Tuesday, 30 June 2009

Will the government’s VC tech fund find the right targets?

(By Anthony Miller – Tuesday 30th June 2009 6:30pm). The news (see for example here) that the government plans to commit £150m to seed a £1b ‘fund of funds’ for tech start-ups seems a step in the right direction. As we noted in our IndustryViews Private Equity report in May, early stage venture capital is very tough to come by. But to be effective, the managers of the new UK Innovation Investment Fund have to pick the worthiest causes. It would be a shame if the government measured success only by the number of companies funded as they might end up investing in too many ‘no hopers’. Let’s hope that a good number of genuine fledgling rising stars get a fair crack at the dosh. More in the next issue of IndustryViews Private Equity – for subscribers only, of course.

PwC – did they, or didn’t they?

(By Anthony Miller – Tuesday 30th June 2009 6:00pm). Audit Satyam, that is. There’s just a wonderful story in the Times of India today (Tuesday) that it wasn’t PwC India that audited Satyam’s accounts, but Bangalore-based partner firm Lovelock & Lewes. Therefore, by some sort of weird logic, PwC claims “it wasn’t us, guv!” This is despite evidence that the auditing fees were paid into PwC’s Bangalore account before being remitted to L&L. PwC India chairman and CEO, Ramesh Rajan, helpfully explained that the firm has no manpower (I think he was referring to PwC's Bangalore office, in which he is reportedly a partner) and as part of an internal arrangement gives out their work to Lovelock and Lewes.

This ‘defence’ would look so much more convincing if PwC didn’t list L&L on their global website as “Price Waterhouse\Lovelock & Lewes”, with offices one floor below "PricewaterhouseCoopers Pvt Ltd" in the same building and with the same phone number. Anyway, I’m glad that’s all been cleared up then.

Lloyds layoffs stories – does ‘two plus two’ make offshore?

(By Anthony Miller – Tuesday 30th June 2009 1:15pm). As the news of Lloyds layoffs hits the wires, I note an item in India’s Economic Times (see here) which, if you tie the stories together, suggests at least some of these ‘layoffs’ may in fact be jobs offshored to the IT majors. Lloyd’s was already outsourcing some of its IT to TCS, Wipro and Cognizant as a result of a review completed in May 2007. A year later, the press was aflurry with rumours that the bank was to extend offshoring to other IT roles. I doubt we’ll get any comment from the usual suspects, not least because they are now in ‘quiet period’ (Infosys kicks off the reporting season Friday week). Anyway, we’ll see what we can find out.

Steria wins BPO side of CSC’s passport contract

(By Anthony Miller – Tuesday 30th June 2009 9:30am). Here’s one we didn’t have a chance to comment on last week, but is worthy of note. Steria has joined CSC’s consortium to upgrade the UK Identity & Passport Service’s application and enrolment system (see CSC UK wins £385m ID-Passport contract). Steria will do the BPO bit to manage front-end passport application processing. Steria’s share was not made public, but we believe was north of £50m across the ten years of the deal. Steria will TUPE across some 250 staff from Siemens, who won the original contract back in 1997. This is another feather in the cap for Steria UK CEO, John Torrie, but let’s really hope they can avoid the pitfalls that plagued Siemens after high-profile problems brought those memorable scenes of queues of unhappy holiday-makers snaking round the streets outside passport offices!

Sanderson – what a difference a year makes!

(By Anthony Miller – Tuesday 30th June 2009 9:00am). Just follow the UKHotViews trail. This time last year retail/manufacturing software ‘Little British Battler’ Sanderson was on a roll (see Why I still like Sanderson), basking in the glory of a fine set of interim results which pushed the share price up to 40p. However, despite our long-term soft-spot for the company (and executive chairman Chris Winn), we really didn’t believe Sanderson had a future as an independent, let alone listed, company.

Roll forward six months. December '08. Full year results in line with the reduced expectations after October’s profit warning, but management cuts the div (see Sanderson cuts dividend to conserve cash). We said again, “We still think Sanderson’s future lies in the arms of a potential suitor”.

Roll forward four months. April '09. Another profit warning (see Warning from Sanderson). Shares dive another 10% to under 10p.

Now, back to the present, and today we see that Sanderson in fact fell into loss in 1H09 (see here). For the most part, the net losses derived from a £1.5m goodwill write-down from the deeply sub-scale and shrinking Manufacturing division (at £3m, about 30% of Sanderson’s 1H09 revenues), along with a near-£600K hit due to a misjudged interest rate hedging call. Even excluding these costs, ‘adjusted’ operating margins almost halved from 15% to 8%.

Winn’s outlook statement sums Sanderson’s prospects up thus: “against the backdrop of a general lack of business confidence and economic uncertainty, the number and size of opportunities are fewer and the deferment of investment decisions, which was experienced towards the end of the 2008 financial year has continued into the current year.” Sanderson’s shares closed 7% up yesterday at 11.2p but we haven’t seen any trades yet today.

Portrait paints a brighter picture with point solutions

(By Philip Carnelley - Tuesday 30th June 2009 8:15am). Following yesterday's FY09 results (see Profits and growth in sight for Portrait Software), we met Portrait Software’s exec team, including newish CEO Luke McKeever (7 months in post) and very new non-exec Chairman Paul Hewitt (2 weeks in post!), taking over from our old friend, John O’Connell. Hewitt comes from a solid blue-chip finance background, at the Coop and RAC, amongst others.

A ‘Little British Battler’, Portrait has a long and chequered history. It had a rather torrid FY09, in particular Q2, when licence sales nosedived following the banking crisis – 50% of sales are to retail banks. But licence sales are now back to earlier levels, and it has a solid maintenance revenue stream (43% of revenue) while service sales are holding up (36%). It also has a deal with US-based banking services giant, Fiserv, which is ‘white-labelling’ Portrait’s CRM software.

For a company like Portrait, the big challenge is that the market has moved on. The opportunity for selling big CRM suites to medium/large organizations is both tough and limited, because: (a) most sizeable companies already have a CRM suite and (b) those that don’t or who want to upgrade are more disposed to buy from the global players – Oracle (Siebel), SAP, Microsoft and, increasingly, Salesforce.

So Portrait has sensibly switched tracks to focus on selling ‘complementary’ point solutions, in particular using the technology it acquired through Quadstone Analytics, an Edinburgh University spin-off, into the majors’ installed base. Indeed 70% of Portrait’s new licence sales now come from ‘complementary’ products. The critical thing is to offer something the majors don’t – in this case, analytical capability to improve successful customer interactions through intelligent real-time selection of products for cross-sell/up-sell. One of Portrait’s partnerships is with Microsoft Dynamics, and Microsoft, as we noted in Microsoft Dynamics: Four ERPs and a CRM, is aiming to get half its bizapps revenues from its CRM product. Portrait is surely hoping so, too!

Monday, 29 June 2009

Accenture – Eight Years On

(By Anthony Miller – Monday 29th June 2009 9:30pm). As ever with Accenture’s results, the interesting bits are to be found in the analyst concall. I shan’t bore you with the headline numbers from last week’s Q3 report – you can read them for yourselves here. They were OK, by the way, under the circumstances. But let’s look ‘under the covers’ at some of the key messages:

· Europe is a mixed bag. Spain, Italy and France are lagging, while Netherlands, Nordics and Germany are growing – in some instances double-digits. But the UK still sounds sick: Accenture COO, Steve Rohleder, said they are "work(ing) hard to get that business stood back up”.

· Consulting remains tough: “some clients are slowing the pace of ongoing projects and deferring decisions to expand scope beyond current commitments”. This isn’t helped by pricing pressure: “clients are continuing to ask us to go back and reevaluate our existing arrangements with them and reduce our prices”.

· Outsourcing is still growing in real terms but growth has slowed “due to the continuing shift to lower-cost resources at a reduced price level, and a lower volume of scope expansions on existing contracts”

· It’s still too early to call the bottom: “it's hard to say if the worst is behind us or the worst is in front of us.”

In other words, there’s no real sign that clients are focusing on anything more than cost containment. As a result, they're putting more work offshore.

But let’s give Accenture its due. July will mark the eighth anniversary of the company’s IPO. Since then, in the words of CEO Bill Green, “we delivered compound annual growth of 10% in revenue; 12% in operating income, with 140 basis points of margin expansion; 26% in EPS; and 20% in free cash flow (...) We have returned $13 billion to shareholders through share repurchases and dividends. All of this while adding more than 100,000 employees.” And perhaps he could have added: “and all of this in the face of the phenomenal rise of the India-based SIs, whose leading players pitch themselves directly against Accenture and have extracted close to $100b of revenues from the global IT services and BPO marketplace during that period.” Cap-doffing is perfectly in order, I would say.

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Atos scoops Royal Liver deal

(By Anthony Miller – Monday 29th June 2009 9:30am). News just in that Atos Origin has cracked a £40m/ten year deal with IT outsourcing ‘virgin’ Royal Liver Assurance. Atos will take over the management of all of RLA’s IT infrastructure, services and applications. I understand that about 50% of the services will be delivered from Atos’ offshore centres in India (apps management) and Malaysia (service desk). Another great win for UK CEO Keith Wilman and his team.

Serco bucks rivals’ gloomy outlook

(By Anthony Miller – Monday 29th June 2009 9:00am). Well that’s a relief! After depressing news from UK-based BPO rivals Mouchel (aka ‘Serco-lite’ – see Mouchel ticks the wrong boxes) a couple of weeks ago, and Xchanging a month earlier (see Xchanging ‘triple whammy’ revenue warning), Serco stuck to its upbeat outlook from a month ago (see Public sector paying off for Serco) with a positive pre-half-year-close trading update (see here). They also announced a very respectable £180m deal with the Aussie Government “to transform its immigration detention centres” (by the way, these have been a nagging and controversial issue in Oz for years). We still have very little visibility on Serco’s software and IT services activities. We keep trying to get them to ‘open the kimono’ but they are a bashful mob! We will persevere as we believe Serco is a ranking player in the UK SITS market and worthy of note.

Profits and growth in sight for Portrait Software

(By Philip Carnelley 9.00am 29 Jun 09) AIM-listed CRM software provider Portrait Software heralded a return to profitable operation in its second half, when it announced its results for the year to 31 March (see here). It appears that the appointment of Luke McKeever as CEO back in November is having the hoped-for effect. Non-exec Chairman John O’Connell, who left in February (see John O’Connell gives up chair at Portrait Software), was finally replaced earlier this month, by Paul Hewitt.

Overall Portrait’s revenues held steady at £14.4m (2008: £14.1m) for the year and the company said that new licence fees grew 75% in the second half, after they had completely dried up in its Q2. The return to profit in the second half couldn’t quite save the full year numbers – operating loss was £765k before exceptionals. With exceptionals – primarily cost of staff reduction and an “onerous property lease” – the operating loss was £2.8m. We have a meeting with the (new) management later today and will post any more insight we glean later.

SDL snaps up content management archrival

(By Anthony Miller – Monday 29th June 2009 8:30am). Although best known for its translation software and services (see SDL translates to Pomme), ‘Little British Battler’ SDL has a growing line in content management (CM) software too, currently representing some 15% of its £159m revenues. This side of the business has basically been built by acquisition, starting with Netherlands-based Tridion in May ’07.

Today SDL added another feather in its CM cap, taking out US-based archrival, XyEnterprise, for $15m/£9m cash. XyEnterprise, which turns over some $10m p.a., will be merged with Trisoft, the Belgian CM player in which SDL took a 49% stake in Dec. ’07 and subsequently took all but full control of last September. Just last month, XyEnterprise formed a “business alliance partnership” with Letterpart, which styles itself one of the UK leaders in automated XML typesetting, batch pagination and loose-leaf publishing. Could Letterpart be next on SDL’s hit list I wonder?

I have to say that I am getting just a little bit confused as to how all of this fits together – indeed it gets even more interesting given SDL’s partnership with Interwoven, the much larger US-based CM player acquired by our very own Autonomy back in Jan. ’09 (see Autonomy to interweave Interwoven). Anyway, all is sure to become so much clearer after SDL’s ‘Global Information Management for Dummies’ session (i.e. analyst teach-in) next week – and, yes, TechMarketView will be there!

Sunday, 28 June 2009

More and more for Less and less

(By Richard Holway 1.00pm 28th June 09) “More for Less” has been one of our slogans for all of the current decade. I am constantly amazed, not just at the wonderful new products I can buy, but also at how ‘cheap’ they are compared with just a few years back. The new Acer Aspire One, on which I am typing this on the A380 on the way to Oz, is a case in point. An amazingly powerful machine weighing in at just over 1kg and costing just £299. With it I carry my iPod Touch which I think is one of the beautiful pieces of kit ever invented. And it too costs <£200. My new Nokia phone was given free when I renewed my Vodafone contract for another 12 months. It has a digital camera which is more powerful than my first digital camera bought 10 years ago for over £500.

I was reminded of this good fortune by an excellent article - Apple’s network helps prevent a fall - in the FT on 25th June 09. John Gapper reports on a study by Deloitte which found that the return on assets at US companies had fallen steadily since 1965, from c4% to c1%. It’s consumers that have gained from this and the losers have been shareholders. The report also makes the point that, as returns on assets have fallen, those with scarce skills have gained at the expense of the low-skilled.

So we are truly blessed. Hotviews readers tend to be those ‘knowledge’ workers with ‘scarce skills’ who have done very well out of this change. On top of that, we all get cheaper and more wondrous gadgets!

But maintaining both high margins and high ROI is not an easy trick to pull off. Apple is a rare example. They have never willingly competed on price or wanted market share in a commodity market. Both Acer and Nokia have. In Nokia’s case, not to their shareholders advantage. Another point that the Deloitte study makes is that to succeed, companies have to ‘adjust the terms of competition’. They have to know when to compete and when to collaborate.

Personally, I think we entered the ‘Age of Partnership’ at the start of this decade too. It certainly has been the case in IT Services where consortium bids have become the norm. The same applies in both hardware and software where no new product is the result of just one company’s work. There are so many examples. Eg Apple uses WebKit software at the heart of its Safari browser and Imagination Technologies graphic chips in its iPods.

Apple has now taken this collaboration to a new level. iTunes was the killer app for the iPod; providing the first viable collaboration for digital downloads between the record producers and the consumer. Nobody has so far been able to compete with that ‘first mover advantage’. Apple is doing it again with their Apps Store. At a stroke, the 50,000 iPhone apps makes it extremely difficult for entrants (like the new Palm Pre) to compete. (I've just discovered that my 4 year old Ozzie grandson Euan seems to have most of these on his iPod Touch!)

Microsoft achieved something similar in the first decade or so of their ‘reign’. The sheer amount of ‘collaboration’ around Windows (ie the wealth of third party software available) made it extremely difficult for competitors to break in. But, just like Apple, Microsoft jealously guarded the ‘secrets’ at the heart of their product and that enabled both Apple and Microsoft to maintain both margins and ROI.

It’s a difficult trick to pull off. Even more difficult to pull it off again and again over many years; something that Microsoft is currently finding.

Friday, 26 June 2009

Micro Focus faces upped bid for Borland

(By Philip Carnelley – Friday 26th June 2009 9:45am). The‘mystery buyer’ for Borland has re-emerged to spoil the Micro Focus party. In a brief statement this morning Micro Focus said that Borland “has received a preliminary non-binding indication of interest from another party.” The indicative bid is $1.25 cash per Borland share vs Micro Focus’ recently raised $1.15 offer (see Micro Focus ups the ante for Borland). Borland shares jumped 18% in after-hours trading, to $1.35.

This news follows Micro Focus’ results, announced yesterday, which were pretty good (see Micro Focus raises profits, revenues as it assimilates acquisitions). At the analyst meeting, Micro Focus executives exuded confidence; we got the strong sense that these are cool heads who have instilled a clear sense of discipline and process into the company, for sales and for M&A. This is far from the rather sleepy company of four years ago (when the present leadership team came in), and miles away – we sincerely hope – from the company that embarked on the ill-fated merger with US-based Intersolv a decade ago.

Micro Focus has assimilated 3 companies in the last year without missing a beat. Adjusted operating profit rose 34% to $116m, giving a margin of 47%, and “true” operating margin, including amortisation etc. stayed steady at 33%. Organic growth was 10%, and, unlike, say, Oracle or SAP (see Oracle – reasons to be cheerful), new license sales held up well last year, growing 10%. Headline growth was 20%, to $274m.

If Micro Focus does land Borland, it will bring considerable operational, marketing and technical challenges. Borland’s product portfolio is broad (some would say unwieldy), it overlaps with others already in the Micro Focus portfolio and, most importantly, it is unprofitable. The question is, how far will Micro Focus CEO, Steve Kelly, be prepared to go to win this increasingly dubious-looking prize?

AppLabs seeks contested testing services crown

(By Anthony Miller – Friday 26th June 2009 9:15am). Being as testing services is somewhat on our minds at the moment (see SQS back on even keel for now), we took the opportunity to meet up with Doc Parghi, European head of US-headquartered, but India-based testing services firm, AppLabs. AppLabs is having a bit of a PR tussle with SQS on who is the "world’s largest independent testing services company", with SQS the winner on revenues (€143m last year, vs AppLabs estimated $110m in the year to 31st March ’09) but AppLabs rather ahead on staff count, with some 2,000 heads, mostly in India, vs 1,400 at SQS, mostly in Europe. Anyway, both of these together don’t come near the leading India-based SIs, such as Wipro, which boasted testing services revenues near $500m in the year to 31st March ’09, and relevant headcount probably over 10,000 FTEs.

Both players entered the UK market by acquisition the same year (2006), SQS buying Cresta (which deal, by the way, was facilitated by our good friends at Regent) and AppLabs buying IS Integration. AppLabs has some 300 FTEs in the UK – much as did IS Integration – but whereas IS was purely an onshore business, AppLabs UK now has fully blended delivery. We will go into more detail on AppLabs in a future OffshoreViews note as we see the UK a prime battleground for the many players in a very fragmented testing services market (e.g. see SDLC Solutions carves out its piece of the testing market).

Infosys chairman to run India ID card scheme

(By Anthony Miller – Friday 26th June 2009 8:15am). Infosys co-founder and co-chairman, Nandan Nilekani, is to step down from the board next month to take charge as the Chairperson of the Unique Identification Authority of India (UIDAI), in the rank of Cabinet Minister. The Indian government has set aside around $20m this FY to kick off the scheme, which will provide social-security like numbering and smartcards to all of India’s 1.1b citizens. Nilekani is reported as saying that he expects the first ID cards to be issued within 12-18 months.

Now there’s obviously several stories here, but for now I will just comment on the more ‘superficial’ one, and that is the changing of the guard at Infosys. One of the many aspects I have always liked about Infosys (besides margins to die for) is the constant promotion of senior management into top positions in the company. When I met Nilekani in my first jaw-dropping visit to Infosys’ Bangalore campus in 2000, he was COO. He was promoted to CEO in 2002 and handed over the reins to co-founder ‘Kris’ Gopalakrishnan in 2007 to ascend to the co-chairmanship of the Board. I think this top management ‘churn’ is very healthy in a fast growing company, but of course the real test will be whether Infosys will eventually appoint someone outside of the co-founder ranks to become CEO when Kris eventually moves on (and, I assume, up). But ambitious senior managers can see that, in Infosys at least, top executive positions are potentially attainable.

SQS back on even keel for now

(By Anthony Miller – Friday 26th June 2009 7:45am). We didn’t have time to include this yesterday, but after last month’s surprise profit warning (see Testing services slowdown prompts SQS profit warning), the self-styled ‘world’s largest supplier in independent software testing and quality management services’, SQS, reckons it’s back on an even keel, reporting trading ‘in line’ with management expectations. CEO Rudolf van Megen noted resumption of ‘several’ large Financial Services IT projects and believes their core German, UK and Nordic regions have stabilised. As we said at the time, we think SQS also got caught short with not enough India-based delivery, so even if the testing services market is no longer in decline (a moot point), SQS could still have a tough time holding margins as more offshore-heavy players (including, of course, the India-based usual suspects) turn up the heat.

Thursday, 25 June 2009

Misys previews ‘improving’ FY results

(By Anthony Miller – Thursday 25th June 2009 7:45am). It was very much a case of ‘steady as she goes’ in Misys’ trading update this morning (see here) which, under the circumstances, is actually a pretty good result.

As ever, there were swings and roundabouts across Misys three businesses. Banking division saw revenues rise 5% like-for-like to £180m with orders up 9%. But the financial crisis ate into Treasury & Capital Markets (TCM) revenues to the tune of a 2% like-for-like decline to £160m, with orders down 10%.

Allscripts-Misys, the independently-listed,US-based, merged healthcare business – and now its largest division – seems to be getting back into gear, with a 5% like-for-like revenue rise to £400m (£350m as reported), with the order book up 7%. ASP licence revenues jumped 70%. CEO Mike Lawrie attributed the order momentum to the US federal stimulus package, which passed through legislation in February. I do hope this is not a ‘false dawn’ as I remain concerned about the extent to which small US physician practices can really take advantage of the grants (see Misys senses medic confusion on US stimulus package).

Services revenues across the three divisions rose 2% like-for-like to £110m but the order book took an 18% hit mainly due to difficult ‘comps’ from a major healthcare services deal the prior year. No news, though, on who is to replace Eileen McPartland as head of sales and services (see Misys sales and services chief defects to partner).

Net-net, Misys group revenues rose 3% like-for-like to £695m, with total order intake up 2%. No detail on profitability other than an overall 60bps improvement in ‘reported adjusted operating margin’ to 17%. So, as ever, the devil will be in the detail, which will be revealed in late July.

Micro Focus raises profits, revenues as it assimilates acquisitions

(By Philip Carnelley, Thursday 25 June 2009 07.46) Micro Focus prelims this morning for the FY ended 30 April showed organic growth of 10% (at constant currency) and headline growth of 20% to US$275m. Operating margins stayed steady at 33% despite the effects of assimilating three different acquisitions during the year – NetManage, Liant and Relativity. Adjusted operating profit (before amortisation etc) was up 33.5%. Growth (ccy) was strongest – 14%, ccy – in EMEA, to $90m, but North America remains (just) its biggest market, at $92m.

So this was a good performance in a challenging year. However more big challenges lie in front of it – the acquisition of Compuware’s testing business closed in May, after year-end, and the proposed takeover of Borland will not complete (if at all, it’s likely but not certain) until later in the year.
We’ll have more to say after the analyst briefing.

Wednesday, 24 June 2009

OGC publishes Gateway Reviews on NHS IT Programme

(By Richard Holway 4.00pm 24th June 09) For all followers of the ‘fortunes’ of the NHS IT system, the publication of 31 Gateway reviews on the NHS IT system under the Freedom of information Act is a welcome move. All credit to Tony Collins for getting the Govt to relent. The FT today carries a summary of the findings Warnings ignored over NHS IT system, a much fuller critique is on Tony Collins IT Blog and the full monty on the Connecting for Health website.

I’m not overly sure that the release of these papers gives us that much more insight than what we had surmised before. They basically say that there were significant doubts about the viability of the project, and some of its suppliers, right from the start. It also implies that much of the project was governed by political dictate from ‘Number Ten’.

I long believed that Richard Granger’s initial objective was, first and foremost, to run a procurement process rather than a success implementation. Indeed, that was my view from the many conversations I had with Granger in the early stages of the project. I think Granger thought he’d be promoted out of that role long before anything was due for delivery. All these Gateway reviews bear that out. By the objectives presented to Granger, the procurement was ‘successful’. Indeed ‘too successful’ as it contributed towards the failure of the project – in particular it selected users on price rather than competence/experience, it screwed suppliers to such an extent that two of the most significant ones walked away. And, most significantly, it failed to engage with users. I don’t think anyone thought that would be necessary in the procurement process- as in talking to the users would get in the way and slow things down (my words, not theirs!) That the dictate that “There shalt be one and only one system per region’ meant that many of the existing/regional suppliers were abandoned – or put into the wilderness for years. This was a huge mistake.

We made many of these points ourselves from the early stages of the project – so it is not surprising to learn that they are echoed in the Gateway reviews.

I guess where we differed from others was in our belief that the aims of much of the NHS IT project were ‘worthy’ (we’ve never been a supporter of the ‘Choose & Book’ bit though) and that ultimately its successful implementation would be to all our benefit. And, bluntly, we are still of that view.

Oracle – reasons to be cheerful

(By Philip Carnelley – Wednesday 24th June 2009 9:45am). Software giant Oracle cheered the markets last night with its Q4/FY results to 31 May. Q4 revenues rose 4% at constant currency (ccy) to $6.9bn (down 5% as reported). FY revenues grew 10% ccy (+4% as reported) to $23.3b. Using ccy figures: over the year, new database/middleware software licences were up 7%, whereas new applications licences fell 10%. Maintenance revenues grew 12% for applications and 23% for database. EPS dropped in the quarter, which will grab the headlines, though operating margins of 42% for the quarter and 36% for the year were both up 1pp yoy. Management guided 0-2% yoy ccy growth this quarter excluding Sun.

What was most cheering was that the company, something of an industry bellwether, said it believes that stability is returning to the market. Execs commented that customers are not as nervous as they were at the beginning of the year though budgets remain very tight, and said its pipeline is growing “significantly” – but without giving details.

As ever, Oracle Co-President Chuck Phillips stuck the oar into archrival SAP, boasting that “we…took market share from SAP in every region around the world.” He said that Oracle grew its European applications business by 5% [ccy] and compared that to SAP. As SAP’s last reported quarter was Q1, this is not a straight comparison – but it is true that SAP’s new licence sales took a nosedive in that quarter, down 27% (ccy) in EMEA and 35% in the Americas, compared to +5% and -22% at Oracle for this quarter.

Larry Ellison also took a swipe (more than once) against Salesforce.com – clearly his bĂȘte noire of the moment – saying Oracle was repeatedly winning business against them. In fact, Oracle’s On-Demand software revenue line grew 12% (18% at ccy) in the year. But, at $779m this only represents 3% of Oracle revenues. By comparison, Salesforce’s revenues for last year were $1.1b, up 44%, and the company is forecasting a further 16% increase for the next FY to around $1.25b.

Given that Oracle’s biggest revenue falls were in its fourth quarter, the main reasons for optimism about these numbers were that the company saw growing revenues (at least before currency shifts) in all regions and generally beat expectations. We will have to take its comments on its pipeline on trust – at least until the next quarter. However these results do support our thesis that things are bottoming: CIOs are becoming able to plan with more confidence during this year, leading to potential uptick in IT spending in 2010.

IBM beats Capita, Mouchel, TCS and T-Systems to Essex deal

(By Anthony Miller – Wednesday 24th June 2009 9:15am). Our good friend – and ace reporter - Mike Simons at Computerworld broke the news yesterday that IBM has been selected as preferred bidder for a multi-billion pound ‘transformation’ deal at Essex County Council (see here). Essex had narrowed the field to five consortia, led by IBM (with Trillium and WS Atkins); Capita (with Axon, Telereal, and PriceWaterhouseCoopers); Mouchel (with VT, Capgemini, Experian, Ipsos Mori and Outcomes UK); TCS (no partners mentioned); and T-Systems (with Vertex, PA Consulting, and Drivers Jonas). The total project could be worth up to £5.4b over 8 years, dwarfing IBM’s £400m ‘South West One’ JV with Taunton & Somerset councils, set up in October ’07. Apparently, some of the Essex Councillors have been up in arms about potential job losses, more so that some of the work might be ‘offshored’. So, another big test for the finely balanced argument between ‘best value’ and ‘best jobs’.

Geong – Going for Content Management

(By Philip Carnelley – Wednesday 24th June 2009 8:30am). Interesting conversation yesterday with the CEO and CFO of AIM-listed, China-based enterprise content management (ECM) software firm, Geong, following its announcement of its prelims for the year ended 31 March. For the record, turnover nearly doubled (organically) to £14.7m, while operating profit lifted just under 50% to £1.7m.

ECM is a surprisingly global business. We have recently met companies from Bulgaria, the Czech Republic and Scandinavia, and now, China. Despite its London listing (and registration in Jersey), 95% of Geong’s business is to the Chinese market. Its chairman and CEO are Chinese, albeit with experience working for Western companies, including IBM and Compaq, and it appointed a CFO from the UK earlier in the month.

The ECM market in China is in its infancy, though Geong claims to be the third biggest ECM provider in China, after IBM and Oracle. Geong sells to major corporations – primarily banks, like ICBC, and telcos including China Mobile and Huawei – and also to the SME market. Unfortunately Chinese SMEs have suffered in the economic downturn – most are dependent on exports. But unlike many companies we track, which have seen their systems integration revenues plummet in the downturn, Geong managed to grow by pushing its services side: services around its PortalAge platform to large enterprises almost tripled, to £10m, while licenses of the SME-oriented SmartBox product fell nearly 90% to under £200k. Geong hopes a SaaS version and new partner-led sales strategy will revive SmartBox’s fortunes.

Despite having a representative in Canada, and an English language version of the products, Geong has no real designs on North America or the UK, saying that there is so much potential in China that it doesn’t need to look elsewhere. Its problem is reach – across such a vast country, getting to companies other than the very biggest requires a partner-led model. As the economy continues to grow more strongly – and it’s widely predicted that China’s economy will double within 30 years to become the world’s largest – then the opportunity out there should grow commensurately. However there can be no doubt a bigger opportunity will also bring in the US majors in earnest. It only goes to show that doing business in China is challenging even for companies steeped in the culture.

Tuesday, 23 June 2009

Bellamy heads for GCloud

(By Richard Holway 9.00pm 23rd June 09) eHealth Insider reports that NHS CfH boss Martin Bellamy is to depart at the end of June to take up a new position at the Cabinet Office. He will be responsible for developing the government’s strategy for cloud computing, GCloud, which was given prominence in the recent Digital Britain report. Bellemy has been in post for just 9 months. His appointment was announced in August 2008, alongside that of Christine Connelly. Connelly is now DG of Informatics at NHS.

Now Myspace slashes overseas staff

(By Richard Holway 8.00pm 23rd June 09) Further to my piece last week – Myspace cuts US staff by a third - Myspace has announced further cuts in its international operations this time. Over 2/3rd of its overseas staff are to lose their jobs (See FT Myspace slashes overseas staff numbers) Although it looks like London will remain as one of a smaller number of regional hubs.

It’s rare that Murdoch (News Corp bought Myspace for $580m in 2005) is trounced by a much smaller competitor (as today’s news that Setanta has gone into liquidation shows only too well) But Facebook has become (almost) the defacto standard in consumer-based social networking. But even FaceBook is having difficulty producing a viable revenue model

I’ve said it before and I’ll say it again, Microsoft should buy FaceBook and use it as its consumer portal to the Microsoft Cloud

Employment landscape in a recession

(By Richard Holway 2.00pm 23rd June 09) We were very interested to read the results of the CBI/Harvey Nash study - Recession creates new employment landscape (you can download the complete report from this link to the CBI site)

We really are in a hole. The 271,000 fall in employment in Apr 09 is the biggest since records began and job vacancies, at 444,000, is a similar record low. The private sector has lost 286,000 jobs but, amazingly, the public sector has put on 15,000 to reach 6.02m. Surely, whatever the colour of the next Government, this cannot continue as it’s just downright unaffordable.

It’s the young unemployed that worries me – particularly with my Prince’s Trust hat on. At 16.6%, the unemployment rate amongst the 18-24 year age group is the highest since 1993.

Around 55% of employers intend to freeze pay. Nearly two-thirds of employers have frozen recruitment. Here graduates face a really tough time with 40% freezing graduate recruitment and 10% recruiting even fewer than in 2008.

45% have increased flexible working (ie reducing hours) among staff to reduce costs. A further 24% are considering or intending to increase flexible working. A third of employers have cut their use of agency staff, while 43% have reduced paid overtime.

None of this is helped by the 23% of organisations planning to transfer work overseas in response to the UK's downturn. Science, Hi-tech and IT are the worst affected where 54% have either moved jobs, or are intending or considering doing so.

Albert Ellis, CEO of Harvey Nash, said:

“The recession has led to fundamental changes in the way employers recruit, motivate and develop employees, and UK plc must act fast to keep highly skilled talent in the UK labour market. Otherwise, we run the risk of conceding our competitive edge (talent) to other countries.

“Without a more proactive approach to training, accommodating and retaining talent, businesses risk missing out on the next generation of skills needed to compete. We have a wealth of knowledge, experience and skills in the UK that must be nurtured and developed, even in troubled times, for the future of the British economy.”

Absolutely. In IT, if British graduates don't get entry-level IT jobs we won't get the Project Managers or Network designers in 5-10 years time. The UK will cry 'skill shortage' and even more will be sourced offshore. A viscious and really quite dangerous situation.

When will it end?

Not soon. 53% think it will take up to two years or more for recruitment levels to return to 2007 levels.

Kewill Update

(By Philip Carnelley – Tuesday 23rd June 2009 9:45am). Kewill’s results briefing yesterday yielded some interesting trends behind the headlines (see Currencies help Kewill’s revenues but not margins).

First, excluding the £5.6m P&L charge from intangible amortisation (which, by the way, we view as part of the ‘real’ cost of growth by acquisition), operating margins crept up 40bps to 14.1%. However, this increase was mostly due to favourable currency exchange rates; at constant currencies (ccy), pre-amortisation margins were just under flat at 13.6%.

More interesting is Kewill’s transition to a recurring revenue model, particularly software as a service (SaaS). While new licence fees plummeted 38% in the year (46% ccy), SaaS was up 23% to overtake old-fashioned maintenance revenues and professional services as Kewill’s largest single revenue component at 32% of the total. In answer to our questions, CEO Paul Nichols commented that the company had had little difficulty in moving customers onto a SaaS model, as they liked the predictability and the lower upfront costs. For Kewill, the benefits come both from the recurring revenue and lower support costs.

Despite what he called “the most difficult trading conditions for 30 years” Nichols was optimistic about Kewill’s prospects, given the increasing revenue stability from the move towards SaaS. However, we are more cautious than he is about contract deferrals, which in our observation, often don’t maintain their expected value when (or indeed if) they eventually come through. However, new compliance legislation is working in Kewill’s favour, driving an 18% rise in sales (at ccy) in Germany.

Kewill is another example of an ‘industry survivor’, but like many peers has rather moved backwards over the past decade. A quick look at the 2000 Holway Report showed Kewill’s pre-tax profits at £7.2m on £60m revenues, some way away from this year’s £1.4m PBT and £53m revenues. But at least they are still around to fight another day.

We need more 'Imagination'

(By Richard Holway 9.00am 23rd June 09) If you need cheering up about the state of our nation right now, you should read Apple and Intel buy Imagination stakes in today’s FT. Here is a story about a British company producing a world-leading product – graphics chips for smartphones, TVs and iPods. Their customers include Nokia, Samsung, Sony and Motorola. Indeed its two biggest customers – Apple and Intel – have just taken small stakes in Imagination Technologies in order to safeguard future supply. Neither company said they were considering an outright bid as they recognized that Imagination both wanted and would operate better with its independence intact.

The UK really does have a great record in this kind of innovation (eg ARM – with which Imagination has similarities) In the past, we seem to get to this stage and then the company gets bought. First step after that is the R&D gets switched to the US or Japan or wherever. I have bored you many times with my plea that where a company is HQed really matters. Like a honeypot, it draws in everything from university research, graduate jobs and venture capital through to legal and accounting services.

I suppose you could say that what the UK needs right now is more ‘Imagination’.

You might have heard this somewhere before...

(By Richard Holway 9.00am 23rd June 09) Reproduced from George O'Connor's (Panmure Gordon) morning news.

Tom Siebel was interviewed about how he's spending his money in the Mercury News.

Q Do you have much invested in the tech industry?

A "No. It's a segment that from 1980 to 2000 grew at a 17% compounded annual growth rate, from virtually nothing to a business that became about $1.3 trillion. And I was able to participate in that process. It was the experience of a lifetime. That being said, I think information technology as an industry is likely to grow going forward at about the rate of the economy. I just do not see the kind of innovation that we saw in the last two decades of the last century. In many respects, many of the interesting problems that we set out to solve have been solved.”

Readers might recall similarities here with Holway's "IT's all over now?" speech in 2002 which caused so much controversy at the time... Bluntly I now think that IT will decline compared with the rate of growth of the economy.

But my bulging bag of brand new tech goodies shows the rights and wrongs of Siebel's views. Absolutely right that I now get far "More for Less". Totally wrong in his view that the pace of innovation is slowing.

Monday, 22 June 2009

Mama don't take my Kodachrome away

(By Richard Holway 10.00pm 22nd June 09)

They give us those nice bright colors
They give us the greens of summers
Makes you think all the world's a sunny day,
Oh yeah, I got a Nikon camera
I love to take photographs
So mama don't take my Kodachrome away.

So sang Paul Simon in one of my favourite 'summer' songs from back in 1973.
Well, today, Kodak did just that. They ‘retired’ the Kodachrome brand. The almost complete conversion to digital photography, even by professionals, meant that sales of Kodachrome are now just a fraction of 1% of the Kodak's total and only one commercial lab in the world still processes it.

It is amazing how something that has been around for so many decades can disappear so relatively quickly as technology advances. Same thing is about to happen to all those old analogue radio sets I've collected throughout my life that I still have and use throughout my home.

UKHotviews from TechMarketView on Twitter

(By Richard Holway 9.00pm 22nd June 09) You can now follow TechMarketViews’ UKHotViews on Twitter (Go to TechMarketViews). We will put up a selection of links to UKHotViews stories each day.

Why? You might ask.

I was intrigued to learn last week that Erik Schonfeld, the founder of TechCrunch, reckons that 10% of his traffic now comes from Twitter. That’s a pretty powerful reason! Schonfeld said that "For many people, Twitter is replacing their RSS readers." "One of the ways we use Twitter is to Tweet out links to our stories, which then spread virally as followers re-tweet those links." I note that TechCrunch’s Twitter account has 775,000 followers!

As I’ve said before I have seen no value in my own personal Twittering via WiseGreyOwl. But I keep an open mind. I’ll tell you in a month’s time how much extra traffic Twitter has generated for us.

Steve Gill moves from HP UK

(By Richard Holway 9.00pm 22nd June 09) I understand ( See Microscope 19th June 09) that HP’s UK and Ireland vice president and managing director Stephen Gill is leaving at the end of the June to head up HP South Korea. Steve has been in the role for seven years and I got to know Steve through HP’s involvement in the Prince’s Trust. No replacement has been announced.

A few weeks ago (see HotViews 21st May 09) we reported that Sean Finnan, who headed up EDS UK (an HP company), had left to join IBM. Although a decent dose of management change is usually good in a dynamic organisation, it does appear right now that there is rather too much at HP/EDS. This can unsettle staff, customers and partners alike.

Microsoft Dynamics: Four ERPs and a CRM

(By Philip Carnelley - Monday 22nd June 2009 5:30pm). We met recently with Paul White, UK lead for Microsoft’s Dynamics (business application) division. Dynamics is a pretty small piece of the Microsoft pie, though if separated off, it would just make it into our top 20 rankings of UK software players.

The Microsoft Dynamics portfolio is a bit complicated, comprising several overlapping products all aimed at mid-size companies. In the UK, MS offers three different ERP products: GP, NAV, and AX, plus its CRM product. GP is English-language only, and is thus viewed as less strategic across Europe. Of the other two, AX is aimed at larger more complex situations than NAV, but both are essentially mid-market offerings. There is also a fourth ERP, SL, which is only offered in the US – plus some other stuff like retail and point-of-sale solutions. Got that now? We hope so! We estimate that Microsoft’s UK revenues from these applications are somewhere north of £50m, though the channel services business surrounding these applications is likely worth five times this or more. CRM – the only one of the products which Microsoft wrote from scratch – is offered more as a development platform than an off-the-shelf application; it is the fastest growing part of the portfolio and could well represent half of Microsoft’s UK bizapps sales next year. One of its big attractions is its close integration with the ubiquitous MS Outlook email client.

Despite the mid-market focus, White sees his real competition as the big enterprise suite/platform vendors, in particular Oracle, SAP and Salesforce. He views traditional mid-market players such as Unit4Agresso, Infor, and even the mighty Sage, as having mature but aging products and sees their large installed base as ripe for plundering. Indeed, White pointed out that even Sage is appeared to be hedging its bets, having bought Microsoft Dynamics NAV partner, Tekton, in March ’08. Tekton is now branded ‘Sage Construction’, and its products now sit alongside Sage’s proprietary construction industry software. Microsoft has a lot going for it in the UK bizapps market. First, its peerless channel to market; second, its huge installed base of platform software, creating a potential virtuous circle of platform sales driving apps, and vice versa; third, its strategy for apps draws directly from its heritage as a tools developer. As such, Microsoft develops products that its many partners – from one-man-and-a-dog operations up to the likes of HP/EDS – can easily customise and integrate. This is attractive to customers and MS partners alike.

As for the ‘Cloud’, it’s significant that White says Microsoft remains entirely agnostic about SaaS. For example, its CRM product can be implemented on-premise or delivered as a service. In his view, the choice for where the product is hosted comes down to how the customer wishes to pay for the software. An interesting view and one that we will develop in future research.

Just a reminder ...

... that this month alone, we have published four notes for TechMarketView subscription service clients:
  • The latest OffshoreViews review of the major India-based players - and more.
  • The inaugural CompanyViews UK SITS Rankings report - where is your company in the rankings?
  • An AnalystViews note with our views on the effect of a Conservative government on the UK SITS scene, and an accompanying ‘Readers Speak’ note with views from some of the ‘movers and shakers’ in the industry.

You just can’t get all of this anywhere else and you shouldn’t be doing business without it! Contact Puni Rajah (prajah@techmarketview.com) for more detail.

Tales of two Indians

(By Anthony Miller – Monday 22nd June 2009 9:00am). A couple of news items on two India-based players came to our attention over the weekend.

First, those of you interested in a brief hagiography of Wipro chairman, Azim Premji, need look no further than yesterday’s Sunday Times. There’s no doubting Premji’s philanthropy – and long may it last – but I have frequently called into question the authoritarian grip he maintains over the company his father founded back in 1947, originally as a vegetable oil trading company. Premji still holds nearly 80% of Wipro’s stock.

I recall a Wipro equity analyst meeting a couple of years back in Mumbai, where the entire Wipro top management team were paraded on stage for the Q&A session headed by Premji. I asked Premji what differences he expected to see in Wipro in 2010 compared to the way it looked ‘today’ (Feb. ’07). His answer was in three parts (the ST journo commented on his enumerative responses too!): (1) a more global staff mix; (2) consulting will drive growth; (3) more ambitious top management.

Premji said this latter point straight-faced, eliciting looks of surprise and bemusement from his direct reports sitting with him on the podium. Since then, many of them have left the company to pursue their own career advancement (including Sudip Bannerjee, now CEO of L&T Infotech – see Ex-Wipro exec resurfaces at L&T Infotech) as it was pretty clear that unless your surname is Premji, you are never going to run the company (Premji’s son is coming up the ranks).

By the way, Wipro’s margins still lag archrivals TCS and Infosys by 5-10 percentage points, and the proportion of its business from consulting and enterprise application services is around half that of major peers (TechMarketView subscription service clients can see this and more in our latest OffshoreViews report just published last week). Premji is doing good works for the Indian nation – but is he doing enough ‘good works’ for Wipro?

And we bring you news that Tech Mahindra has rebranded Satyam as “Mahindra Satyam” and issued a new set of five 'Core Values' for the company. These were all terribly righteous, notably the Good Corporate Citizenship ‘value’, which promised they would seek success “without compromising ethical business standards”. I guess that means “we promise not to cook the books”.

Currencies help Kewill’s revenues but not margins

(By Anthony Miller – Monday 22nd June 2009 8:15am). Favourable foreign exchange rates helped logistics software company, Kewill, show 5% revenue growth for the year to 31st March to £53m, though at constant currencies this was an 8% revenue decline (see here). Even with the FX boost, operating margins fell from 4.6% to 3.7%, rather pitiful for a software play. SaaS/Hosting revenues are now 32% of the mix (FY07: 27%), bringing recurring revenue contribution up to 59%. The prelims statement was unusually brief (sans notes) so we will write more after this morning’s briefing.

Allocate presages above consensus results

(By Anthony Miller – Monday 22nd June 2009 8:00am). Workforce management software firm, Allocate (nee Manpower), advised today (see here) that its FY results (to 31st May) will come in above market expectations. We thought things were looking pretty good for Allocate earlier in the month (see Allocate Software seems to be delivering on its promise) despite declining industry employment levels, but perhaps that makes smart workforce management even more of a necessity. More when we see the final numbers next month.

Sunday, 21 June 2009

Jobs back to work soon?

(By Richard Holway 6.00pm 21st June 09) All readers who, like me, continue to be grateful for the joy that Apple products have brought to our lives over the last 25 years, will be interested in all the reports (See Sunday Times) that Steve Jobs had a liver transplant a couple of months back.

The reports indicate that Jobs could be back at Apple – albeit on a part-time role - soon. Actually, it is really good that Apple has continued to innovate and progress without him. Perhaps Apple now needs to concentrate on utilising Jobs innovation skills without over-burdening him with all the usual CEO responsibilities. Apple has to walk a fine line between utilising Jobs’ obvious talent and ensuring that they could survive without him. A difficult task. But I hope they won’t have to face the latter for a long, long time.


(By Richard Holway 6.00pm 21st June 09) I’ve learnt a new word this week. The word ‘redact’ has never appeared in anything I have written over the last 23 years (I know because I have everything searchable on my PC). One reason might be that it doesn’t actually appear in my trusty Pocket Oxford Dictionary!

In a way, that’s strange because, of course, I’ve ‘redacted’ every day in the last 23 years. Indeed, that’s exactly what I am doing today for UKHotViews - as 'to redact' means ‘to prepare for publication’.

Over recent years, 'to redact' has come to mean documents with large areas blacked out so that so-called confidential information cannot be seen. But, from last week, redact will be forever after a word linked with dodgy politicians and their even more dodgy expense claims.

Friday, 19 June 2009

BT snippets

(By Richard Holway 9.00am 19th June 09) Three BT-related items caught my eye:
- Patricia Hewitt has been elevated to senior independent director at BT where she will earn £110Kpa. Must admit I’ve never been a great fan of Hewitt since running up against her patronising manner at the DTI.

- BT is apparently going to great lengths to avoid the compulsory redundancies that it really should have had the courage to implement some time ago. Latest plan is to ‘lend employees to competitors’. I do fully realise that it can often cost the equivalent of 1+ years salary to ‘let someone go’. But adjusting the cost base and allowing for a renewing of the skill-set are pretty key to any dynamic business.

- BT Global Services has announced the launch of a new virtual data centre service designed to give organisations access to cloud-based virtual server, storage, security and networking capabilities. Given that Cloud and Networked services go hand in glove, this appears a natural for BT. But it could pitch them up against some massive players like Amazon and Google. We will watch developments with interest.

Xploite shows the power of the ‘dark side’

(By Anthony Miller – Friday 19th June 2009 9:15am). One of the first lessons I learned very quickly when I joined leading boutique equity research firm, Arete, in 2004, was that from an investor’s point of view, a company is not a company, it’s a stock. In other words, it’s just an investment proposition. That may seem a statement of the bleeding obvious to you, but to an industry guy like me, who had by then spent some thirty years looking at the IT market from the perspective of the players and their customers, this came as a huge culture shock. Such was my initiation into the ‘dark side’ as an equities analyst.

I tell you this because an interesting example of playing IT services purely as an investment proposition from within the industry can be found in “buy, build and sell” player, Xploite, which announced its interim results today (see here). We first wrote about Xploite less than a month ago when they sold off Anix (see Xploite sells Anix. Who next?). As a result, Xploite now has a continuing revenue stream of next to nothing, but should soon have the most part of the £31.5m cash for the sale of Anix in the bank once the deal completes. Then, we assume, it’s off shopping again.

So, while some play the investment game buying and selling ‘valuables’ such as antiques, Old Masters, wine and whatever, others do it with SITS companies. Whether or not it’s a ‘good thing’ for SITS companies to be passed from pillar to post will I’m sure stimulate a lively debate. But, as all investors eventually learn, it doesn’t pay to get emotionally tied to your investments if the aim of the exercise is to make money!

RIM misses high expectations

(By Richard Holway 9.00am 19th June 09) I think if I, in the midst of the worst economic downturn since the 1930s, had just reported a 53% increase in revenues YoY, a 65% increase in my customer base, a 33% increase in nett profit and a share price that had doubled in three months, I would feel pretty pleased with myself. Maybe I’d be a bit peeved with 'missed expectation' type headlines and a decline in my share price as a result. But that’s what happened to RiM (the Blackberry people) last night. (For more detail see FT – RIM chief upbeat)

The ‘problem’ was both that they missed the even higher expectations set by analysts and, at 3.8m new subscriptions, this was the first quarter in RiM’s history where the number of new subscriptions added was lower than the last quarter (3.9m). On top of that RiM faces competition in the all important smartphone market from a host of new, and not so new, competitors. Most notable being the new iPhone 3GS and the Palm Pre.

Personally, I’ve been hugely happy with my Blackberry Bold. As a portable email device it has no equal. Typing on a touchscreen is not for me. Having mastered the art of two-thumb speed typing, I’m not going to give it up willingly!

Whereas Blackberry's past success was because it was the preferred enterprise solution, its future depends on its takeup by consumers. The fact that 80% of its new subscribers last quarter came from consumers is a pretty encouraging sign that it can compete in that tough market too.

Swings and roundabouts at Harvey Nash

(By Anthony Miller – Friday 19th June 2009 8:30am). No surprises in the interim management statement from recruitment and offshore outsourcing firm, Harvey Nash, this morning (see here). Much as other players have been reporting, permanent recruitment is still in a deep hole, but when I spoke to CFO Richard Ashcroft earlier this morning he confirmed that, in contrast, demand for their offshore outsourcing services is still holding up (see Offshoring now 20% of Harvey Nash’s profit). Ashcroft said they’d seen a bit of an uptick in their US contract business but that it was far too early to say that these are signs of ‘green shoots’. It’s still going to be a tough year ahead.

Xafinity eyes further acquisitions

(By Anthony Miller – Friday 19th June 2009 7:45am). It was only with his tongue partly in his cheek that pensions management specialist firm Xafinity’s CEO, Tim Robinson, referred to themselves as “the viable alternative to Capita”! After all, Xafinity is among the top players in occupational pensions management and regularly meets the UK BPO market leader in head-to-head battle.

We outlined Xafinity’s rich heritage late last year (see Xafinity and public sector pensions) just after they had been (unfairly, in our opinion) lambasted in the media for their role in the public sector pensions overpayment saga. That’s well behind them now, and we were pleased to see Xafinity edge in to our UK SITS Top 50 rankings for the first time this year (see our new CompanyViews rankings report). Xafinity’s largest business unit, accounting for two-thirds of its £135m revenues, is its Paymaster division, headed by Paul Bingham, with whom we have had a long association throughout his career at a number of leading players including Origin even before it was part of Atos.

We will talk more about Xafinity in later postings, but it appeared to me that their combination of consulting, packaged software and BPO propositions, all focused on the occupational pensions market, makes great sense. They acquired specialist player Hazel Carr last April, and are on the lookout for further deals to boost scale and scope. Indeed, in a highly fragmented UK pensions management market, with an estimated asset value of some £2,100b (excluding State pensions!), there has surely got to be plenty of room for Xafinity to manoeuvre.

Thursday, 18 June 2009

Admitting mistakes

(By Richard Holway 3.00pm 18th June 09) For all those interested in Public Sector IT, Tony Collins excellent Computer Weekly article on Ian Watmore – How to fix government IT - is well worth the read.

Watmore came to the Public Sector as Chief CIO after serving as CEO of Accenture UK. He then made it to the Head of Delivery @ Number 10. As he leaves to take up the CEO role at the Football Association, his views on Governmemt IT come from experience on both sides of industry. Indeed one of Watmore’s strongly held views is unless you have experience of failure, you really won’t have the experience required to run a big IT project.
I have similarly strongly held views. Back in 1985, Computer Weekly ran a similar profile on me under the headline “If you can’t make a mistake, you can’t make a decision”. To this day, my kids say they are going to put that on my tombstone! Mistakes are crucial in business and life. Admitting them early so that the cost implications are mitigated or, indeed, so that corrective measures can be taken, is key. Most problems arise because managers think their manhood is under threat by either admitting a mistake or adjusting course. So they plough on regardless – usually undermining everyone who dares to question them.

Public sector IT is plagued with such examples. Big projects that should have been scrapped early on. Managers and Ministers who have been too scared or just too cowardly to admit mistakes and adjust.


(By Richard Holway 2.00pm 18th June 09) There is another very interesting article on outgoing TfL CIO Phil Pavitt in today’s Computing – IT shakeup is just the ticket for TfL. In his time as CIO, Pavitt has brought 15 outsourced contracts back in house. He’s also changed TFL’s thick-client PC policy to thin-client and reduced average cost per user from £3,800 to just £800. Supplier costs have fallen 41% and IT staff costs are down 20%.

If true (and why would it not be?), it really shows that the kind of efficiency savings projected in the Operational Efficiency Programme are really possible – albeit not from the outsourcing route that Martin Read advocated. Indeed Pavitt is infamous as an ‘insourcer’. Something that might bring some fear to the boardrooms at Capgemini, BT and Fujitsu as Pavitt takes up his new role as CIO at HMRC.

BT gains favour by ‘sticking to the knitting’

(By Richard Holway 9.00am 18th June 09) Further to my comments yesterday on Digital Britain I see there might well be hope for users like me who would find 2mbps too slow. A report in the FT today – BT aims to expand reach of super-fast broadband – says that BT intends that 40% of homes will have super-fast fibre by 2012 and possibly 90% by 2017 (just in time for my 70th birthday!)

I have long said that BT should ‘stick to the knitting’. Fixed-line telecommunications, and therefore broadband, IS BT’s knitting. Fixed line broadband can never be rivalled. As many said yesterday, “BT has physics on its side” as mobile can NEVER compete with that part of the market; streaming multichannel HD TV into the home.

All this has done the power of good to BT’s shares which have now (re) crossed the 100p line (105p yesterday). Rather better than the 70p of just a few months ago but still half the 210p share price they 'enjoyed' just a year back on 18th June 2008.

Being smug

(By Richard Holway 9.00am 18th June 09) I could be accused of being smug when I remind readers of the forecasts I get right (and, conveniently overlook the ones that I don’t)

This week I’ve witnessed two other examples of the genre – but at opposite ends of the spectrum. On Tuesday I attended an excellent dinner at Brooks organised by the Curzon Partnership. Jon Moulton (Alchemy) addressed a very small gathering of the top BPO CEOs. As it was under Chatham House rules, I can’t quote directly. But Jon pointed out the dire warnings he has most publicly made about the UK economy over the last year or so, have all come to pass. But Jon’s view is that the future is equally, if not more, bleak. ‘L-shaped’ (As in “When will the downturn end? “L if I know!”)

Last night a newly empowered Alistair Darling at the Mansion House pointed out that his much ridiculed prediction of a return to growth by end 2009 is now supported by many observers and perhaps he was not the ‘wide-eyed optimist’ that many painted him.

With such contrasting views, it makes life for a non-economist like me difficult. On the other hand, as they say, ‘if you put all the economists in the world in a line, they wouldn’t reach a conclusion’.

So maybe Holway’s gut-feelings are as valid as any.

I feel a change of mood. No longer do we fear that our financial institutions are at the point of meltdown. Just six months ago, the tunnel seemed to have no end. The only debate now is When? End this year? Mid 2010?

Business confidence is returning. It’s confidence, not cash, that drives the investment decisions. It’s investment decisions that ultimately drive the SITS sector that we cover. Business investment decisions taken in H2 2009 will drive the SITS up-tick we forecast by H2 2010.

However, for ‘the man in the street’, life will get very much worse over the next year before they see any improvement. Unemployment will rise – in particular youth unemployment. I fear social unrest as a result.

If it happens as I have consistently predicted, you will have to put up with my smugness. If it happens faster, quite honestly I’ll be delighted to eat a bit of humble pie.

Infosys UK – the quiet achiever

(By Anthony Miller – Thursday 18th June 2009 8:30am). What a great day I had yesterday in the hallowed halls of Infosys UK headquarters. A string of one-on-one, back-to-back meetings (don’t try the visual imagery, folks) with much of Infosys senior UK and European management. I will be going into some detail on Infosys’ operations here in the UK as they don’t so much hide their light under a bushel as bury it!

Infosys is already a UK Top 20 ranking player with revenues last year around £435m. You’d be surprised at their UK client list and I don’t just mean for their stock-in-trade application services. There’s testing services, infrastructure management and BPO too and, interestingly, a growing base of banks and financial institutions using their proprietary Finacle universal banking product.

TechMarketView subscription service clients will be the ones to learn more about Infosys UK in future OffshoreViews notes. You’d be bonkers to get left out, so contact Puni Rajah (prajah@techmarketview.com) soonest to join the ‘A’ list.

Micro Focus ups the ante for Borland

(By Philip Carnelley – Thursday 18th June 2009 8:00am). Micro Focus has increased its offer for US software tools company Borland to US$1.15 per share (see here), to see off the mysterious ‘financial buyer’ that threw its hat into the ring a couple of weeks ago (see Financial buyer stalks Micro Focus bid for Borland). The new bid values Borland at approximately US$88m vs $75m in its original offer, and has been accepted by Borland management and the 'financial buyer' has withdrawn.

The size of the increased offer looks like an attempt to close out any more bidders and close the deal quickly. As we said before Micro Focus’s original offer was quite generous, given the state of Borland’s business and we couldn’t see why anyone else would want to buy the company. Borland appears to be burning cash and will want to see the deal wrapped up quickly. Arguably, the counterbid was an unwelcome distraction (certainly for Micro Focus!), but Borland can’t be entirely unhappy given the result.