (see here) as their Q4 outlook turns sour from “delays in decision making and down-sizing of new business opportunities”. It’s a real shame because we hold Harrison in high regard. But we have to say that acquisition-built mini-conglomerates (12 since its 110p a share AIM IPO in Nov. ’04) are very high risk and rarely work – as we said on Maxima’s profit warning just over a year ago (see Warning from Maxima - Beware the consolidators). Maxima’s shares dived another 10% today to 69p; they were almost £2 last August.

Now there are 31 ways to evaluate a software package

(By Anthony Miller – Wednesday, 18th March 2009 950am). Aberystwyth University is certainly getting into its stride. After detailing 26 evaluation criteria to select an Enquiry and Enrolment Management System in a contract awarded last month (see 26 ways to evaluate a software package), they have trumped this with a 31-item wish-list for a system to “collect, interpret, distribute and discuss Wales' cultural heritage in an online environment”. Here they are (with weightings):

1. Educational Channel (formal learners). Weighting: 3 %. 2. Educational Channel (Informal learners). Weighting: 3 %. 3. Events Channel. Weighting: 3 %. 4. Features Channel. Weighting: 3 %. 5. Tourist Channel. Weighting: 3 %. 6. Themes Channel. Weighting: 3 %. 7. Schedules. Weighting: 3 %. 8. Testing & Acceptance. Weighting: 3 %. 9. Project & Contract Management. Weighting: 3 %. 10. Risk Assessment & Management. Weighting: 2 %. 11. Change Management. Weighting: 2 %. 12. Design, Look & Feel. Weighting: 4 %. 13. Cultural Heritage Trails. Weighting: 4 %. 14. Bilingual. Weighting: 3 %. 15. Accessibility. Weighting: 3 %. 16. Timeline Display Interface. Weighting: 3 %. 17. Search Mechanisms. Weighting: 3 %. 18. User Generated Content. Weighting: 3 %. 19. Content Moderation. Weighting: 2 %. 20. Open Source. Weighting: 4 %. 21. System Security. Weighting: 4 %. 22. Performance. Weighting: 4 %. 23. Hosting. Weighting: 4 %. 24. Copyright. Weighting: 4 %. 25. API. Weighting: 3 %. 26. GIS. Weighting: 3 %. 27. Satellite Navigation. Weighting: 3 %. 28. Analytics. Weighting: 2 %. 29. User Roles. Weighting: 1.5 %. 30. Mobile Applications. Weighting: 1.5 %. 31. Price. Weighting: 10 %.

Once again the Uni ran an electronic auction, receiving bids between £515,700 and £680,000. The contract went to the Cardiff-based Sequence Collective Limited who bid £599,130. Not the cheapest, but apparently the best. However, I note that this time ‘User Friendliness’ didn’t even rate a mention.

IBM to buy Sun?

(By Richard Holway 9.45am 18th March 09) In a surprise move, the WSJ has reported that IBM is in talks to acquire Sun Microsystems for $6.5bor $4.97 a share (a near 100% premium on the closing price)

I am sure this gladdened the heart of every downtrodden M&A broker/Investment Bank thinking that perhaps the good times might at last return. But it is a lttle surprising given that IBM has been retreating from some of its hardware markets and, indeed, the server market is being particularly badly hit right now. IDC, puts IBM with a 31.4% of the world’s server market last year; H-P second with 29.5 % and Dell third with 11.6%. Sun ranked fourth, at 10.6%.

But maybe this is really all part of IBM's move into the Cloud?

Steria update

(By Anthony Miller – Wednesday, 18th March 2009 9:20am). There were a couple of points that caught my attention on the concall on Monday (and see Steria UK stuns with 11% margins). First, and at risk of hammering the point yet again, Steria now has almost 30% of group headcount in India, by far the highest proportion among European peers. The near-5,700 FTEs in India will grow by another 2,000 over the next couple of years bringing the total to 40% of group headcount by the end of 2010. OK, the India team is pretty much UK-focused at the moment, but as we have said many times before, Continental Europe is moving more towards to offshore service delivery, albeit ‘kicking and screaming’ along the way!

But with all the good news, especially in Steria UK, we must not forget its ‘albatross’, better known as NHS Shared Business Services (SBS), the joint venture set up in October 2004 between Xansa and the NHS to provide back-office BPO services (initially) F&A to NHS Trusts. I remember so well Xansa’s then CEO Alistair Cox (now CEO of recruitment firm Hays) announcing the deal with great fanfare and flourish, promising break-even by the end of 2007. We’re still not there. Steria CEO, Francois Enaut, now reckons the contract will break even this year (i.e. five years down the track) but I have to say I have heard it all before. To date, SBS has only around 20% share of NHS F&A processing – they needed to be way ahead of this proportion by now to make money. This was a bad deal on day one and I don’t see how it will ever recoup its losses. I reckon Steria should try and find a way to spin out SBS, but I wouldn’t be holding my breath. As many players have found (dare we mention Accenture, Fujitsu, BT), dealing with the NHS is rather like dancing with the devil – always changing the tune and always stepping on your toes.

Tuesday, 17 March 2009

RSS feeds

I know many of you missed our RSS feed. We have now put one on the new website. Just visit www.techmarketview.com and press the RSS button to establish a news feed for UKHotviews to your PC.

Errors and Corrections

(By Richard Holway 1.00pm 17th Mar 09) Hands up. In my Cross-dressing article I should have referred to the Apple iPhone as 'one of' the biggest smartphone suppliers in the world. Nokia are the biggest with a 49.4% share (according to data released by Gartner a few days ago) with RIM (Blackberry) at 16.6% and Apple at 8.2%.

Also, I'm told that Spotify was setup by Swedes choosing London for their HQ. That rather neatly 'illustrates the point' of my other article about the high number of immigrants forming silicon valley tech companies!

I'm also told that Spotify will soon be an app on the Apple iPhone apps store. Now that would be neat too.

Footnote - It is of continued amazement to me that we write all these learned articles about IT services etc but we get the greatest feedback for stuff we do on 1) Music 2) Smartphones 3) Social networking.

TechMarketView launches OffshoreViews

We are delighted to announce the launch of our second research programme, OffshoreViews, a regular stream of concise research notes on all things offshore. OffshoreViews will cover all aspects of the offshore scene and how it impacts the UK software and IT services (SITS) market. This will of course include the major India-based SIs particularly TCS, Infosys, Wipro, HCL, Cognizant, Patni, and of course Satyam. We will also cover some of the ‘unusual’ suspects too, such as, Tech Mahindra, Larsen & Toubro (L&T) and MindTree.

OffshoreViews will also take a close look at the global delivery ambitions and achievements of the traditional IT services players, including Accenture, IBM, Logica, Capita, Capgemini, Atos Origin and Steria – and more besides. All of these players use offshore (to a greater or lesser extent!) to deliver their services into the UK market and often find themselves fighting head-to-head against the formidable India-based pure-plays.

In the inaugural OffshoreViews issue, we tell you how the top India-based SIs fared in the UK in 2008. Their UK revenue growth was quite mind-boggling; they have clearly made great strides forward both in market share and in the UK rankings. In this issue we also present what will become our regular quarterly round-up of the key financial and operating metrics of the top India-based SIs. This will be of interest to any traditional IT services firm with Indian delivery centres to compare and contrast your operational performance with the best of the pure-plays.

Future issues of OffshoreViews will include exclusive interviews with players in and around the offshore scene, including L&T Infotech CEO, Sudip Banerjee. L&T are now Satyam’s largest shareholder and recently threw their hat in the ring as one of the potential bidders for the entire business.

OffshoreViews is only available to clients on paid-for TechMarketView subscriptions and can be downloaded today. If you would like to join the SITS players ‘in the know’, please contact Puni Rajah (prajah@techmarketview.com) and she will be more than delighted to tell you all you want to know about our unique research programmes.

Odgers weighs heavily on OPD profits

(By Anthony Miller – Tuesday, 17th March 2009 9:15am). OK, these are names probably not that well known to you – unless perhaps you are in the market for a CxO job or have a very good memory. OPD is the holding group for a small string of recruitment companies including executive search firm Odgers Ray & Berndston, interim management firm Hoggett Bowers and – now we get to the point – PSD, once one of the high-flyers in the UK ITSA (IT staff agency) rankings.

Although never a pure ITSA, OSD had a well established position in IT&T recruitment (mostly permanent). It was founded in 1991 and grew mainly by acquisition, floating in 1997. Looking back at our old ITSA research I see they chalked up £63m in revenues and £40m in NFI (net fee income, i.e. gross profit) back in 1999, with operating margins around 24%. Pretty cool.

But it’s looking rather horrible now. PSD acquired Odgers in 2005 – though you’d never believe it looking at Odgers website; you have to look very hard indeed to find record of its ‘parentage’. Anyway, the good news is that Odgers was the only part of OPD to see NFI increase in 2008 – by 3% to £54m (see FY results here). The bad news is that the £7.5m of goodwill impairment from its acquisition plunged OPD into net loss. Indeed, even without this hit, operating profit for the group fell by over a third to £9.9m taking group margins down from 10.6% to 6.8%. Even the PSD/Hoggett bit of OPD doesn’t compare well with its performance in 1999. NFI last year was £36.6m, almost 10% below where it was a decade ago.

None of this should come as a great surprise – the permanent recruitment market in all its shapes and forms is suffering badly and will continue to do so for some time yet.