Sunday, 31 May 2009

Share indices in May 09

(By Richard Holway and Anthony Miller 8.00am 31st May 09) Tech stocks do seem to be ‘defying gravity’ right now. For the 5th month in a row this year, UK SCS stocks have outperformed the FTSE100. The cumulative YTD effect of this is quite startling. The FTSE UK SCS Index is up an amazing 37% whereas the FTSE100 is down 0.4%. I repeat, the only other time in the 20 years that I have studied this, that there has been such a diversity of performance was in Q1 2000 – just before the dot.com crash.

In May, the FTSE UK SCS Index rose by another 9.5% with Computacenter, up 26% (See Services drive Computacenter growth) , leading the way with strong performances in the IT Services subsector from Anite (+16%) and TeleCity (+15.5%). The Innovation Group (TIG), though not in the FTSE SCS Index, rose 20% after a respectable set of interims results (see TIG – first half ups and downs) and fund-raising (see TIG in dash for £5m cash). But it was the ‘software’ bit that really starred. Non-index Bond (up 69%) and Intec (up 63%) lead the way with strong performances from Aveva (+30%) (see Aviva shines - but storm clouds loom), Micro Focus (+24%) after its buying spree (see Busy day for Micro Focus!), Misys (+20%) and RM (+19%) - all the latter compnaies are in the FTSE SCS Index. We were not that impressed with RM’s results – see RM – worthy cause deserves worthy profit - and even less so with their decision to buy a furniture company – see RM – Oh No, not the comfy chair! Non-index healthcare software star, System C Healthcare rose 32% alter a useful acquisition and also perhaps in anticipation that AIM-listed healthcare IT acquisition vehicle, ACS, may have it in its sights (see UK healthcare IT consolidation continues apace).

As you can see in the chart Support Services still pretty much hugs the FTSE100. I am still surprised that Capita hasn’t done better this year (up 4% in the month but down 3% YTD) considering the fact that BPO really is the flavour of the recession. Serco (see Public sector pays off for Serco) did at least manage a 10% rise in May - based on excellent results and a lot of press publicity surrounding their deal to help young unemployed people back to work – but is still down 11% YTD. The ITSAs (including both recruiters and resourcers) were a mixed bunch. SThree fell 14%. But OPD (which includes Odgers) managed a 32% rise (see Hearn rescues OPD).

Outside the UK, it was a stunning month for the Indians with a major recovery on their own stock exchange, helped by the recent election results. This benefited the IT offshorers almost across the board – headed by Mastek (up 76%), Mphasis (an HP/EDS company – sort of) up 50%, and Tech Mahindra (+44%). Even Satyam put on 14%! We’ll have more on this in OffshoreViews.

Notable amongst the US players was a 15% rise at CSC (see Steady progress at CSC) on solid results, and a surprise 14% rise for Unisys. On the software side, Intuit rose 18% knocking Sage into a cocked hat (+2%) as the latter saw its first organic revenue decline for years (see Sage suffers organic revenue decline). SaaS poster child Salesforce.com was among the worst performers, down 11%.

Telecomms players continue to be out of favour. BT (see BT FY09 results and many other postings this month about BT Global Services - we were greatly appreciative of your kind comments on our BT coverage) retreated another 7% on its dismal results. They were not alone – Deutsche Telecomm fell 11% in May.

Friday, 29 May 2009

"We see no upturn" say Dell, Microsoft, SAP

(By Richard Holway 3.00pm 29th May 09) Dell announced a quite staggering 23% decline in quaterly revenues to end Apr 09. Indeed revenues from large corporates fell 31%. This decline was greater than expected as Dell moved to protect its bottom line at the expense of sales.

The FT on Friday 29th May 09 ran an article Microsoft and Dell counter rivals' optimism in which both companies cautioned against statements made by others like HP, Intel, Cisco etc that the tech downturn had 'bottomed out'. Also, last week Leo Apotheker, CEO of SAP said that he saw "no significant improvement in the bleak outlook for 2009". SAP saw software licences sink by an even more massive 33% in Q1. As the FT on 30th May 09 said SAP is only staying buoyant thanks to growth in maintenance revenues - which rose 18% in Q1.

We too would suggest caution. Readers know that our prediction is that recovery will only become apparent in H2 2010.

Having said that all tech companies will not behave the same way as in "a rising tide lifts all ships". I believe that SAP, Microsoft and Dell will be amongst the worst affected and, currently, do not have the business models or products required to take full advantage of the upturn. Downturns accelerate change - in this case to cloud and netbooks/smartphones respectively. SAP, Microsoft and Dell could still pull rabbits from the bag - but don't bet the house on it.

AIM's or Vin's strengths?

(By Richard Holway 3.00pm 29th May 09) Very interesting comment by Philip Stafford in the FT on Friday 29th May which I reproduce in full below:

Aim bounces back

For all the questions about Aim's corporate governance standards, the past month has been a reminder of the junior market's greatest strength; its ability to raise money.
Perhaps the most interesting comment came from Advanced Computer Software, which raised £43m for its plans to consolidate the software market in the primary care market of the NHS.


ACS could have turned to private investors. After all, it was created by Vin Murria, chief executive, from a series of venture capital firms including Elderstreet Investments. Elderstreet's backer Michael Jackson built Sage, the software group, into an FTSE 100 company. Yet Ms Murria said public markets gave money faster, on less onerous terms, and didn't impose the controls or the due diligence of private equity.

It's a clear statement from a highly experienced executive of why Aim remains an attractive option for budding companies."

Philip Stafford at the FT seems to be in the midst of a love affair with Vin (and why not? Even old analysts like Holway have a soft spot for her too!). In his article on 21st May 09 ACS pulls off exceptional AIM fundraising, Stafford says "Advanced’s exceptionalism, and the reason behind its 65 per cent share price rise to 36½p in the past three months, has been put down to one person – Vin Murria, chief executive. She is a figure well known for her irrepressible enthusiasm, no-nonsense style and impressive record."

‘Flat is the new good’ - Capgemini on India

(By Anthony Miller – Friday 28th May 2009 7:30 am. Another excellent day at the Capgemini analyst conference. Cap is one of the very few players that mixes industry analysts and equity analysts at the one event to everyone’s mutual benefit. Others please note.

One of the many interesting sessions covered Cap’s involvement at Ontario-based utility, Hydro One, which is in the throes of rolling out 1.3m ‘smart’ digital electricity meters across the province. This is part of a grand plan to eventually convert its supply network to become a ‘Smart Grid’, though they were quick to point out that you do not need smart meters to create a smart grid – or vice versa. This is what I rather suspected was the reality, somewhat contra to the justification put forward in proposals currently before our own government for a similar programme, though an order of magnitude (and some) larger (see Smart Meter madness (Part 3)). I will return to this subject again.

But my attention was particularly grabbed by a statement from Cap’s Asia/Pacific CEO, Salil Parekh, whose domain includes their near-21,000 India-based employees. Astutely assessing the mood of his ‘pure-play’ competitors with the phrase ‘flat is the new good’, Parekh said he has observed even major players cutting prices by as much as 20% to try to drive business. I’ll go into more detail about Cap’s offshore/nearshore strategy in OffshoreViews as I think they, almost alone among the Europe-based SIs, really seem to have ’got it’.

And I must admit I hadn’t appreciated before that Cap has over 6,000 FTEs dedicated to Managed Testing Services, almost half of these in its Sogeti ‘body shop’ division. I would have thought it might make more sense to have them all together in a single service line though CEO Paul Hermelin did tell me they were looking at how to get better leverage from what is a really sizeable operation.

Anyway, caps off to Cap, so to speak, for covering a lot of useful ground in such a short conference. I will be meeting senior management over the next few weeks to get a closer view on Cap’s UK operations.

Buying euros

(By Anthony Miller – Friday, 29th May 2009 7:30 am). Have you tried buying foreign currency at your local bank recently? Yes? Was it as painful an experience for you as it was for me? All I wanted was a couple of hundred euros to take with me to Paris.

So the other day I marched into my local HSBC in Ealing Broadway. Now, this branch was one of the new style open-plan affairs where tellers have been almost entirely replaced by machines. Machines for taking money out; machines for putting money in; machines for printing statements; the whole gamut. But, alas, no machines for dispensing euros (or any other currency for that matter).

As a result I had to join the rapidly growing queue for the two, just two tellers who were left to deal with the ‘mechanically disadvantaged’. The queue was being ‘triaged’ by men and women in smart suits desperately trying to find proto-technophiles willing to try out their shiny new machines – with limited success, from what I could see.

Five minutes later I got to the front of the teller queue. I had my debit card at the ready and assumed this would now be as quick and painless (but hopefully not as usurious) as buying euros from the foreign exchange merchants at the airport. Oh no it wasn’t . It was a paper-based process. The teller, a charming young fellow, had to record details from my driving licence onto a form (why? It’s my bank – they know who I am!) and, unbelievably, my debit card details too, as they didn’t have a swipe machine! I suppose the good news is that my account wasn’t going to be debited until the overnight batch run, so earning me a few extra micropence in interest.
Finally, and after a good 10 minutes, the teller triumphantly presented me with my 200 euros, neatly sealed and beautifully gift-wrapped as in the picture above.

But why is it that while a transaction to draw 200 euros from an ATM in Paris takes, what, under 60 seconds, to do it in my bank takes a quarter of an hour? Technology is obviously not the obstacle. Dressing up a bank to look like a hotel lobby – complete with concierges – clearly isn’t the answer. A real triumph of style over customer service.

Well, did you evah? Microsoft new search is called Bing

(By Richard Holway 7.00am 29th May 09) Yesterday Steve Ballmer unveiled Microsoft's new search feature. He named it Bing. We are unsure why. Being of a 'certain age' it immediately brought images of Bing Crosby crooning "White Christmas". Microsoft said that things like the availability of the URL and the ability to 'verb up' (Ballmer's term, not mine) were important. I suppose it's better than Live Search and MSN Search (which it replaces). It ranks alongside Zune as a brand that just doesn't do it for me.

So will we all "Bing it"?

There are already more reviews of Bing than any healthy person should consume. Start with the Guardian's 'Review of the Reviews"

The problem is that Microsoft is a poor third in search as we outlined in Searching to break Google's stranglehold on search earlier this week. Bing might well be better than Google but Google is 'good enough' and the inertia not to change is huge. Google are not daft either. If there are some nice new features in Bing, you can bet your life they will find their way into Google before long.

To be fair, even Ballmer thinks it's going to be a long road. He could "Acc-cent-u-ate the positive" and boost Microsoft's share of search by 50%. But Microsoft would still have only 12% of the market compared with Google's current 64% share.

Perhaps Ballmer should have saved his time and the millions spent on the relaunch and just "Gone fishing"? Actually that would have been a very good name for a search engine!

Thursday, 28 May 2009

Time Warner and AOL - Worst merger of all time?

(By Richard Holway 6.00pm 28th May 09) Time Warner has announced that it is to separate AOL as a independent company. To do this they will buy back Google's 5% share.

Time Warner bought AOL back in the heady dot.com days of 2000 for $147b forming a $350b business. AOL was a leader in dial-up internet access (Oh, how I remember that!) but its fortunes have declined ever since. In 2007, Google bought a 5% stake for $1b or a $20b valuation. They have just written that down by $726m.

Now you'd be lucky to find anyone willing to put a valuation of more than $3-$5b valuation on AOL. And, don't forget, AOL now includes Bebo which they bought for $850m a couple of years back.

So what will happen to AOL now? Will Microsoft buy it? You'd have to question why at almost any price.

Happy 50th Birthday COBOL

(By Richard Holway 2.00pm 28th May 09) On 28th May 1959 – 50 years ago today - the Short Range Committee was established at a meeting at the Pentagon. Chaired by Joseph Wegstein of the US National Bureau of Standards, it was the Short Range Committee that created the very first description of COBOL.

I got reminded of this, of course, by Micro Focusthe olde British Coboller! They rightly make the point that COBOL is still a vital part of our IT infrastructure. Except that few have heard of it. Micro Focus say that the average person in the UK interacts with COBOL 10 times a day because COBOL powers the world’s ATMs, credit cards, mobile phone billing applications and “three-quarters of the world’s business applications” – although I can’t independently verify the latter claim. 200 billion lines of code apparently.

Indeed I was responsible for some of those. I wrote my first COBOL programme in 1966. There is a terrified part of me that fears it might still be in use in the NHS!

Of course, the continued existence of COBOL has not done Micro Focus or its shareholders any harm whatsoever. Keeping legacy systems going – indeed updating them for tomorrow’s needs – is Micro Focus' niche. Micro Focus shares have risen 65% in the last 12 months.

Note – Richard Holway has been a long term shareholder in Micro Focus. What a clever boy he is!

Accenture the Irish firm

(By Richard Holway 1.00pm 28th May 09) Accenture is to move its ‘place of incorporation’ from Bermuda to Ireland. It seems to be as a direct consequence of the US Government’s new tightened tax rules. Countries in Europe – like Ireland and Switzerland – are seen to benefit from Obama’s moves to stop companies deferring tax payments on overseas profits if earnings are reinvested in overseas subsidiaries.

Although Accenture claimed a long, 40-year history in Ireland including counting the Irish Govt as a customer, this is a decision being taken for the benefit of the bank balances of Accenture’s many partners.

I must admit to a distaste to these things – be it Bermuda or Ireland, companies or individuals. Let’s fight for fair taxes not move allegiances to the cheapest location. In my case, Britain educated me and my kids and I feel it only right to repay that. I'll still fight against a 50% tax rate though!

Ireland should beware. Companies can move away just as quickly and easily as they move in. I remember a few years ago when Ireland was crowing about having the biggest software industry, as measured by exports, in Europe! This was purely because big companies like Microsoft used it as a distribution base for tax reasons. The Irish tiger does not roar so loudly today. Goodness knows how Accenture’s change of base will affect some less knowledgeable researchers ranking tables for SITS in Europe!

FFastfill – exhibiting green shoots?

(By Philip Carnelley 9.00am 28th May 09) FFastfill, a Software-as-a-Service (SaaS) company serving the financial derivatives industry, today announced results for its FY ended March 09. While we still wonder about an LSE listing for companies as small as this, it appears to be making good use of the £1m it raised through a placing last November explicitly to invest in its Asia-Pacific operations. See FFastfill placing raises £1m.

For the year, turnover was up 27% at £14.4m, (organic growth was 19%) with operating profit up 50% to £0.3m. Loss before tax was £0.4m. To address this, it is not relying on growth: it has implemented some staff reductions and infrastructure consolidation to trim costs for the forthcoming year. Growth there should be, however: it has a 12-month order book of £14.2m, of which £10m is SaaS fees – up 41% yoy, and further evidence, perhaps, that the SaaS model is taking off.

In his outlook, Exec Chairman Keith Todd – who many will know from his days as CEO of ICL – was bullish in his views: “in spite of recent market turbulence, the Board remains confident that the medium and long term fundamentals of our target markets are strong, and that our company is well placed to continue to grow its market share.”

Ffastfill is not the only company to be thriving despite the troubles of the beleagured financial services sector, as we have seen with another British software company, Fidessa (see Some bright spots amongst the clouds ) Like Fidessa, then, perhaps these are some green shoots of recovery? As we said yesterday - see Dwindling millionaires , there is some evidence that business sentiment is improving. It would be nice to think so.

Santander in-sources IT systems

(By Richard Holway 8.00am 28th May 09) You are going to see a lot more of the Santander logo as the group has decided to abandon the Abbey, Alliance & Leicester and Bradford & Bingley 'brands' from next year.

Santander is an object lesson in 'in-sourcing'. The reason why they can do this brand integration and allow group customers to transact in any branch is that they have always acted fast to bring banking systems in house under their proprietary Partenon IT system. This has enabled Santender to cut thousands of IT jobs with significant savings. But it's not good news for the incumbent IT suppliers.

Bank mergers have been rife in the last 18 months and, with building societies now the merger target, are likely to continue. As IT systems are integrated there are bound to be more IT Services losers than gainers. Unless, of course, you are Accenture which got a £100m/2 year contract from Santander to assist them with the integration!

Wednesday, 27 May 2009

Forget BPO transformation – the savings are in ‘lift and shift’!

(By Anthony Miller – Wednesday, 27th March 2009 9:45 pm). I’m guest of Capgemini at their sumptuous training Chateau (no, honestly) a couple of hours outside of Paris (actually an hour but the traffic today was le pits). The opening keynote was from Joe Heinrich, VP at Coca Cola Enterprises, the business which bottles the fizzy stuff across America and Europe.

Heinrich gave a fascinating expose into the vendor selection process that CCE went through a year or so ago when it decided to outsource its finance operations, which was costing them some $200m a year to run. The shortlist came down to three players: their incumbent IT services supplier, IBM – initially the hot favourite; India-based Genpact; and Capgemini. IBM was subsequently eliminated so it was down to Genpact and Capgemini.

I won’t go into the detail here but as you may have already assumed, Capgemini won the deal, despite being 4% dearer than Genpact over the life of the 7-year, €100m contract. The key point that Heinrich made very clear was that the bulk of the cost savings (which should reach $25m p.a.) came simply from labour arbitrage. This was based on offshoring chunks of the finance operations to Chennai, Krakow and Guatemala. Technology played only a small role in the overall decision – indeed CCE appeared to shy away from a major ‘transformational’ approach which it saw as carrying too much risk.

It’s rare to get such an honest insight into IT/BPO decision-making and I think this proved a useful reality check on what the customer really wants - cost savings at least risk - vs some vendors' marketing hype around ‘transformational outsourcing’.

TCS UK beats VW’s ‘hybrid’ ex-captive to first offshore project

(By Anthony Miller – Wednesday, 27th May 2009 9:15 pm). We don’t usually comment on contracts unless they are ’mega’, but my interest was piqued when I saw the recent announcement that TCS had won its first deal with multi-brand car maker, Volkswagen UK. The five-year contract primarily covers infrastructure management services, including system consolidation, virtualisation and remote operations (i.e. cost-cutting).

I spoke to TCS UK MD, AS Lakshminraryanan, about the deal. The real significance (to me, anyway) is that (a) TCS beat incumbent T-Systems in open competition, and (b) this is the first time VW has ‘gone offshore’. T-Systems, you may recall, acquired VW’s IT captive, Gedas, in January 2006 and as such was VW’s preferred IT services supplier. T-Systems formed a hybrid ‘partnership’ with Cognizant last March, selling its rather meagre ‘back-end’ offshore captive to the India-based player and then holding hands together to go to market.

Definitely another feather in TCS' cap, and perhaps a signal example to others of the difficulty of making a hybrid onshore/offshore partnership appear as seamless to a customer as a fully integrated delivery model. I would not be in the least bit surprised if VW made further forays into offshore-land leaving T-Systems again very much stranded onshore.

BT publishes its Annual Report for FY09

(By Richard Holway 6.00pm 27th May 09) BT has published its Annual Report for FY09 (to end March 09). We will wade through it.

Of note is the news that BT has cancelled all pay rises and cut back on bonuses because the company did not meets its financial targets for the year. "The Committee decided to postpone the increases in on-target bonus levels for 2009/10. In addition, there will be no increases in the salaries of executive directors in 2009/10."

The CEO of BT's problematic Global Services division, Hanif Lalani, will not get a bonus as he asked not to be considered for one.

Former BT GS CEO, Francois Barrault (widely blamed for the current problems but could he really wreak such havoc in such a short period?) received £2.85m; including a £1.6m termination payment. Barrault did however forgo options on around about 1.5m BT shares under the terms of his departure - although one expects they were seriously 'under water' anyway. Barrault stepped down last October. In an echo of a certain other current expenses debate, as an expat, Barrault also got reimbursed for dental cover, a car, home security, financial advice, housing, school fees, international tax preparation, social club membership etc. This kind of huge 'reward for failure' certainly sticks in the gullet.

Another echo of current excesses over pensions for departing CEOs in the banking sector is that Sir Peter Bonfield, who left BT in early 2002, in FY09 was in receipt of a pension of £391K “under pre-existing arrangements”.

Chief Executive Ian Livingston received a basic salary of £802K and a bonus (for FY09) of £343k (to be taken in shares) taking the total for FY09 to £1174K. Ben Verwaayen received £1818K doing the CEO job in FY08. Ben received a £700K termination payment. I still don't understand why people get termination payments when they resign of their own accord. Mind you, I don't understand why failed CEOs get termination payments when they are fired either!

Hanif Lalani, who now heads BT GS, received £805K in FY09.

Non-exec Clay Brendish (ex CEO of Admiral) received fees of £80K in FY09. Eric Daniels, CEO of Lloyds and much criticised for his lack of due diligence over the acquisition of HBOS, received £74K in NED fees.

Update at 10.00pm - I wrote the note above at 6.00pm before the story 'hit the fan'. BT this evening has said that they had attempted to prevent Barrault from collecting this reward but, after taking legal advice, was forced to admit that his contract allowed the payout. A BT spokesman admitted: "We are disappointed at having to make the payment to François but BT honours its legal and contractual obligations."

There is now talk of revolt at the upcoming BT AGM. For almost all my working life I have lived in a world where failure does not just mean losing your job without any compensation. It also means losing your home, your savings and quite possibly your wife too. That's what it's like being self-employed or a business founder/owner.

Even in the 'employed' world, it really is very rare to come across IT Services executives earning £750K, let alone £1m+ pa. But in BT it seems almost common place!

I am all for 'Rewards for Success'. But that means people putting real 'skin in the game' and suffering real, painful consequences for failure too.

Xploite sells Anix. Who next?

(By Richard Holway 9.00am 27th May 09) Xploite (a buy, build and sell AIM-quoted operation) has sold its managed services operation – Anix – for £31.5m; equivalent to a 13.5xEBIT multiple for the year to Oct 08. The buyer is ACS Business Process Solutions Limited a subsidiary of ACS, the Texas-based business process outsourcing and information technology services and solutions provider. You may remember that ACS acquired another IBM reseller – Syan – in Jan 08.

Xploite’s buy, build and sell strategy started in February 2007 when it acquired specialist VAR Posetiv for £4.21m, followed months later by by the purchase of Anix Group Ltd for £10.96m. In October 2007 it spent £3.23m on Red Squared. In December 2008 it purchased the assets of three managed IT services businesses from Cantono for £2m.

As our friend George O’Connor from Panmure Gordon said in this early morning note “The move follows Capita buying Computerland last year, indeed Serco buying ITNET several years back and in fairness Horizon was acquired for its services division by Avenet some 12 months back. We await to see how the offshore companies build their presence in this market – surely the next move. We feel the deal highlights the attraction of a segment where the participants re-configure their business models and unlock large profit uplifts – note the events at Computacenter. Private company 2e2, backed by Duke St, is the next prize in this segment, we feel.”

Very interesting!

Hearn rescues OPD

(By Anthony Miller – Wednesday, 27th May 2009 8:00am). As expected (see OPD seeks funding – will chairman come to the rescue?), Peter Hearn, non-exec chairman of recruitment firm OPD Group, has made a 57p per share cash offer for the company, which has been recommended – sort of – by the other non-exec directors. I say ‘sort of’ because although they themselves have tossed their shares into Hearn’s hat, their ‘recommendation’ (see here) was somewhat guarded, along the lines of believing “that the Offer Price of 57 pence per share is a fair price in the current market but may not reflect the long term value of the OPD Group”. Nonetheless, the tone of the ‘advice’ (and their own actions) make it pretty clear what they think shareholders should do.

Hearn is acting in concert with LSE-listed investment trust Graphite, which is providing part of the funding, along with Hearn and certain directors, including ex-Tory cabinet minister, Virginia Bottomley, who chairs executive search division, Odgers. Hearn has stated his intent to sell off Odgers to management if his bid for OPD is successful. Odgers makes the most profit in the group (though see Odgers weighs heavily on OPD profits). Its divestment would leave Hearn with faded ITSA (IT staff agency) star PSD, interim management firm Hoggett Bowers, and executive search firm, Portfolio.

But as we said before, OPD has no business being a listed company and it’s difficult to imagine a competing bidder coming forward.

Dwindling millionaires

(By Richard Holway 8.00am 27th May 09) I have long believed that the most important driver in both boom and bust is ‘confidence’ not ‘cash’. You might well be earning the same or more than you did two years ago, but if you fear for your job now you will clearly be spending less and saving more.

So surveys of business or consumer confidence are important. As such the indicators look good with confidence levels stabilising – hopefully they will start rising soon. Today the CBI quarterly survey of confidence in the Services Sector (which covers c75% of UK output and most of the SITS areas we report on) 'showed that the scale of the slump in business has slowed and sentiment has picked up". Enterprises "were the least downbeat since Nov 2007". Confidence needs to pick up if GDP growth is to return in H2 2010 as we currently predict - although that is later than Alistair Darling’s Q4 2009 recovery ‘hope’.

I have growing empathy with Sir Philip Green (Bhs etc) who said "We are all fedup with being fedup".

But one historic tracker that has turned very negative is the number of millionaires in the UK. According to the Centre for Economic and Business research the Number of Millionaires has halved in the last year – from 489,000 to 250,000. A millionaire is defined as someone with a million pounds worth of assets – including cash and properties - minus their mortgage and other borrowings. The main reason is the c18% fall in house prices over the last year.

Given that most new companies – specifically IT - are started with some kind of ‘angel’ investment (usually from ‘family and friends’), it’s not a good sign for ‘green field’ startups funded in that manner.

Tuesday, 26 May 2009

Facebook receives $200m funding valuing it at $10b

(By Richard Holway 5.00pm 26th May 09) After widespread rumour over the last week, it has just been announced that Digital Sky Technologies (DST) has taken a 1.96% stake in Facebook valuing the company at $10b. In addition, DST will buy at least $100m of Facebook stock from existing Facebook shareholders.

DST is an internet investment house with considerable interests in internet assets in Russia and Eastern Europe – eg Mail.ru. They claim that these assets “account for over 70% of all page views in the Russian-speaking internet and its social networks are market leaders in 13 countries addressing a combined population of more than 350m people”.

You will recall that Microsoft took a 1.6% stake in Facebook in 2007 which implied a $15b valuation. Such is the power of the calculator, that massive paper valuations can so be achieved! One would doubt that anyone would actually offer anything like this for the whole company.

Facebook needs the money. Despite being (perhaps) the hottest internet property around at the moment with a staggering 200m+ users (70% outside the US), it not only is still loss-making but has still to come up with anything like a viable revenue model. There have been persistent rumours that Facebook is short of cash. Last week Mark Zuckerberg practically admitted that he really needed a cash injection saying "If there's an investment to be done on very good terms, we will consider it if for no other reason than to have more buffer if we want to do something in the future."

I'm a great Facebook fan. Indeed, I have often said that if I was Steve Ballmer at Microsoft I'd buy it and use it as my consumer portal to the (Microsoft) Cloud. Then nobody would have to bother with a direct revenue model - which, for the life of me, I don't think actually exists. Just like our own UKHotViews, Facebook should be a marketing channel feeding users into things that actually can earn you money.

Aveva shines – but storm clouds loom

(By Philip Carnelley – Tuesday 26th May 2009 9:45am). CAD/CAM software company Aveva (formerly Cadcentre) revealed results (see here) in line with its recent trading update (see Aveva expects 30%+ licence revenue fall). Revenue as reported was up 29% to £164m due, in the main to a massive 42% hike in its recurring revenues, to £94m. Initial licence fees were up 9%. This reported growth, however, is due in substantial part to currency effects – we believe that less than 10% of Aveva’s revenues come from the UK. Still, however it arises, the outcome is a 32% rise in PBT, to £59m, and eps up 23%. Key growth came from the Asia Pacific region and the Central, Eastern and Southern European region – 32% and 40% respectively. We have seen no calculation of like-for-like, organic growth but we believe it will have been small, at best.

Currency effects notwithstanding, this was achieved against a difficult market – many of Aveva’s customers, particularly oil and gas, and mining, are feeling the pinch. Other international CAD/CAM players are struggling too: for example Autodesk (albeit with a somewhat different customer mix) last week revealed a 29% fall in revenues and a quarterly loss. So, this was a very creditable performance by Aveva, but life is going to remain tough for the foreseeable future.

Aveva has forecast that revenues from initial licence fees will decline this FY by 30%-40%, as the funding squeeze delays clients’ major capex projects; this in turn will start to feed through to maintenance and support, and no more currency windfalls are to be expected – possibly the reverse. Aveva would be wise to take a very conservative approach to business management over the next 12 months. “Restructuring” is already under way.

Monday, 25 May 2009

Searching to break Google's stranglehold on search

(By Richard Holway 6.00pm 25th May 09) If the rumours are to be believed, Microsoft will launch its new search engine – Kumo – this week. Microsoft doesn’t like losing. But that’s exactly what is happening to it in search. According to ComScore, Microsoft continues to lose market share which, in the US, is now down to 8.2%. This compares with Yahoo’s 20.4% and Google 64.2%. This is pretty important as the global internet search market is reckoned to be worth $40b.

Breaking into the search market is equally difficult. You cannot have missed the huge publicity around the launch of Wolfram Alpha in the last week. I tried very hard to find something useful to do with it – but failed completely. It is clearly a ‘work in progress’.

You might also have noticed that Ask.com has brought Jeeves the Butler back to its Ask Jeeves UK site. Ask has a dwindling 4% of the US search market and seems to have lost its CEO Jim Safka last week. I had the pleasure of meeting Jane Thompson, MD of IAC International, recently. Ask.com is owned by IAC which recently reported revenues down 10% at $332m and an operating loss which had tripled to $33m. But I was unaware of how big they were, their pedigree and the amount of internet assets they still hold. IAC, the owners of Home Shopping Network and Ticketmaster before its spinout in Aug 2008, owns a whole host of internet operations like Match.com and had bought AskJeeves in 2005 for $1.8b. Given that IAC in total today has a market value of $2.3b, I wonder how much ask.com would make today?

Quote of the Week. I was reading the Daily Telegraph on the train on Saturday and there in my favourite “Quote of the Week” section was my old colleague Mike Davis from Ovum with "Steve Ballmer wants to kill Google. Microsoft hates Google. Microsoft believes search is its baby and it desperately wants it back."

I’m sure the mild mannered and good-tempered Ballmer would never think this way…

BT Global Services - Part 8

(By Richard Holway 6.00pm 25th May 09) Further to my latest report on BT Global Services – Part 7 on 14th May, it does appear that my reporting was ‘spot on’ according to ‘sources close to the situation’. So maybe worth a re-read if you are that interested.

A few points which have since come to light:

UKDomestic, where Mark Quartermaine is the ‘acting’ CEO (the ‘acting’ bit is important!) , does NOT include responsibility for the (largely UK) Delivery Unit. This is managed by the highly respected Texan, Patrick O’Connell. Patrick was brought in by Tim Smart in 2005 to stabilize BT’s NHS programme and seems to have done a good job. This twin-headed situation just doesn’t seem viable long-term.

“Stick to the knitting” – At long last BT really does seem to have got the message and is likely to ‘stick to the knitting’ in its future IT Services activities. The next year or so will be used to create a stable operation in the UK and we are unlikely to see either acquisitions or wholesale disposals - although I expect the latter once both the business and valuations have recovered. For example, I don’t see any further BPO forays outside of the current Local Authority commitments.

BT does see opportunities for using its NHS experience in the US – where electronic patient records are an Obama priority. The thought of BT engaging in this kind of US adventure scares the life out of me!

My overall impression is of an organisation still in a state of change with more disruption to come. I see an organisation shaken to its core over the revelations of the last 2 years. They say that the first thing an alcoholic needs to do to start recovery is to accept that he has real problems. One suspects BT is only just at that stage. There is still a lot of work and pain to come before the patient is truly in recovery.

Friday, 22 May 2009

Apple doubles smartphone market share

(By Richard Holway 9.45am 22nd May 09) Hardly a conversation I have with our CEO readers goes by without reference to the "Apple iPhone v Blackberry Bold" debate. I carry both! I still can't type emails on Apple's touchscreen but have mastered single thumb typing whilst walking down Oxford Street on my Bold! Apple is much better for web surfing and all things media (music, photos, video, games etc.)

Anyway, StrategyEye today carries news from Gartner that Apple has doubled its share of the smartphone market in a year, with the iPhone accounting for 10.8% of smartphone sales in Q1 2009 compared to 5.4% in the same quarter of 2008.

Apple’s share is slightly more than half that of Research in Motion/Blackberry(RIM), which increased its share by 6.6 percentage points from Q1 2008 to capture 19.9% of the total smartphone market in the first quarter of this year. Of course, Nokia is the market leader - but has seen its share fall as a result of the new competion.

SDLC Solutions carves out its piece of the testing market

(By Anthony Miller – Friday 22nd May 2009 8:00am). It was great to catch up the other day with SDLC Solutions co-founder and MD, Pete Stock, and NED Jim Beagle. Privately held SDLC is one of the ‘Little British Battlers’ in the UK testing services market that I first discovered back in September (see Testing times).

They’re small but growing fast. This year (to March) SDLC grew 28% to £12m and run a 9% operating margin. They have a few under 200 employees and are to all intents and purposes, UK focused. Most of SDLC’s business comes through the SI channel via the likes of Fujitsu, Capita and HP, though they also work direct with major enterprises such as O2 and RBS.

There were a couple of things that I found particularly interesting about SDLC. Firstly, they haven’t (yet?) seen the business slowdown that caused the surprise profit warning at much larger testing services player, SQS (see Testing services slowdown prompts SQS profit warning). This may, of course, just be a matter of timing, given SDLC’s customer set. Stock is certainly seeing pricing pressure: “We just have to work harder to carve out our piece of the market”.

Much related to this is the dilemma facing Stock over offshore service delivery. SDLC has for some time partnered with Chennai-based DSRC, a typical founder-led Indian IT services player, with offices in Santa Clara, Singapore and, I note, exotic Beckenham. At any point in time, SDLC may have up to 15 of DSRC’s 1,500 FTEs working on client projects. But Stock says that he is getting some customer push-back because he doesn’t own his offshore workforce. Now, you can argue the toss whether this is a ‘structural’ problem or simply a sales and marketing issue. But in any event, Stock knows that he has to boost SDLC’s offshore delivery way beyond the current sub-10% effort mix if he is to remain competitive. He’s looking at various options, but in fairness to SDLC I won’t go into them here.

I see SDLC as a microcosm of the ‘micro’ end of the UK software and IT services market. Founded by entrepreneurs, niche players, ‘blue-chip’ customers, fast-growing, profitable. But how do they get from double-digit revenues to triple-digit? This is a theme we will come back to again. Meanwhile, we hope Stock and the team keep on carving!

Merged systems mean IT spend plunges in Financial Services

(By Richard Holway 7.00 am 22nd May 09) Yesterday I had a working lunch with the CEO of one of the biggest suppliers executive search and IT resourcers to the UK market. He told me that the demand for executive search in financial services (FS), worldwide, is down 60-70%. Given that FS this represents c30% of the global market - that's a big hit. This is obviously causing major problems for the global executive search companies with many reporting financial woes and some being put 'up for sale'.

He also said that demand for IT contractors was down 10-15% in the last year with FS much more badly hit. Of course, this should come as no real surprise as the headlines have been full of news of job cuts with contractors taking the biggest blow. Indeed, it is not just fewer contracts. Many contractors have had to slash their fees by up to 30% in order to keep their jobs. What is stunning, even to me as an analyst, is the steepness of the downturn.

Halting recruitment and cutting contractors are the two easiest, fastest and least painful ways to cut costs. Then you get into voluntary and then compulsory redundancies.

The stage after that will hit even harder; providing both huge threats and opportunities to the largest SITS players. When financial services companies merge, it takes time to merge IT activities. One of the ‘benefits’ of mergers is cost savings and financial services operations spend proportionally higher on IT than most other sectors.

The last 18 months has seen unprecedented turmoil – and mergers - in financial services. We are just about to enter the period when IT activities start to be merged and much bigger savings are made. The FT today carries news that CitiGroup is aiming to slash IT costs by more than $1b by integrating its disparate IT systems. We will see huge ‘rationalisation’ as a result of the Lloyds and HBOS, RBS, the many mergers at Santander (where Santander has a record of bringing outsourced activities back in house) etc.

Some might create opportunities for SITS companies in terms of new outsourcing contracts – although the grand total is bound to be lower. But merged banks, where both had outsourced IT, will see at least one major loser. This ‘nervousness’, as in ‘of course, we are not quite sure what is going to happen in the medium term at x, y or x’ is a feature of most of the CEO conversations I have right now.

Thursday, 21 May 2009

Sean Finnan leaves EDS to join IBM

(By Richard Holway 10.00pm 21st May 09) Further to my recent stories about the Exodus of senior management from EDS, just to complete the loop on Sean Finnan. Sean headed EDS in the UK as well as being VP for EDS’ CRM practice. Sean has joined IBM Global Technology Services as “Global dealmaker” reporting directly to Michael Daniels (Sen VP) and working alongside Andrew Creasey and Mike Rhodin. As such, it’s quite a role!

I know that most readers will know Sean who has a long pedigree in the UK IT services sector. Indeed he joined EDS in 1985 from Vauxhall Motors! Sean has just finished a two year stint as President of Intellect, the UK trade body. Sean clearly takes a huge amount of experience and a lifetime of contacts with him.

Mphasis still growing

(By Anthony Miller – Thursday 21st May 2009 10:00am). Just time for a quick summary of Mphasis’ results. You should by now know that Mphasis is the India-based SI controlled by EDS and hence HP, and with 33,800 FTEs represents the lion’s share of HP/EDS’ India-based workforce.

Mphasis reported 7% sequential revenue growth to Rs10.5b (c. $215m) and operating margins up 10 bps to 21.6%. European revenues were broadly flat.

TechMarketView subscription service clients can read much more on HP/EDS India and Mphasis in OffshoreViews.

Steady progress at CSC

(By Anthony Miller – Thursday 21st May 2009 9:30am). The last of the US ‘majors’ to report its quarterly (and in this case, FY) results, CSC seemed to show steady progress. For the quarter ended 3rd April 2009, CSC’s revenues inched up 0.4% yoy in constant currency terms to $4.1b, bring the year’s total to $16.7b, up 4% ccy. Q4 operating margins rose 90 bps yoy to 10.9%, which contributed to the 27 bps improvement in FY margins, to 8.25%. CEO Mike Laphen expects FY10 revenues to fall about 3% below FY09, but is looking for another 25-50 bps margin expansion.

It’s interesting to do the ‘compare and contrast’ with HP’s results the other day (see HP – The Services Company). Again, we have to look at sequential growth in order to account for EDS, but you will recall that HP’s services revenues declined (as reported) qoq by 3% to $8.5b, but delivered 14% margins. CSC’s revenues grew 4% qoq (as reported). All of HP’s service lines showed qoq revenue decline, whereas all of CSC’s were no worse than flat, as was the case for its Global Outsourcing Services, now $1.5b, about 36% of the total. Indeed, CSC’s Business Solutions & Services revenues grew 12% qoq to $1.14b, mostly in consulting.

Unlike every other major player, CSC shows a complete disregard for regional reporting so I’m afraid you’ll have to wait a bit before we can bring you the local story.

Intec sees best ever first half

(By Anthony Miller – Thursday 21st May 2009 8:30am). Telecoms software player, Intec, confirmed the upbeat tone of its April trading update (see Mixed bag of Easter trading updates) with very pleasing H1 results (see here). Despite a previously announced weakening in its Asia/Pacific markets, where revenues fell 1% in constant currency to £12.1m (15% of total revenues), the 35% ccy growth in Americas to £36.5m (45% of the total) brought overall revenue growth to 15% ccy. EMEA managed a more stately 4% ccy growth to £31.7m. Nonetheless, management noted competition and price pressure in the Americas and signs of customers deferring decisions.

Besides the formidable top line growth, Intec increased operating margins to 10% (1H08: 2%, FY08: 9%). However, recurring revenues (Managed Services and Support/Maintenance) declined to 35% of the total (1H08: 39%; FY08: 39%). However, I would expect this proportion to rise again (especially support/maint.) as the new licence revenues come on-stream.

Intec seems to have pulled itself back from the disappointment of a failed bid approach last October (see Intec confirms guidance as offer talks abandoned) and with these results, its shares now stand at double (50p) where they were at the time, not much under the 58p peak when the bid approach was mooted back in May.

It’s good to see a UK-based software company making a mark in the fiercely competitive global telecoms market. More, please.

ACS raises £44m for acquisition spree

(By Anthony Miller – Thursday 21st May 2009 7:45am). Hot on the heels of her £15m bid for AIM-listed IT services firm, Business Systems Group (see UK healthcare IT consolidation continues apace), AIM-listed Advanced Computer Software CEO, Vim Murria, has just raised almost £44m in an 30p-per-share institutional placing. ACS’ shares closed yesterday at 35p.The placing raises ACS’ cash pile to £55m. Murria created ACS as a consolidation vehicle for the UK primary care IT sector and reckons there are around 100 players in the game. Clearly, some are already in her target sights!

And as a delightful post script, we’ve just heard that Vin won the top award in the Asian Women of Achievement Awards 2009 yesterday (see here) for her work setting up a foundation to support the education of children in India. The prestigious award was presented by HRH Prince Charles. We wish Vin many congratulations.

Wednesday, 20 May 2009

HP – The Services Company

(By Anthony Miller – Wednesday 20th May 2009 9:30am). You really begin to wonder whether “The Street” has completely lost the plot on HP. With EDS firmly under its belt, HP’s services business is now its biggest revenue and profit generator in absolute terms (31% of sales, 38% of ‘raw’ profit). Yes, last quarter, the $8.5b of services revenues exceeded the $8.2b from PCs, and the $1.2b in services profits even outstripped the £1.0b from HP’s high-margin Imaging & Printing group. And how many questions did my ex-peers from the ‘Dark Side’ ask about services on last night’s concall? Just one. Old dogs and new tricks, eh?

Anyway, let me fill you in on some of the detail. There’s no point looking at yoy comparisons for HP services as they don’t break out the EDS contribution, but a quick look at the charts reminds us that EDS basically doubled the size of HP’s services business. So let’s look at the sequential growth instead, which includes EDS in full for both quarters.

HP’s services revenues declined 3% in the quarter to 30th April, to $8.5b, but margins continued to rise and are now 14%, ahead of IBM's. Good result! Worst hit was Application Services, where revenues fell 6% to $1.5b. Infrastructure Services revenues (the lion’s share coming from EDS and now 45% of the total) fell 3% to $3.8b. Technology Services revenues (basically maintenance) were roughly flat at $2.4b. BPO revenues, just 8% of the total, fell 5%.

It’s difficult to do a precise comparison with IBM as the service lines are aligned differently and so is the reporting calendar. But to give you the gist, in IBM’s Q109 (to 31st March), Global Technology Services revenues (infrastructure stuff) fell 9% sequentially to $8.8b, and Global Business Services (PwC stuff) fell 7% seq. to $4.4b. So in total, IBMs services revenues fell 8% seq. to $13.2b compared to the 3% decline in HP’s.

HP CEO Mark Hurd gave a fairly damning indictment on the famous EDS sales machine last night. “This is an organization that created most of its demand by picking up the telephone and hearing from a contract negotiator that a company was about to outsource”. He added that there’s still more work to do to align costs with revenues. As we mooted in Another top departure from EDS, it sounds like there are more departures to come.

HP and a fundamentally changed marketplace

(By Richard Holway 9:00am 20th May 09) Q2 results from HP (and EDS – an HP company) last night were a microcosm of the fundamental shifts that are going on in the wider tech world right now.

Firstly, overall they confirm our own long-held predictions that the IT market is contracting with revenues down 3% to $27.4b. But the geographic variances were marked. “When adjusted for the effects of currency, revenue grew 12% in the Americas while declining 2% in Europe, the Middle East and Africa and 5% in Asia Pacific.”

Secondly, the variations between HP’s disparate activities were huge.

Enterprise Storage & Services suffered a massive 28% decline.

Imaging and Printing saw revenues plunge 23% to $5.9b as consumers and businesses alike tried to cut costs on things like replacement ink cartridges

In PCs, unit shipments “in a challenging environment” were flat but plunging unit prices meant that revenues declined 19% to $8.2 billion.

We have said on so many occasions that the PC world is changing fast. IDC recently reported that netbook sales went up 7x to c4.5m in Q1 2009 – representing c8% of the total market. IDC reckon c22m netbooks will be shifted in 2009. Although netbooks have obvious limitations they are ‘good enough’ for many students, consumers and business travellers. The move to smartphones also effects laptop sales. I find that my iPhone is really all I need on a short business trip – where previously I’d take my laptop. All this has major effects on HP (and Dell etal) business model as it means either that they sacrifice revenue and margin on their core PC/laptop business or they give way to competitors. As it happens both are happening as the really excellent results from Acer show. Amazingly Acer were the lead supplier of laptops (including netbooks) in EMEA in Q1 2009 overtaking HP.

As Mark Hurd (CEO) said “consumers are buying more computers than we expected but are now inclined to buy cheaper notebooks than full machines”.

But it was the shift to HP – the Services company, which is most marked (see accompanying post).

In this respect, HP clearly sees IBM as the role model. The move to higher margin services is clearly right but what does HP do with its ‘commodity’ hardware lines in the future? We should all remember that IBM sold both its PC business to Lenovo and divested its own Printer and Imaging operations. Is it beyond the realms of fantasy to even suggest HP might go down that path?

But it was Hurd’s outlook statement which sent HP’s shares down 5% in after-hours trading. He guided analysts to a c5% revenue decline in Q3 – much greater than had previously been forecast saying that he needed another quarter at least to determine whether the global recession had bottomed. We think it will take at least another year before we see growth again in the overall IT market. But there is great opportunity (or threat) for major diversity in the various sub-sectors that HP addresses.

Idox, Statpro ahead of the game

(By Anthony Miller – Wednesday 20th May 2009 8:00am). In pleasing contrast to recent rather surprising downbeat trading updates (e.g. Xchanging, SQS), two of our smaller software players find business running somewhat ahead of expectations.

AIM-listed public sector software supplier IDOX’s order book was boosted by successful bids at some of the new unitary authorities (see here). The revenues should start flowing in H2. Recent acquisition J4B (see IDOX acquires J4B) made an “encouraging” start and IDOX is on the prowl for further M&A. The board seems confident enough to pay a maiden interim dividend. We still think we’ll eventually find IDOX at the other end of the buy/sell chain but meanwhile, onwards and upwards it seems. Last year (to 31st Oct. ’08) IDOX made 21% operating margin on £34m revenues.

Also listed on AIM, Statpro, which provides data and analytics to the global asset management industry, reported trading ahead of expectations and way up on the prior year (see here). Despite getting most of its revenues from traditional software licence sales, Statpro only managed a 10% operating margin on £27m revenues last year (to 31st Dec. ’08) after taking various restructuring charges and write-downs. Prior year margins were a more respectable 23%.

So, these reports suggest public sector and analytics are still holding up. But as we have seen recently, even apparent ‘safe havens’ can sometimes get bombed.

Tuesday, 19 May 2009

Another top departure from EDS

(By Richard Holway 4.00pm 19th May 09) When I wrote Exodus of EDS executives on 24th Apr 09, I clearly 'hit the nail on the head'. One of the very top EDS executives sent me a one word email. It read "Richard!"

Anyway, the exodus continues as Sean Finnan, UK CEO, is off to pastures new. I'll bring you news of his new role in a few days time. Craig Wilson is taking over as VP UK and Ireland. Craig is also VP of Application in EDS EMEA.

Although one expects leavers when a company is acquired, it is very worrying to see so much EDS talent and experience disappear. In many cases the senior positions are taken by HP executives. HP is/was predominately a products company and sees services as a way of selling more product. EDS was a 'services-led' company. As I have observed before, there seems to be an increased polarisation between the 'solutions/product-led' companies (IBM, HP/EDS, Fujitsu) and the 'services-led' companies (Capgemini, CSC, Accenture). Clearly a debate set to run and run as, like all good debating points, there is no one right answer!

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Xchanging ‘triple whammy’ revenue warning

(By Anthony Miller – Tuesday 19th May 2009 9:00am). This is a trading update we really did not expect to see. UK-based BPO player, Xchanging, warned of a ‘triple whammy’ of problems. Transaction volumes and asset values in its banking sector clients, claims processing volumes in its US business, and IT services demand have all been hit by the downturn. As a result, revenues are currently below expectations. This is quite in contrast to UK BPO market leader Capita’s recent trading update (see Capita on track to retain Boring Award), which ‘boringly’ reported that “All our key financial metrics remain on track”.

We have pointed out many times the big differences between Capita and Xchanging. Obviously there’s a matter of size (Capita’s 2008 revenues were £2.44bn vs Xchanging’s at £0.56bn) and margins (Capita’s 13% vs Xchanging’s 7%). Then there’s Capita’s 100% focus on the UK market, vs Xchanging’s growing international business (c. 30% of revenues). But perhaps more fundamentally, Xchanging almost wholly targets the private sector (though this is changing) whereas Capita has a near equal split between private and public sector business. Capita also has a much broader portfolio of BPO (and IT) services than Xchanging, which gives it more ‘levers to pull’ when parts of the business are not performing as well as others.

Nonetheless, we thought that Xchanging would be relatively unaffected by the downturn given its ‘cost reduction’ BPO proposition. But it just goes to show how few places there really are in which to hide. Xchanging’s shares are down 10% as I write, while Capita is basically flat.

Monday, 18 May 2009

Freeloaders

(By Richard Holway 10.00pm 18th May 09) It is more than likely that 10,000 people will at least start to read this article. Everyone of those will read it for free. You might think that our revenue comes from the banner ads at the top and bottom of this website and email. But the revenues we get from that source are minimal. TechMarketView’s main revenue source is subscriptions to our paid-for research. UKHotviews is a highly effective marketing channel which cements our positioin as the key influencers on the UK scene. Our aim is that more and more of you will think ‘if UKHotviews is that good, we must have access to the really valuable stuff”. All I can say, looking at our ever-growing paid-for customer list, is that it must be working!

I say all this because something similar is happening on a much wider scale in the newspaper industry right now. For centuries, newspapers were printed. We bought them for a cover price although the main revenue source for the newspaper publishers was advertising. Then, really quite suddenly in the history of the media, along comes online content and the whole model gets turned on its head. Everyone expects online content to be free. That might have been OK if online advertising revenues had compensated. But they clearly do not. Total media advertising spend has slumped. Even online advertising revenues are being hit hard – for the first time ever it will decline in the US and UK this year.

I don’t know if I am typical, but I now read all the newspapers, like The Times and Telegraph, and magazines, like ComputerWeekly and Businessweek, online. I don’t pay a penny for that service and honestly can’t remember ever clicking on an advert. My only subscription is the FT and that is so I can search the archives. Today’s edition of the FT is free.

The business model is obviously unsustainable. Which is why News Corp is strongly tipped to bring in subscriptions for access to its titles online. I have very serious doubts that this will work. Well, it hasn’t worked for anyone else who has tried to make the move.

Which brings us back to the TechMarketView ‘model’. We won’t ask you to pay for UKHotviews because behind it we have something of huge value that we can sell to an ever increasing number of customers. UKHotviews is more that just a marketing channel. It’s the way we maintain our position as key influencers on the UK tech scene. People have always been prepared to pay for access to the views of influencers. But how can Rupert Murdoch replicate that?

For further debate on the issue of free or paid for online content see A want to break free in FT 18th May 09

Sunday, 17 May 2009

OPD seeks funding – will chairman come to the rescue?

(By Anthony Miller - Sunday 17th May 2009 7:30 pm). OPD, the holding company for small string of recruitment companies which includes IT&T recruitment firm PSD, is in all sorts of trouble. After a horrible set of FY results (see Odgers weighs heavily on OPD profits), OPD announced on Friday that the rate of decline in net fee income (gross profit) increased in March and April and was down 30% on March and April 2008. Management warned of a highly dilutive fund-raising if trading fails to improve.

However, the company also advised it was discussing a cash offer from chairman Peter Hearn and other executive managers at 57p per share, valuing the company at around £15m. OPD’s shares were languishing around 40p before the announcement. Hearn already owns 27% of the company, with Schroders the next biggest shareholder (20%).

OPD really has no business being a listed company (on the main market, what’s more, not AIM!). It floated in Feb. 1997 when ITSAs (IT staff agencies) were having their pre-Y2K bonanza, but the party has been over for quite some time. It would be hard to imagine a herd of potential buyers fighting amongst themselves to rescue OPD if Hearn’s bid (if so it is) is not successful.

Steria flips services growth trend

(By Anthony Miller – Sunday 17th May 2009 6:30pm). Somewhat later than its European peers, Steria finally revealed its Q109 revenues last Thursday, showing a complete reversal of the expected growth trends in Consulting/SI vs outsourcing. Unlike Capgemini, Atos and Logica, Steria saw Managed Services/BPO revenues decline by 8.4% (organic) in the quarter, while C&SI revenues grew 2.3%. MS/BPO now represents 37% of Steria’s revenues, down from 39% a year ago.

The yoy decline in MS/BPO will be in part due to Xansa’s Learning & Skills Council and MyTravel contracts which closed out just before the acquisition by Steria completed. These contracts also contributed towards the 3.8% yoy decline in Steria UK Q109 revenues, otherwise, UK revenues would have shown a 1% yoy rise. These two deals wash out from the comparisons from May.

For the record, Steria’s Q109 revenues fell 1.9% (organic) to €397m, with the UK remaining its largest market at €157m. These were a much more muted set of results compared to Q4 (see UK now leading Steria’s growth) as would be expected. However, Steria reports “robust” revenue trends in UK public sector and utilities. We’ll have to wait till the end of August before we hear how the rest of H109 went.

Why I shouldn't go away...

(By Richard Holway 2.00pm 17th May 09) As readers might have noticed, I’ve been away for a week. Everytime I go on holiday, something earth shattering occurs – Northern Rock, the Iceland banking crisis and now MP’s expenses.

I feel annoyed because my wife has believed that MPs are just a bunch of crooks since I first met her. She is now crowing that she was right all along. (Or, as a cartoon I read on the plane said, "It's the 95% of MPs that are crooks that give the rest a bad name")

But what really gets me is the double standards. I’ve been subject to three HMRC tax enquiries and an VAT enquiry in the last 10 years – all occasioned not by any suggestion of wrong doing but because my tax affairs are deemed ‘complex’ (which is true!). On every occasion I have been found to have paid too much tax! I’ve never ever had any apology for the time and anguish caused – or recompense for the £1000s of accountants fees incurred.

What I have learned is that claiming a ‘genuine mistake’ and saying ‘sorry’ really doesn’t cut the mustard with these guys! The choice for such mistakes are a penalty or a court case – ie not much of a choice at all!

I think my busy-ness quotient is just as high as any MP. But I have never forgotten that I’ve repaid my mortgage (Indeed, I will remember celebrating that day in 2000 for the rest of my life!) I’ve also learned that I have to prove that every penny I claim as tax deductible expenses were “wholly and necessarily incurred” for business purposes.

So, like what seems like 99% of the rest of the British population, I have absolutely no sympathy with the situation that the MPs now find themselves in.

W

(By Richard Holway 2.00pm 17th May 09) So far this year I have written about U, L and even Y-shaped economic downturns and recoveries. In all those articles I was referring to the UK economy in general and the UK SITS market in particular. I’ve been totally consistent for over a year now in believing that we won’t see growth returning until the middle of 2010. Nothing I have read from the BoE or the IMF this week would make me change my mind.

It has been interesting to see how Eurozone countries – Germany in particular – are being even harder hit that the UK. “We all drink out of the same soup bowl”. Germany might well have avoided the excesses of our own financial services sector. But it was those self-same evil city dealers that bought the BMWs and Porches that are the mainstay of the German manufacturing sector.

But as my colleague Anthony Miller keeps reminding me, stock markets are different to markets in general. Stocks are different to companies. As I have been reporting each month this year, the FTSE UK SCS Index has just consistently powered ahead; possibly anticipating a recovery somewhat faster than me, the BoE or the IMF. Indeed it is still up 29% YTD. Conversely, the FTSE100 fell like a stone in the first two months of 2009 – it was 20% lower YTD by 6th March 09 – before staging a pretty remarkable recovery – up 25% since. But the FTSE100 is still down 2% YTD.

Many observers are now suggesting that this was just a ‘Bear Rally’ and that what we are seeing is a “Classic W”.

Last week the FTSE100 fell 3.4% and the FTSE SCS Index was down 1.3%. NASDAQ also fell 2.5%. All adding to the view that we could well be in the middle of the W.

Fortunately it is not our job to forecast where either indices are now headed. But I will repeat the conclusion from IndustryViews published a couple of weeks back (available only to subscribers). Over the medium to long term, the FTSE100 and the FTSE SCS Indices perform together. So far this YTD, for the first time since Q1 2000, they have gone quite separate ways. I am not suggesting a tech crash like we saw in 2000. But, if historic trends are correct, we will see some convergence in the Indices by the end of the year.

Footnote – Having written this article, I’ve just read How to profit whatever the shape of the recovery in today’s Sunday Times. It has V, W, double-W, U and L-shaped recovery scenarios!

Informa puts Robbins-Gioia up for sale

(By Richard Holway 6.00pm 17th May 09) As readers might know Richard Holway Ltd was bought by Ovum in 2000 which was bought by Datamonitor in late 2006 which was bought by Informa in 2007. Hence my interest in the announcement that Informa had appointed Greenhill to run an auction for the sale of their US IT programme management operation – Robbins-Gioia. Customers include GM (hope they get paid...), Johnson & Johnson and Merrill Lynch.

£70m is expected from the sale. Bit of a drop in the ocean compared to Informa’s £1.3b debt. Maybe they’d accept an offer for Ovum? Any backers out there for such a move?

Fujitsu Services closes its final salary pension scheme to existing members

(By Richard Holway 2.00pm 17th May 09) The Financial Times reported on Friday that Fujitsu Services “is to be the first large employer in nearly two years to close its defined benefit pension scheme to existing workers”. See Fujitsu shuts its final salary pension scheme.

To be fair, the fact that Fujitsu still had a final salary pension scheme came as a surprise, both to us and some people working at Fujitsu, as it closed to new members in 2000 and therefore “only 4,000 of its 14,500 workers in the UK and Ireland are still earning final salary pension benefits". Fujitsu confirmed the move, but said: “It is a regrettable but prudent decision on our part,” adding that the scheme is currently running a deficit of about £1bn. “We are not the first to do this and I don’t suppose we will be the last.”

Fujitsu plans to offer affected workers membership of the company’s defined contribution scheme.

Friday, 15 May 2009

Is AIM missing the target?

(By Anthony Miller – Friday 15th March 2009 9:30am). A trading update from AIM-listed medical imaging software supplier, Medicsight, highlights again the question of who should list on public markets and who shouldn’t.

Medicsight listed on AIM in June 2007 when its parent, MGT Capital Investments, placed 29m shares at £1.10 raising net £30m. This valued the company at £171m. Not bad for a business with zero revenues and £5m losses! US-based MGT is a publicly quoted technology holding company that invests in the global healthcare IT market.

Medicsight’s results today show Q1 revenues of £43k (thousand) and £2.5m (million) losses. As I write, Medicsight’s shares are worth 8.5p. All I can say is that must have been one hell of a roadshow back then!

RM – No, not the comfy chair!

(By Anthony Miller – Friday 15th March 2009 8:30am). You know, sometimes I really struggle with how companies design their ‘knitting’ patterns. RM basically started out as a supplier of software and IT services to the UK education market, but their ambitions have taken them much further and wider. I raised concerns earlier this week that they are spreading themselves a bit too thin (see RM – worthy cause deserves worthy profit). Today’s acquisition of furniture supplier Isis Concepts (see here) does nothing to allay my worries.

This is not RM’s first move outside of software and IT services. Indeed, they have made 16 other acquisitions since 2000, of which at least half-a-dozen have been in ‘education resources’. The most recent was just last month, Pisces Arts, which provides arts & crafts materials and specialist stationery to schools and local authorities across the UK.

I’m sorry, but I just think plots are being lost here. How can a company with annualised revenues under £300m at 5% operating margin (FY08) expect to be ‘all things’ to education departments in multiple countries? Where’s the focus?

RM’s core software is brilliant. This is its knitting. Why not stick to it?

By the way, can someone please offer RM some help with their website? The home page looks like it was designed by the cast of the Tellytubbies. Thank you.