Saturday, 31 October 2009

Patni tracking to plan

(By Anthony Miller – Saturday 31st October 2009 5:30pm). I’m really not sure why Patni decided to report its Q3 results on a Saturday. It didn’t seem to be because they were trying to hide bad news – indeed the numbers were a little above guidance and the trends seemed in line with larger peers. As reported, revenues grew 3.3% qoq to $167m and margins expanded over 100bps both yoy and qoq to 16.2%. Observing rising volumes and stable pricing, management guided to a flat-plus-a-bit Q4. As I mentioned a week or so ago (see Patni – making room in the mid-tier), Patni seems to really be getting its act together; indeed its stock is the best performing among the major India-based SIs so far this year. There’ll be more in the next issue of OffshoreViews.

Friday, 30 October 2009

Hitchhikers Guide to the Galaxy

(By Richard Holway 4.00pm Friday 30th Oct 09) Jane Tozer's comment that the iPhone was The Hitchhiker's Guide to the Galaxy has produced yet more comment. Because it's Friday, I thought I'd bring you the cartoon below (source sent in by John Hamer (Chairman of Fidessa) which was entitled "Kindle The Hitchhikers Guide to the Galaxy?

Dassault buys in PLM unit from IBM

(By Philip Carnelley, 30 Oct 09, 09:45) In a surprise move, Dassault Systèmes is acquiring the IBM operation devoted to re-selling Dassault’s manufacturing software products. It will pay $600m and take on 700 IBM staff. This brings it direct contact with 1000 big accounts.

Why surprising? After all, it’s quite common for a software producer to take control of its regional sales from a distributor once the market is established. Yet IBM has been successfully selling Dassault’s products since 1981 (a good Computerworld article
here outlines the history of the relationship). Dassault obviously now believes it can do a better job itself by cutting out the middleman – and its margin.

A more interesting question is: why didn’t IBM buy Dassault? Being focused on manufacturing, Dassault is not so well known in the broader software scene, but it’s one of the few big European players – its €1.3bn 2008 revenues make it similar in size to Sage. And IBM has the cash – it spent $37bn on share buybacks in 2006-8, and another $4bn this year. IBM is certainly not averse to big software acquisitions, although with a mooted €5-7bn price, such a deal would trump the $5bn it paid for Cognos last year and $3.5bn for Lotus way back in 1995.

But first IBM would have to persuade French conglomerate Group Marcel Dassault, still a family-run concern, which owns 44% of the stock and 48.6% of the voting rights. Second, and perhaps most important, IBM got out of the apps business many years ago and shows no signs of wanting to get back in. But we wonder whether this position is sustainable, especially as Oracle prepares to buy in Sun and presents a complete offering ‘from the metal up’. Or
maybe that’s not such a threat after all!

Up, up and away!

Our regular quarterly review of the UK software and IT services quoted sector is now available for download for TechMarketView subscription service clients. Valuation increases have been absolutely eye-watering – even including IT staff agencies (ITSAs), usually the ‘poor relations’ of the industry. But we lost four more AIM-listed players in the quarter – some of their stories make grim reading.

European, US and Indian IT services stocks also did well – and news today that the US is now out of recession should likely bring even more joy to the markets. But to find out the detail, you’ll have to read IndustryViews Quoted Sector Q3 2009 Review.

Fujitsu finally bags Highland Council renewal

(By Tola Sargeant – Friday 30th October 2009 8:00am). Fujitsu has been chosen as the preferred bidder for a £66m/5-year ICT services contract with The Highland Council, where it has been the incumbent for more than eleven years. Fujitsu beat rivals Atos Origin, which partnered with educational software vendor RM, and desktop reseller/services firm Computacenter to the deal. It’s a welcome win for the Japanese company, which revealed bleak first half figures (see Fujitsu posts gloomy first half results) and has a chequered past in the UK local government market.

Under the new contract, Fujitsu will manage the entire ICT estate for The Highland Council, including the provision of Curriculum ICT to all schools across the Highlands. Major projects in the pipeline include a new CRM system (from local government CRM specialists Lagan Technologies) and the rollout of 'unified communications' across the Council. Given the additional scope of the contract the £66m price tag doesn’t seem unreasonable (the original value of Fujitsu - or rather ICL’s - 1998 deal with the Council was reportedly £48m over ten years).

For the Council, there were several key considerations in their choice of IT partner including being able to extend standard systems across local government and education; enabling flexible and mobile working; lowering their carbon footprint and meeting efficiency targets – all points that chime with our latest analysis of the UK public sector market (see UK Public Sector 2010: Spotting the opportunities).

Fujitsu has struggled to strengthen its local government business, which includes Newcastle City Council, Bolton and Cambridge and Northants. Highland is now its most significant deal in this sector and the renewal was a ‘must win’. The Japanese giant will be hoping success in the Highlands will pave the way to more ICT deals in a sector where relevant experience and reference sites are highly valued. Indeed, Caroline Thompson, an Account Director at Fujitsu, told us that she hopes to use the deal to develop Fujitsu’s Scottish business, particularly in multi-agency working and shared services.

Clearswift eschews the Cloud

Further to our post on Cisco’s acquisition of UK security software player, ScanSafe (see ScanSafe falls to Cisco), we have just published a short note on peer Clearswift in the AnalystViews section of our website. For subscription service clients only, of course.

Thursday, 29 October 2009

SAP Q3 Report Card: Could Try Harder

(By Philip Carnelley, 29 Oct 09, 18:00) We have already given the key messages regarding SAP’s Q3 results issued yesterday (SAP software decline slows). But having reflected, and having listened to the conference call, we’re left with the thought: shouldn’t SAP be doing better? The key question raised is: is it all the fault of the economy? Should other companies be content with, or expect, similar declines? Well, it ain’t necessarily so. Even the good news – that SAP’s OP margin is up 2pp to 24% – isn’t so great when you look at other global software players: say, Oracle: Oracle’s OP margin last quarter was 34% - up from 28% the prior year. Let alone Microsoft, which just reported OP margin of 35%, despite deferring $1.4bn of revenue and thus showing 14% decline in revenue and 25% drop in operating profit. OK, so Microsoft has a very different business model and business lines. Oracle has its infrastructure sales. But, even so... SAP has a 'medium term' goal of 35%. It still looks a long way off.

As to SAP’s 30% decline in new licence sales (35% for the 9 months): we don’t think that’s just the economy. We suspect that SAP’s customers have taken as much new stuff as they can cope with, and they don’t want any more. That isn’t exactly SAP’s fault, but it does seem to be a SAP-specific problem. Maybe SAP could make it easier to buy new stuff in small increments. SAP has now reduced its full year revenue forecasts by a further 2 pp – it is now forecasting a drop of 6–8 percent. While company fortunes are varying wildly at the moment, our analysis shows that they’re averaging out at about a four percent decline, globally.

The most comparable data point, in our view, is Oracle’s applications business. Oracle’s sales of new licences for its applications in its last reported quarter were down 1%. New apps sales were down 11% and 4%, respectively, in the previous two quarters – all at constant currency. So we’re left with the thought that, no, it’s not just the economy. It must be SAP – at least in part. If its core high-end market is saturated, it still hasn’t managed to sufficiently broaden its reach into SMBs or worked out its SaaS strategy – things which could give it more resilience and flexibility. On the call, CEO Leo Apotheker talked of us learning more about on-demand solutions for SMEs and large companies “in 2010.” Till then we'll have to continue to speculate. The markets seem to be wondering about all this too – SAP shares have dropped almost 9% since the results announcement.

Invite to the Prince's Trust Christmas Reception

The Prince's Trust Technology Leadership Group is pleased to announce that the Christmas Reception for 2009 will be held at the prestigious Tate Britain overlooking the Thames at Millbank on the evening of Thursday 17th Dec 09. We have secured exclusive use of the gallery and a private view to ‘Turner and the Masters’, an unforgettable show of masterpieces by Canaletto, Rubens, Rembrandt and Titian on display next to some of JMW Turner's most dramatic paintings. This is the first exhibition ever to explore the full range of Turner’s challenges to the past, and his fierce rivalry with his contemporaries. Many works are reunited here for the first time in hundreds of years and others have never been seen together before in this light.

This intimate event will see key executives from the technology industry in attendance, many from The Prince's Trust Technology Leadership Group, the UK’s leading collection of technology companies committed to reducing youth disadvantage. The Christmas reception is always an ideal opportunity to show your support for The Prince's Trust, to network with your industry peers as well as entertain your most important clients and to thank key staff. TLG member McAfee will be sponsoring this year’s reception.

The whole TechMarketView team (plus partners) will be please come and join us, start your Christmas celebrations and support a fantastic cause!

Tickets are priced at £250 each or £400 for a pair, contact Olivia Clark at The Prince's Trust on 020 7543 7411 or to buy tickets

HMRC wants ‘more for less’ from Capgemini

(By Tola Sargeant, 30th October 2009, 10:30am) There’s more evidence of the UK public sector putting pressure on IT suppliers to help it reduce costs this morning with news that HM Revenue & Customs (HMRC) has revised its Aspire contract with Capgemini and major subcontractors Fujitsu and Accenture. HMRC has committed to channel all core external IT spend through Aspire, which runs until 2017, while the suppliers have agreed to save HMRC £110m a year – that’s in addition to the £70m per annum savings committed to in 2007. We can expect to see many similar contract revisions over the next few months as other government departments look for ways to reduce costs in the face of budget cuts.

Fujitsu files gloomy H1 results

(By Tola Sargeant 10.00am 29th Oct 09) It is difficult to find much positive news in Fujitsu’s first half results this morning. The decline in revenues in the six months to Sept 30th is particularly striking: net sales were 10.9% down on the same period in FY08 to 2,186.6b yen (US$24.3b). The group made an operating loss of 18.2b yen (US$202m), compared with a 38.5b yen profit in H108, but income did improve reaching 43.2b yen ($480m) compared to 4.6b yen last year.

Wading through the detail of the numbers yields some clues as to how the new look Technology Solutions business is performing outside Japan. ‘Overseas Technology Solutions’ revenue declined by 6% to 540.8b yen (having adjusted for currency fluctuations and the impact of bringing Fujitsu Siemens Computers into the business). That’s pretty close to the 7% decline in Fujitsu’s UK revenues reported in FY08 (see Fujitsu announces major UK redundancy programme). Technology Solutions also saw profitability worsen – Q2 operating income for the segment was 37.6b yen (US$418m), 11.4b yen down on the same period last year.

Unsurprisingly, Fujitsu cites the recession, which it says has adversely impacted the IT services business, particularly in the US and Europe. But the fact that the Japanese firm is behind the curve with its cost cutting and redundancy programme hasn’t helped profitability – almost all its competitors went through this pain some 6-12 months ago while Fujitsu is still in the consultative process in the UK with redundancies due to be announced in November. And, unfortunately, we haven’t seen Fujitsu winning many new contracts in the UK recently – even the £430m Home Office deal was the restructuring/extension of an existing deal (see here).

But it’s the hardware side of Fujitsu’s business that is suffering most. Net sales in the Ubiquitous Product Solutions segment (which produces PCs, mobile phones, HDDs, optical modules) were down a staggering 28% in Q2 outside Japan while the Device Solutions business reported a 23.2% decline in sales overall in Q2. Could it be time for Fujitsu to follow in IBM’s footsteps and sell its PC business? If not, where are the netbooks, tablets and smartphones that could turn the business around?

ScanSafe falls to Cisco

(By Philip Carnelley, 29 Oct 09, 09:00) Cisco is back on top acquisitive form, using its muscle to pick up ‘bargains’ while prices and competition are relatively low. It has just announced its third purchase this month – doubling its total for the year – after Tandberg (Cisco conferences in Tandberg) and Starent. Cisco has now turned to the UK, buying SaaS web security specialist ScanSafe, which it is purchasing for up to $183m. This week’s lucky winners of Cisco’s bounty are two British former investment bankers, Eldar and Roy Tuvey, and their private-equity backers. The brothers will reportedly pick up around $60m.

This news will be less than welcome at another British security software company,
Clearswift, which operates in a similar space: scanning and securing employees’ web surfing. As we comment in our AnalystViews review of Clearswift (which our subscribers will receive very soon) a gap in Clearswift’s strategy is a strong story on SaaS and the Cloud. Further, IronPort, another Cisco company, is also a Clearswift competitor, so it's facing Cisco's might on two fronts.

While this year’s tally of six acquisitions is well below Cisco’s peak form – for three whole years from 2004 to 2006, it was buying one company per month on average – the company has now passed its 2008 total of five, and three in one month appears to be a Cisco record. As we commented on Tuesday (UK SITS M and A activity reverts to type), there are a lot of sellers out there. For companies like Cisco there are some rich pickings to be had.

For sellers, the news is more mixed: there are companies prepared to buy, but the price you get may be lower than you would like. In ScanSafe’s case, the price paid has surely not disappointed the sellers: ScanSafe’s 2008 revenues were just $23m. But the company is growing at 100% pa, and, of course, software-as-a-service players are getting the richest software market valuations today. According to the FT,
Balderton Capital will see a return of 4 times its investment in ScanSafe, and ten times on its first investment tranche – it has been a ScanSafe backer from its earliest days.

Unisys’ pulse beats stronger

(By Anthony Miller – Thursday 29th October 2009 8:30am). It seems rather counterintuitive, but the biggest margins in Unisys’ business last quarter were in Technology (hardware), where operating margins almost doubled to 21.2%, mainly due to ‘a stronger mix of high-end enterprise servers’. Technology comprised just 13% of Unisys $1.16b Q3 revenues, but every bit of extra profit helps. The core Services business saw margins more than double, from 3.1% to 7.7%, which in aggregate pushed Unisys’ group margins up from 2.9% to 10.2%. That’s a result!

The revenue story was equally interesting. Technology revenues declined 3% yoy (constant currency) whereas Services revenues fell 8%. Outsourcing, now 40% of Unisys’ group revenues, declined 10%, SI/Consulting (28% of group) fell 9%, and Infrastructure services fell 27% (12% of group). Even core maintenance revenues fell 14% (7% of group). However, management reported that services orders are up substantially, driven by outsourcing contract renewals. Indeed, we noted yesterday a £300m+ BPO deal for Unisys UK (see Unisys checks in again at UK banks).

This is now Unisys’ second consecutive quarter in net profit, but no one is calling the recovery job anywhere near done. But it’s hard to see where Unisys fits in the global IT services ‘new world order’ – the answer probably isn’t as an independent player. Unisys ranked as a Top 20 supplier to the UK SITS market last year and is heavily embedded in the UK public sector (see UK Public Sector 2010: Threats and opportunities) as well as in financial services, so its fortunes – or failures – will affect the shape and size of the UK market.

Now that Oracle is a hardware vendor, maybe they should also take Unisys under its wing. It’s barely $1b in market cap, though has about the same amount in long-term debt – small change for Larry! Of course, the most natural ‘homes’ for Unisys would be with the major systems vendors, IBM and HP, but they didn’t seem to be interested when Unisys was trading at under $5 a share earlier in the year, so I doubt they’ll make a play now the shares are over $25. But who knows what will happen in this crazy world of M&A?

Google Apps scores ‘watershed’ win

(By Richard Holway 8.30am Thurs 29th Oct 09) Further to my Gone Google post earlier this week, I note that the Times today (Google beats Microsoft to LA deal) is reporting that Google has beaten both Microsoft and IBM to a $7.2m deal to supply Google Apps to 30,000 workers at the Los Angeles City Council. Google branded it ‘a watershed deal’.

In the scheme of things, it’s pretty small. But there does seem to be a momentum building behind Google Apps. At $50 per user per year (free for firms with <50 employees) it is a very compelling proposition. As firms strive to cut IT costs and wrestle with an ever more mobile workforce, so more will look to cloud-based office-type solutions like Google Apps.

UK Public Sector 2010: Threats and opportunities

Today we launch not one but two AnalystViews research notes crafted by Tola Sargeant, widely recognised as one of the top analysts on the UK public sector software and IT services (SITS) market.

With public sector spending under scrutiny and the government looking for ways to save money to balance the national books, larger public sector SITS contracts are attracting unwanted attention. The Labour government is debating which projects could be sacrificed, but the risk to IT projects is significantly higher if there is a change of government at the election.

In Public sector spending cuts: Which contracts are at risk? Tola identifies over £26b worth of major UK public sector SITS contracts at risk of cancellation, curtailment or ‘de-scoping’, and calls out the suppliers most exposed.

Then in UK Public Sector 2010: Spotting the opportunities, we tell you the good news. Tola identifies the many opportunities for SITS suppliers to the UK public sector market in 2010 and where to find them. This research features Tola’s unique ‘heat map’ showing at a glance where the opportunities are and which are the hottest.

It’s really very simple. If you are supplying software, IT services or BPO to the UK public sector – or you have aspirations to do so – then you must read what Tola has to say. But only TechMarketView subscription service clients have the chance to do so. You don’t need to respond to an RFP to become a subscriber – just contact Puni Rajah ( and she will tell you how you can unlock the ‘government gateway’ to TechMarketView research!

Wednesday, 28 October 2009

How laptops took over the world

(By Richard Holway 10.00pm Wed 28th Oct 09) Very interesting article in the Guardian by Charles Arthur - How laptops took over the world. Made more interesting because of the extensive quotes from what Arthur describes as “Holway, the veteran analyst who is chairman of TechMarketView.” Unfortunately I don't think I have valid grounds for a complaint to the PCC.

Axon still dragging HCL’s revenues

(By Anthony Miller – Wednesday 28th October 2009 9:45am). It looks like Axon is yet to restore the fortunes of HCL’s enterprise application services (EAS) business as management had so richly hoped. EAS revenues fell nearly 5% qoq (constant currency) in HCL’s Q1 10 (to 30th Sep), steeper than the 1% decline the prior quarter. The Axon acquisition more than doubled the size of HCL’s EAS practice, and the combined operation now contributes 22% of HCL’s total revenues. However, even this appeared to be a better result than at TCS and Infosys, which both showed steeper qoq declines in EAS revenues (as reported). Wipro’s EAS business grew slightly qoq (as reported).

Across the board, HCL’s revenues rose 2.3% qoq (in line with peers) to $630m, and margins remained flat at 18.0% qoq, but down 60bps yoy (peers did better). HCL’s European revenues grew 1.5% qoq and the region now generates 29% of the total. Chairman Shiv Nadar referred to “signs of an early recovery in sectors like Financial Services” but didn’t expect to see sustained recovery till next year.

We’ve got a lot of digging to do around these numbers and will write more in the next issue of OffshoreViews.

Unisys checks in again at UK banks

(By Anthony Miller – Wednesday 28th October 2009 8:45am). As if to remind us that they’re not dead yet, Unisys has renewed its cheque processing BPO contract with Lloyds TSB, Barclays and HSBC in a 5-year deal worth over £315m. The service is provided through iPSL, a JV between Unisys and the banks, established in 2000. iPSL has been chaired since 2006 by Royston Hoggarth, well known to many in the industry from his time at Logica and more recently (and briefly) at BT Global Services (see BT and Royston Hoggarth). Unisys UK is now led by Rob Chapman, who previously headed Unisys’ Global BPO business. He succeeded Duncan Tait, who left for Fujitsu earlier this month (see Duncan Tait joins Fujitsu). Get it? Got it! Good.

SAP software decline slows

(By Anthony Miller – Wednesday 28th October 2009 8:00am). SAP’s software revenues were still in steep decline in Q3, down 30% yoy (all percentages at constant currency) to €525m. But this was a little better than the 35% ytd decrease, suggesting a slight easing in market conditions in the quarter.

Total SRSS (software and software-related services) revenues ‘only’ fell 5% in Q3 to €1.94b (all hail the power of maintenance fees), and total revenues were down 10% to €2.51b. Margins expanded by 110bps yoy to 24.2% (26.9% ‘adjusted’). Management maintained its ‘adjusted’ FY margin guidance in the range 25.5%-27.0%. Given that the ytd ‘adjusted’ margin is 24.0%, it seems there’s more cost-cutting yet to do, as it’s hard to see how revenues are going to drive this number. Indeed, SAP has already spent €186m of the forecast €200m FY restructuring provision leaving only €14m for the rest of the year. I wonder if that’s enough?

A couple of interesting – perhaps confusing – messages in the press release over SAP’s mid-market hosted services. The company appears to be toasting its channel-driven success with the legacy All-in-One offering, but simply announced the availability of a new ‘feature pack’ for what we presumed was the successor product, Business ByDesign. No mention of success – or otherwise – on BBD sales. Don’t get me started.

Anyway, as ever, SAP’s results are a masterpiece of Germanic precision, so we will need some time to pore through the minutiae and listen to management’s sage words on the concall before bringing you more.

Tuesday, 27 October 2009

iPhone - the Hitchhikers Guide to the Galaxy?

(By Richard Holway 5.00pm Tuesday 27th Oct 09) We get many emails from readers here at TechMarketView. Most we cannot publish for various reasons. But Jane Tozer (who many of you will know well) has agreed to the publication of the email below – which we think is priceless!!

Hi Richard

Your piece today about
MyTop Revisited reminded me of the thought I had while brushing my teeth this morning, namely that the iPhone is effectively (among other things) The Book from the Hitch Hiker's Guide to the Galaxy.

It's the ultimate reference book about anything in the Galaxy, wherever I am! It tells me 'grown up' things such as trains running late or motorways being blocked, news and views from the BBC and Time, share price updates and so on. But it also tells me fun things such as what stars and planets I am looking at, and gives me info about them. It gives me maps and a compass good enough to navigate by on a walk. It tells me what music I am listening to and where I can buy it, and if it is from a film or TV programme I can link and find all the info I want about the show, the actors, the director and so on. I have the complete works of Shakespeare in it, and Wikipedia, and the London A-Z, and a free emergency coin-tossing app for those moments when you just have to toss a coin but don't have one to hand!

My iPhone also has ~8,000 personal photos on it, and I can pass any of these + other stuff to any fellow iPhone user I meet with a mere Bump of our phones.

I can upload updates, either for the whole world in Wikipedia or to share things with selected people (eg I am using DropBox to share interesting Radio 4 programmes with my son, pictures of a walk with a friend, and crucial files with a colleague, all for free). And with the free Skype app I can make free international phone calls. And so on and on - as you can see I am a total convert!

Arthur C Clarke invented geo-stationary satellites ahead of their time, Douglas Adams invented the iPhone

Best wishes

Jane E Tozer

Computacenter exits distie business

(By Anthony Miller – Tuesday 27th October 2009 9:45am). Just time to note that Computacenter has completed its exit from trade distribution with the sale of CCD, its distie arm, to Ingram Micro (no terms given). This was increasingly a low-margin, low-joy activity for Computacenter, so now they can concentrate on their core product resale and services operations, which seem to be going pretty much OK given last week’s IMS. Indeed, its UK services business continues its march forwards, with revenues up 10% in Q3, vs the 25% decline in product revenues. Net net, UK profits were up yoy, helped by cost-cutting too. Good stuff.

‘Pricing’ drives Wipro’s growth

(By Anthony Miller – Tuesday 27th October 2009 9:30am). Or so it would seem, given the apparent 3.4% onshore and 2.5% offshore price uplift that drove Wipro’s Q2 IT services revenues 1.9% higher qoq (all constant currency) to $1,065m. This despite a 1.5% decline in volumes.

But things are never quite what they seem. On deeper questioning, management revealed that the pricing uplift (‘price realisation’ in the Indian vernacular) was due to a whole host of factors, including favourable FX, higher fixed-price contract mix, higher productivity, better ‘non-linearity’ (i.e. disconnecting headcount growth from volume growth), more working days – in fact everything other than ‘we charged more for our services’. But this is in fact the point. Wipro is able to ‘pull the operational levers’ in the business to drive revenues – and indeed margins – forward, even when less work is being done.

Otherwise Wipro’s results and market observations pretty much mirrored those of Infosys and TCS, in seeing a business uptick across most verticals. I will get more detail on the UK/European story later in the week and will bring you (as in TechMarketView subscription service clients!) up to date on this in the next issue of OffshoreViews.


(By Richard Holway 8.00am Tuesday 27th Oct 09) We really have had excellent coverage of our new SoftwareViews report on the UK headquatered software industry. See TechMarketView launches new Software Research Programme. To add to last week’s coverage – see It’s not all about Windows 7 – I was particularly pleased with the excellent article – British software industry is still alive - in BusinessWeek (and today. A big vote of confidence in awarding our PR work to Brands2Life.

I’ve been a BusinessWeek reader for longer than I can recall and have ranked it as one of the Top Three publications that I always read. I was a bit sad when several years ago they stopped printing the European edition. So I now read it ‘for free’ online. Indeed, ‘that was the rub’. Last week BusinessWeek was in the news itself when it was bought by Bloomberg for a pretty miniscule sum – rumoured to be <$5m. See Businesweek article - Bloomberg wins bidding war for Businessweek. Businessweek was started 80 years ago just before the Great Depression. The latest ‘Great Depression’ hit it really hard and losses of $40m were recorded last year on revenues of $130m. Hence McGraw-Hill’s decision to stem the haemorrhage. Bloomberg is as good a home as you are likely to get. The combined readership will now exceed 20m unique visitors per month with over 100m page views.
If you want more information on SoftwareViews email Puni on

UK SITS M and A activity reverts to type

After the Q2 UK software and IT services ‘buying spree’, the M&A market reverted to type in Q3, with more sellers than buyers. The value of the top 10 deals involving UK SITS companies was up 16% to $617m, with the two biggest deals accounting for over half.

And that’s just a taster!

As ever, with the invaluable support of Regent Partners, TechMarketView brings you the latest round-up of M&A activity in the UK software and IT services scene, with the Q309 edition of IndustryViews M&A.

TechMarketView subscription service clients can download it right now. Everybody else, please form an orderly queue to contact Puni Rajah ( who will be only too happy to let you know how you can join the cognoscenti.

Monday, 26 October 2009

MyTop revisited

(By Richard Holway 6.00pm Monday 26th Oct 09) Back in 2006, I introduced you to the MyTop concept at my Prince’s Trust ‘State of the ICT Nation’ presentation. I remember that I asked the audience of CEOs if they had a social networking page – less than 5% had. When I suggested that social networking would be one of the defining aspects of IT over the next period it was greeted with derision!

I ended the presentation introducing MyTop. MyTop would be my social networking homepage. I could access it “any time, any place and from any device” (Holway’s Martini Moment introduced in my Prince’s Trust speech in 2003) It would allow access to my contacts, my calendar, my music, my data, my photos. More significantly it would allow access to all my (Cloud) applications too.

A year later, I was so convinced that this was the way forward that in 2007 I wrote an Open letter to Mark Zuckerberg at Facebook. He never replied!

I say all this because today I seem to have read article after article suggesting that something remarkably similar to this concept will be the Next Big Thing. Today’s Leader in the FT – Social cash making - suggests that Facebook is the de facto platform for “communicating and sharing information”. Sherry Coutu sent me a link from the Web 2.0 summit she is attending in the USA. Sean Parker (a founder of Facebook) had given a speech about how Network Services would dominate the next phase of the web. “Parker believes we’re shifting from the first phase of the Internet, which was dominated by what he calls “information services” These are companies like Google and Yahoo. But next up to dominate the web will be the “network services” like Facebook and Twitter, he believes”. Then in StrategyEye today I read that Email, calls and social networking will merge, says Gartner. “The distinction between messaging, conferencing, voice calls and social networking for business users will disappear within the next four years, according to a new Gartner report”.

I gain both satisfaction in seeing the world come around to my way of thinking – and not a little irritation at the reaction to the concept when I first introduced it!

But, what is much more interesting is that the ‘Race for MyTop’ is still wide open. I have suggested that Microsoft should buy FaceBook and make it their “Portal to the Microsoft Cloud”. Trouble is that consumers are very fickle and Microsoft owning Facebook could have the same ‘Kiss of Death’ as News Corp owning MySpace or ITV owning Friends Reunited. But Facebook, with over 300m users (and rising across the key demographics), is clearly the flagbearer at the moment.

I’m sure I’ll return to this topic again (just try to stop me…) But remember you heard it all first on HotViews three years ago!

Mindtree – the long march to $1b

(By Anthony Miller – Monday 26th October 2009 2:00pm). It’s a long way from here to there. ‘Here’ is the $255-270m that mid-tier India-based SI, Mindtree, expects to turn over this FY (to March 2010). ‘There’ is the $1b in revenues it’s aiming for in 2014 (see Mindtree eyes a billion – from a distance!). That’s 40% cagr, which clearly isn’t going to happen organically. Indeed, Mindtree’s Q2 revenues (to 30th Sept.) were down 9% yoy to $65m, though up 5% qoq, a sequential growth rate much in line with larger peers. About a fifth of Mindtree’s revenues derive from UK/Europe.

Mindtree took another small step on the M&A trail just at the end of the quarter, acquiring Kyocera Wireless (India), the ‘captive’ wireless product development, software engineering, and product testing unit of Kyocera Wireless Corp. It’s a much smaller deal than Mindtree’s acquisition of (now) 80% of Aztecsoft in May ’08, worth some $80m, with just $6m being paid up front for KWI and the expectation of $9m in revenues over the next 6 months. That’s really not going to get them much closer to the ‘magic billion’.

I do believe there’s a role for smaller offshore players like Mindtree, but it’s really more to do with serving mid-tier clients rather than trying to do battle with top tier Indian SIs on their home turf. The problem is, I really haven’t heard much to make me think that Mindtree’s management are staking out a differentiated and defensible market position in any market, let alone a credible growth path to $1b.

Microsoft - all in the outlook

(By Richard Holway 9.00am Monday 26th Oct 09) Sometimes it feels a little strange to report a pretty massive (c8%) rise in a company’s share price when they have just announced what, at the headline level, was the worst performance in its history. But that’s what happened to Microsoft last week when it announced its Q1 results showing profits down 18% to $3.57b on revenues down 14% to $12.92b. See FT 23rd Oct 09 Microsoft’s earning beat forecasts.

It’s all in the outlook. Analysts seem to think that Windows 7 will boost demand and that even enterprise IT spend will rebound in 2010. I have problems here. Firstly, anyone upgrading from XP to Windows 7 is in for a lot of pain. I wouldn’t advise it. So the outlook for Windows 7 really relies on the new kit market. Here, Windows 7 is just one option. Apple, Google etc have growingly viable alternatives. Netbooks are the order of the day but Microsoft cannot succeed by the reduced revenues it will get from that sector alone. Smartphones are yet another alternative which could rob Microsofft of marketshare.

Microsoft’s outlook depends on enterprise IT spend. Not so much an increase but that enterprises will continue to spend with Microsoft. As you can read in my Gone Google post below, enterprises have new non-Microsoft options. Frankly, I think the analysts are being too optimistic calling an end to Microsoft’s woes just yet. Indeed I think Microsoft is entering the most vital period in its history.

Sunday, 25 October 2009

Moulton the Phoenix

(By Richard Holway 2.00pm Sunday 25th Oct 09) “You can’t keep a good man down” they say. Certainly seems to be the case with our friend Jon Moulton. Less than two months after that rather spectacular exit from Alchemy (which he had founded) – see our 3rd Sept 09 post Moulton resigns from Alchemy – there is much media speculation that Moulton is about to announce that’s he’s setting up Better Capital. The name is said to have been inspired by the last sentence in that wonderful ‘leaving letter’ he wrote to shareholders and others when he said “I would do it again, but better".

As I said back in Sept, I've always rated Moulton - not least for his ability to call a shovel a bloody spade.

Initially Better Capital will use Moulton’s own cash but, once the FSA licence comes through, Better Capital will raise £100m listing on the Stock Exchange. Although not unknown, most private equity firms raise funds directly from investors like pension funds etc.

Bluntly, I can’t think of a better time to do this with valuations still depressed. Mouton has always had a bit of a soft spot for the IT sector – with investments like Radius, Phoenix, Sanderson (Civica, Talgentra, Tallyman and the 'new' Sanderson), Datapoint, INSTEM and, of course, Cedar/COA Solutions etc. So I wouldn’t be at all surprised to see Better Capital include a sprinkling of IT in the portfolio.

Gone Google

(By Richard Holway 2.00pm Sunday 25th Oct 09) I don’t normally get my IT news from the Mail on Sunday but I was interested to read Jaguar turns to Google’s cloud system today. (In my defense, my wife insists on the Mail…) Google launched their Gone Google campaign last week claiming 2m enterprises had adopted its cloud systems. The Mail article references Jaguar’s 15,000 user licence and Rentokil’s 35,000 users. Rentokil claims to have replaced 180 email domains and 40 mail systems in 50 countries with a single Google based email system allowing calendars, chat, document sharing,etc.

Google Apps is now a very compelling system. Indeed, you would have to ask why any new business (like Techmarketview…) would use anything that wasn’t cloud-based. What is really impressive is to see big name enterprise users going that way too.

Xchanging steady despite Cambridge IT slowdown

(By Anthony Miller – Sunday 25th October 2009 10:45am). UK-based international BPO player, Xchanging, is holding a steady course (see here) despite weakness in the IT services business of its Indian delivery arm, Cambridge Solutions. Last quarter, Cambridge reported revenues of some $59m, just under flat yoy. However, its IT services revenues – now 21% of the total – declined 28%. The core mainly US-focused BPO business grew 10%. Xchanging CEO David Andrews commented that customers were still deferring ‘discretionary’ IT services spend, but expected Cambridge’s BPO activities to take up the slack.

I have been supportive in principle of Xchanging’s acquisition of Cambridge (they hold 76% of the stock) though I raised concerns about Cambridge's performance at Xchanging’s interims in August (see Xchanging needs steady hand on its US course). Indeed, Cambridge’s net losses deepened substantially to $5m last quarter due to a near-$6m restructuring charge in its BPO business, though ‘adjusted’ margins, at 4.4%, were near double yoy. However, ytd 'adjusted' margins (1.7%) were under half those of the same period the prior year. More significantly, Cambridge’s IT services business was loss-making in Q3 09, reversing the situation in Q3 08, when IT services was profitable (14%!) and BPO registered a small loss.

It seems to me that the volatility in Cambridge’s performance will drain a lot of management time to rectify. The risk is that this will pose an unwanted distraction to Andrews and his team at a time when all eyes need to be on the bigger ‘ball’. Nonetheless, Xchanging CFO Richard Houghton is still forecasting 5% organic growth this year which, against 4% growth in H1, suggests management are not unduly concerned.

Friday, 23 October 2009

Fidessa slows

(By Philip Carnelley, 23 Oct 2009, 09:00) TechMarketView subscribers who have had a chance to look at our just-published SoftwareViews report will already know that financial services software provider Fidessa is now the 4th biggest UK software company. It moved up from 6th, with impressive revenue growth last year of 48% (34% like-for-like). Things have quietened down since then, with growth in H1 of 19% (at constant currency) which, considering the turmoil amongst its key customers (including Lehmans) was pretty good.

Things are even quieter now. The company has
issued an IMS commenting that market conditions have continued to improve “as stability and confidence have begun to return to the financial markets.” However, pressure on its smaller customers is leading to spending reviews and consolidation. So, while "resurgence continues" amongst larger customers, Fidessa’s overall growth has continued to fall and, as suggested at its H1 results (Fidessa tempers expectations), growth for the year will be below the H1 levels. Also, headline growth will be lower because the currency tailwind has fallen away. And yet, organic growth at anything even approaching that 19% would still be a solid result going into 2010, in our view. We think Fidessa is doing a good job in difficult times.

It’s not all about Windows 7!

Just thought you’d like to know that Windows 7 was not the only software story these past couple of days. We’re rather chuffed to say that the launch of our new SoftwareViews UK Industry Report (see TechMarketView launches new Software research programme) has grabbed a lot of column inches in the press too, such as:

* Mike Simon’s comment in Computerworld

* Cliff Saran’s report in Computer Weekly

* Simon Quicke’s article in MicroScope

This great coverage is in no small part due to the fantastic efforts of TechMarketView’s newly appointed PR company, Brands2Life. George Wright and the team have really done us proud!

We have some great new research coming out over the next few weeks, including a detailed analysis of the opportunity for software and IT services companies in the UK public sector. You’ll hear all about it soon from us (and Brands2Life!) but to see it, you’ll have to be a TechMarketView subscription service client. And Puni Rajah ( will be only too happy to tell you how to become one.

Thursday, 22 October 2009

Windows 7 – today’s the day

(By Philip Carnelley, 22 Oct 09 09:00) At long last – is anyone unaware? – Windows 7 is finally released today. After many months of beta releases, reviews, column inches there seems little more to say. But what, actually, are its prospects? Actually we think they’re quite good, but uptake will be quite slow.

That’s not because of competition, though. It’s inertia. There is a pent-up demand created by the real and deep-rooted reluctance of enterprises and government to move from XP to Vista. They tell us they are going to move to Windows 7 – eventually. But not till it’s proven (service pack 1, probably). And the only as part of their hardware refresh cycles. But they are unlikely to choose something else. Consumers too will not switch en masse. Also, despite the high level of pre-orders, most consumers will not upgrade their PCs unless it’s free and / or automatic.) As we said yesterday, it requires too much skill, time and knowledge for too little return.

The spectre at the feast is Google, but our view on Google operating systems is that the impact will be slow burn, limited in impact for the foreseeable future. It is very relevant that Linux never took off on Netbooks. XP was more familiar and worked well enough. That said, Chrome has two potential plus points that Linux didn't: first, the halo effect if Google Android becomes really popular and people want the same on their netbook. The second is if a new form factor takes off (Apple iPad shall we call it?) and people may prefer to take the Google branded version.

So today’s battleground is the desktop but the war is being fought across the whole mix of form factors.
Apple has done brilliantly to establish its consumer devices and then exploit the halo effect of its iPods and then iPhones. (Yet on PCs/laptops its marketshare is still low: see Snow Leopard won’t change Apple’s spots). But that precedent doesn’t mean Google is more likely to succeed. Both it, and Microsoft now it have to compete with Apple, as well as with Nokia (which was slow to respond but is doing so), and Palm. Even so, that’s mainly the consumer angle. We don’t see Google Chrome as any more than an interesting dot on the horizon for enterprise and government today. A decade ago there was much talk of industry and government switching to ‘open systems’ for its desktops – even, in the case of government, making them mandatory – but it never happened. In some ways not much has changed.

Microsoft reports its Q1 results tomorrow afternoon. It will be interesting to get their comments on the events of the last few days.

Patni – making room in the mid-tier

(By Anthony Miller – Thursday 22nd October 2009 7:45am). I have to be honest. A couple of years ago, while I was still working ‘on the dark side’ as an equity analyst, I had all but written off India-based mid-tier SI Patni as something of a basket case. Founding management were all over the shop, attrition was rampant, and business was going downhill. But over the past year or so, and particularly since the arrival of ex-Mphasis CEO Jeya Kumar to the top job at Patni earlier this year, things have been getting rather better (see Patni getting back on track).

Indeed I spent most of yesterday with Patni’s EMEA head, Brian Stones, global COO, Manish Soman, and VP Germany, Georg Wagner. We also heard from a number of Patni’s marquee UK clients, notably Cable & Wireless, Bupa and Serco. The common thread in the customer presentations was that they selected Patni precisely because they were mid-tier, and therefore a better ‘size match’ to the customer. In our view, this is what will be one of the defining factors in the future opportunity for all mid-tier IT services firms as the industry giants gradually squeeze them out from large enterprise accounts. It’s the “we’re similar size to you, Mr Customer, so you’re business is more important to us than to (fill in the blanks...)”. That, or "we have a truly differentiated proposition" – which Patni does have in some service lines, but does a pretty good job of not telling anyone about them.

But for me, the most interesting story came from Serco, where Patni is its sole applications partner among a list of well known names of IT and BPO suppliers, including ‘our very own’ Computacenter and Phoenix. The relationship with Serco, which dates back to 2003, gives Patni indirect access to the UK public sector market which they would otherwise find near-nigh impossible to approach directly.

I will be writing more about all of this in the next issue of OffshoreViews.

Wednesday, 21 October 2009

SCO’s end is surely approaching

(By Philip Carnelley, 21 Oct 09 16:00) It was revealed this week that SCO Group’s combative CEO, Darl McBride, has been'terminated' and the CEO role 'eliminated.' Although this is not the end of the company, this further nail in SCO Group’s coffin will come as some slight relief to software developers using Unix – and particularly to IBM and Novell, both being sued by SCO.

For those who don’t know the whole tortuous story, but want to, we recommend
Wikipedia. In a nutshell, about a decade ago a company called Caldera, a Linux distributor, acquired various rights to Unix properties and changed its name to SCO Group. It then decided (back in 2003) that others were infringing IP it now owned. You can’t accuse it of timidity: it then went on to try to sue IBM for $1bn, and demanded that all Linux users should start paying license fees. It even tried to sue former customer DaimlerChrysler. SCO has not won anything yet, and a court has declared that Novell retained the rights to the disputed IP. But SCO has continued to battle on against Novell and IBM, despite going into Chapter 11 in 2007 – where it remains. Litigation is now almost its sole business.

This cloud over Linux and payments has been around for so long now most people have just got used to it, or forgotten about it. But for end-users and software developers alike an end to the story will be welcome. Ownership and licensing of Linux code and variants is complicated enough as it is.

Yahoo stabilising - but Microsoft surely worries

(By Philip Carnelley, 21 Oct 09, 09:00) Yahoo’s Q3 results yesterday were in some contrast to Google’s upbeat results last week (see Google Powers On). Yahoo’s revenues were a little better than the markets feared, and profits much better. But even so, revenues were down 12% year on year, at $1.6bn, though flat sequentially. (It’s now approximately one-quarter the size of Google). Excluding divestitures and currency, that's down 7%. However search and display revenue is falling (search down 19% year-on-year) and the gap with Google widening. The company claimed on the earnings call that things are ‘stabilising’ – but that’s not as good as ‘improving.’

Immediate implications for IT markets are that Google is growing its relative power, gaining even more freedom to forge ahead in other spaces like operating systems, enterprise search and hosted applications. Microsoft must be doubly worried, about Google’s power and about the Yahoo partnership. Its own Bing search usage continues to rise, but slowly and from a lower base. In September “Comscore” search rankings for the US, Yahoo fell to its lowest share ever: 18.8%; Google rose half a pp to 64.9% and Bing rose from 9.3% to 9.4%. Even combining Yahoo+Microsoft scores, they fell and Google gained. The gap remains huge.

The UK software industry - a “significant investment opportunity”

Despite numerous claims to the contrary, the UK’s software industry is a thriving and highly profitable business. With the top 50 companies reporting revenue growth of 20% and operating profit growth of 25% last year, it is also a significant investment opportunity for those willing to take UK software to the world stage. These are the findings of a comprehensive report into the UK software industry by TechMarketView, the leading analyst firm focused on the UK software and IT services market.

“There is a tendency to write-off the UK software industry because most of the familiar software companies are in the US. That would be a big mistake,” states Richard Holway, Chairman, TechMarketView. “A combination of organic and inorganic growth has resulted in the top 50 UK headquartered software companies growing c20% in the last year. Perhaps even more surprising, to an ever sceptical British audience, is the c70% of revenues that the UK software industry earns abroad. Indeed, the UK is not that far off earning as much from overseas markets as we buy in. Currently £4.6b plays £5.6b with the gap narrowing each year.”

While the report paints a more positive picture of the UK software industry, it highlights a number of “national failings” that have prevented the UK from producing global software giants the likes of Microsoft, SAP or Oracle. “The problem for the UK software industry has never been the quality of its people or its innovation,” argues Holway, citing the following factors as holding the UK back:

* Lack of available financial backing: In comparison to the US, it is much more difficult for UK software developers to gain access to venture capital funding.

* Lack of marketing expertise: Many of the UK’s best developers simply fail in explaining how great their product is to investors and to the market.

* Local not Global: Many of the UK’s software companies focus mainly (if not solely) on products geared to the UK market.

* Lack of ambition: Many UK software companies are run as ‘lifestyle’ businesses. Very few UK software entrepreneurs seem prepared to risk the Merc for the seemingly scant possibility to become a global player.

* Lack of management skills: Growing from a small enterprise to medium-sized is hard enough – but not a fraction as hard as that required to grow to be large. Few founders are up to running large, global organisations; even fewer are prepared to step aside!

* Easily pleased: UK software companies have a long history of being other nations’ ‘acquisition fodder’. Founders seem to want to ‘take the money and run’ rather than take the risk of growing to something larger.

“The UK software industry is often dismissed as an insignificant player in the global market. Our analysis shows that it is thriving as much as it ever has, but most companies fail to break out of the confines of the domestic market,” states Phillip Carnelley, TechMarketView software research director and lead analyst on the report. Anthony Miller, Managing Partner, TechMarketView explained why. “This situation is not due to a lack of talent – we estimate over 40,000 UK nationals work in the US software industry. It’s more a lack of ambition and a nurturing capital structure. The global software industry is a £150b market opportunity. We have the talent and the innovation, but with the right investment, appetite for risk and management panache – all of which are readily available to leading venture capitalists – there should be no reason why the UK cannot capitalise on the opportunity to produce if not the next Google, then at least deliver significant returns for those willing to take the risk.”

For further information, please contact TechMarketView on or +44 (0) 117 230 1796.

TechMarketView launches new Software research programme

We are proud to announce SoftwareViews, a new research programme led by TechMarketView software research director, Philip Carnelley, specifically directed to companies and investors involved in the UK software marketplace.

We are launching SoftwareViews with our inaugural UK Software Industry Report, which provides a detailed analysis of the UK software industry – its structure, characteristics, size and profitability. In this report we take a critical look at all of the leading UK-headquartered software companies, both publicly listed and privately held. We review the market positioning and prospects for many of the UK’s top software companies, and call out who we see as the ‘Rising Stars’.

The UK Software Industry Report includes rankings of the Top 50 UK-headquartered software companies by revenues, margins and other key financial metrics. We also look at the valuations of the 122 software companies listed on London’s public markets and call out the best – and worst – stock performers so far this year. Finally we analyse recent M&A activity to see who is buying – and who is selling – UK software businesses.

The UK Software Industry Report is just the first of a regular series of reports and research notes on the UK software marketplace from TechMarketView. Subsequent publications will cover market forecasts, market trends, industry dynamics and sector valuations. This information is simply not available from a single source anywhere else. Frankly, SoftwareViews is essential reading for anyone with skin in the UK software game.

The UK Software Industry Report is downloadable TODAY for TechMarketView subscription service clients. And if you are not one already, you’d better be contacting Puni Rajah ( pretty smartly.

Windows 7 - Make or break for Microsoft?

(By Richard Holway 21st Oct 09) Tomorrow, Microsoft’s Windows 7 hits the shops so the news media is full of reviews. Indeed I note that I was quoted in the The Times today giving my views. Windows 7 really is ‘make or break’ for Microsoft. It’s admitted what we all knew for years – Vista was a flop. But that needs a bit of further explanation.

If you bought a brand new, top spec PC or laptop which came with Vista installed, it was fine. We have such a machine and I can’t fault it. But we have quite a few other machines. Firstly we have a clutch of relatively old PCs which work fine with XP but just don’t have the power to run Vista. So we, like the vast majority of others in such a situation, have not upgraded. We then have several netbooks which, although new, have Intel Atom chips which again can’t really run Vista.

Now, here’s the rub. I know that Windows 7 will run on both older/less powerful PCs and on netbooks. Indeed, if I was buying a new netbook today I’d probably opt for Windows Seven. But will I upgrade from XP?

The reviews say that an install from Vista takes about an hour. But that’s not the case from XP where you have to do a ‘clean install’. In other words, you then have to re-install your application programmes and data. Reinstalling applications is a nightmare – mainly because I spend ages finding the discs and then they tell me I’ve used them too many times and I have to go out and buy a new version – which quadruples the cost of installing Windows 7 in the first place! And I bet our various iPods won't work once I reinstall my huge iTunes record collection. Multiply this dilemma in a few hundred million other users – individuals and corporates – and you have a lot of extra hassle and expense.

But there is another dilemma. As you can see from Golden Apple’s wondrous results yesterday, more and more people are saying “to heck with this, if I have to change anyway, I’ll move to Apple Mac”. Of course, you can now substitute Google Chrome too.

Windows Seven is a step forward for Microsoft. But whether it will ‘stop the rot’ is another matter altogether.

Tuesday, 20 October 2009

Maxima loses QAD distribution rights

(By Anthony Miller – Tuesday 20th October 2009 6:30pm). In a totally unexpected blow to mid-market software and services company Maxima, US-based manufacturing sector ERP player QAD has just announced it is to sever its relationship with Maxima from Feb next year and will service all UK clients itself. Maxima has been QAD’s sole mid-market UK channel for 23 years and is QAD’s largest channel partner worldwide. QAD already services larger UK ‘enterprise’ customers directly and is one of Maxima’s four key ERP partners (the others being Microsoft, SAP and Oracle).

The cost to Maxima is likely to be some £1.3m in lost profit this FY (to May ’10), representing over 15% of last year’s adjusted EBIT. The longer term impact is unclear, though executive chairman Kelvin Harrison told me he expects existing QAD implementation projects to continue, along with some support contracts. Just a couple of months ago Maxima announced a ‘major’ QAD contract with Scotland-based soft drinks manufacturer and distributor, AG Barr.

This news will come as a setback for Maxima’s new management team, especially following its recent upbeat trading statement (see Sales up at Maxima). Frankly, it makes you wonder what’s going on at QAD, as I understand Maxima is not the only partner to have come under the cosh. If QAD believes it can service mid-market clients from its existing ‘enterprise’ sales and support base, it may be in for a bit of a rude awakening. More likely, these are desperate measures in response to pressures from Microsoft squeezing QAD from below and Oracle and SAP squeezing them from above. It goes to show yet again, how very tough it is out there in the mid-market – both for software players like QAD, and systems integrators like Maxima.

Tech Mahindra hits BT watershed

(By Anthony Miller – Tuesday 20th October 2009 2:30pm). For the first time ever, less than 50% of Indian-based Tech Mahindra’s revenues were derived from top client – and 31% shareholder – BT. But only just. At 49.8% of Tech Mahindra’s Q2 10 revenues (to 30th Sep.) BT spent about £72m with Tech Mahindra in the quarter, down 17% yoy and 6% lower than the prior quarter (in £s). Nonetheless, this is still more than double the £32m we estimate BT spent with Infosys, for whom the UK telco is also its largest client. BT has cut its spending with all its key IT services suppliers, though remains a significant client for many of the major India-based players.

Beyond BT, Tech Mahindra Vice Chairman Vineet Nayyar talked about “a global recovery at least in sentiment”, saying that they saw “definite signs of revival” in the business. Tech Mahindra was responding to more RFPs than in the past few quarters though Nayyar was still cautious as to when any of these would turn into orders. Indeed, he commented that customer decision-making has not gained pace. Like most players, Tech Mahindra has dropped prices in exchange for committed business. They have negotiated such a deal with BT, wrapping together a couple of its core contracts in order to “assure volumes” though at a discounted price.

Not much news on the Mahindra Satyam front – indeed, management seemed to take umbrage that I even dared ask the question on the concall! The restatement of Satyam’s accounts is still “another four or five months” off, but meanwhile they say customer attrition has stopped and they are winning new clients. I still believe this was not a marriage made in heaven and I really get the feeling that Tech Mahindra management sees Satyam as ‘something that’s happening over there somewhere’, which hardly inspires confidence. Given that Mahindra Satyam is likely similar in size – perhaps even bigger – than Tech Mahindra’s ‘core’ business, you’d think management would have a little more to say!

Prestige networking event for growth company Directors

If you need to raise £2 million or more to support your growth plans, you're probably asking many questions right now. Is funding available from private equity, bank or other sources? How likely is it that your business will secure the money, and what will financiers expect in return? And what are your options if you can't get the funding that your business needs?

Chris Dines, ex-CEO of Ovum (and good friend of ours) is building an exciting new business called Knowledge Peers, an advice network for directors of growth companies (typically 10 to 500 employees). Aside from their growing online presence, Knowledge Peers hold regular, top quality, networking events. The next is an evening event at the Royal Institution on Monday 2nd November, and we have negotiated a number of complimentary tickets for qualifying UKHotViews readers.

The more formal part of the evening looks at some of the challenges that mid-tier companies will face in order to fund expansion. There’s a very interesting set of speakers and panellists, including tech entrepreneur, John O'Connell (who many of you will know well) and Andrew Garside, of private equity firm Isis Partners. There will be informal networking over drinks and canapés, and private access to the RI’s museum.

If you are a Director of a growth company and would like to find out more, or to register for the event, click here. When registering, please be sure to add "UKHotViews " to the name of your company in the "Company" field of the form else a booking fee will apply!

Be quick – the offer applies only to the first 25 qualifying Directors!

For Autonomy, growth seems easy, profitability a bit less so

(By Philip Carnelley, 20 Oct 09, 09:00) As expected – see Autonomy continues to see strong tradingAutonomy has unveiled another strong set of results for its Q3. Boosted of course by last spring’s acquisition of Interwoven, revenues were up 51% to $192m for the quarter; organic growth was an impressive 15%, due in part to a long string of new client wins. Its new IDOL SPE – the application of Autonomy technology to relational data – is said to have got off to a good start with a ‘stronger than expected’ response – though no mention of orders.

Profitability growth has proven more elusive, as the company works to integrate Interwoven and launch IDOL SPE. Adjusted operating profit margins fell from 42% to 34%. The company claims that without the product launch, margins would have been 43%. But, hey, isn’t launching new products what all companies have to do? Including a fairly hefty write-down for acquisition amortisation, ‘true’ operating profit margins fell from 37% to ‘just’ 26%. Let’s be clear: these are figures many companies would kill for, but not great by Autonomy’s standards. Margins, as well as growth, support its stellar market valuation – it’s the most valuable UK software company despite being considerably smaller in revenue terms than either Sage or Misys (for more detail, watch out for our analysis of the UK software industry coming very soon!). In early trading, Autonomy’s shares have fallen 7.5%.

IT contractors move homes to ‘box-world’?

(By Anthony Miller – Tuesday 20th October 2009 8:30am). An interesting piece in today’s The Register on the potential impact on IT contractors of the FSA decision to scrap mortgage self-certification, particularly for those who have recently been cast out from permanent positions. Beneath the witty reportage is actually quite a chilling message which of course extends to all temporary workers, not just IT contractors. Given the UK’s dependence on freelancers, one wonders whether the FSA has really thought this thing through.

Adecco goes shopping again

(By Anthony Miller – Tuesday 20th October 2009 8;15am). Barely has the ink dried on its acquisition of leading UK ITSA (IT staff agency) Spring Group (see Spring is sprung!), than Zurich-based staffing giant Adecco is at it again. This time it’s US-based professional staffing group MPS Group (nee Modis Professional Services). Adecco will pay $1.3b cash which, at $13.80 per share, is a 24% premium on last night’s close.

Last year MPS recorded revenues of $2.2b at 29% gross margin and 6.6% operating margin, though this excluded a $379m impairment charge which sent net earnings negative. In its most recent quarter (to 30th June), MPS recorded $418m in revenues at 27% gross margin but only 1.6% operating margin. So, based on last year’s ‘adjusted’ numbers, Adecco is paying 0.6x sales and 9x EBIT for MPS. In comparison, Adecco paid 0.2x sales and 15x EBIT for Spring, though that deal ‘only’ cost them £100m.

MPS’ ITSA business trades as Modis International in the UK and Continental Europe. Its revenues last year were $329m, at 18% gross margin and 3.9% operating margin. I believe most of this is UK-based. MPS also runs the Badenoch & Clark professional staffing brand.

So, the relentless consolidation of the staffing industry continues. Will Adecco take another tilt at Michael Page I wonder?

Golden Apple

(By Richard Holway Tuesday 20th Oct 09) I bought Apple shares in 2002 at $10 and saw my investment soar. As HotViews readers can easily verify from the archives, I sold half my holding in Dec 2007 when they hit $203. I then congratulated myself at how clever I was as they plunged to $80.

Problem was I didn’t then buy again.

So here I am today on the one hand glorying in the fact that Apple, last night in after hours trading, hit an all time high of $204 but kicking myself for only having half the Apple holding I had two years back!

It is difficult to find the right words to describe Apple’s wonderous Q4 (to 30th Sept 09) results last night as they blew expectations out of the water. Profits up 47% at $1.67b is one thing but a 25% rise in revenues to $9.87b in one of the worst consumer recessions on record, is quite another. It was almost ‘across the board’ with iPhone sales up 7% at 7.4m units (‘demand is outstripping supply in most countries’), though total iPod sales were down 8% at 10.2m units (is there anyone left who doesn’t have one?) but iPod Touch sales doubled. This has what many call the ‘halo effect’ as Apple Mac sales jumped 7% to 3.05m. Again this against a falling market in top-spec PCs.

"The future (as we should now say) looks Apple" too. The iPhone is gaining acceptance in the corporate world with over 50% of Fortune 500 companies now using the device in some way – really bad news for RIM. The iPhone launches in China this quarter. The launch of Windows 7 this week might just tip even more down the Apple Mac route – well, if you have to reload all your programs to install Windows 7 on an old XP PC, why not buy a Mac and save yourself the hassle? I can see the advert already! Steve Jobs promised “some really good new products for 2010” when the world and Holway expects the game-changing iTablet.

Apple is one amazing story. In 1983, whilst Group Marketing Director at Hoskyns (now Capgemini), I was given a pre-release Lisa for the weekend. It literally changed my life. There is no other technology brand that has given me so much joy in the last 25 years as Apple. The fact that Apple shares have made me a tidy return too just helps the warm feeling!

Last week I wrote the post Recovery? I warned readers yet again that downturns accelerate change with some companies doing very well and others failing. Add Apple to the Google and Intel list of those doing very well in bad times. But don’t read from Apple an end to tech recession and/or recovery.

There are precious few ‘Apples’ - just ‘Enjoy’.