In 1Q13 SAIC focused on activities to maintain positive momentum as it prepares to split its operations this summer

By Joseph Walent, Analyst

SAIC reduced real estate holdings to cut costs and prepare for the impending split

In May SAIC announced that it would sell its Tyson’s Corner headquarters in McLean, Va., to a real estate investment company in a transaction worth between $120 million and $140 million. TBR believes SAIC is taking this action as a part of its restructuring plan to save a total of $70 million by reducing its facility footprint by 30%. We believe SAIC will continue to reduce its facility footprint nationally by consolidating operations and terminating unneeded leases. We believe that SAIC is ramping up its efforts to locate resources at its client’s sites to form stronger client relationships and deliver better results that often come from closer collaboration.

Investment in portfolio growth across functional areas and verticals will sustain Salesforce.com’s high growth

By Jillian Mirandi, Analyst

Salesforce.com has rapidly gained a leadership position in the CRM space and is simultaneously gaining traction in additional functional areas

Salesforce.com is successfully diversifying revenue and sustaining high growth by addressing more functional areas outside sales and will continue to cross-sell and win new deals in coming years. Salesforce.com’s consistently high growth rates, at 28% in the quarter to $893 million, are evidence of the stability of the company’s subscription model as well as its ability to expand outside CRM. Although we believe Sales Cloud (CRM) contributes to the majority of revenue, Force.com and Service Cloud will become the company’s next billion dollar businesses, followed by Marketing Cloud and Data.com, which are expected to generate over $100 million each in FY14. In the quarter, Salesforce.com migrated the highest number of customers ever in a single quarter from SAP to Salesforce.com Sales Cloud, and in turn surpassed both SAP and Oracle to gain the top CRM spot in terms of market share (regardless of deployment method). Operating margin was negative in the quarter and will remain so through at least CY15 as the company invests for growth. Unlike competitors with historically high operating margins (SAP, Oracle and Microsoft), Salesforce.com’s shareholders are used to and more comfortable with lower margins and trust that growth will outweigh short-term losses. We believe this model will continue for Salesforce.com over at least the next few years as it invests to pull farther away from competitors, moves to a leadership position in more functional areas and increases vertical customization.

Lenovo shifts from attack to protect in PCs as it sets its sights on PC margin expansion and global growth in mobile

By Beau Skonieczny, Analyst

Lenovo is effectively navigating a difficult PC environment by focusing on profit expansion

As global PC demand continued to dwindle in response to elongated refresh cycles and cannibalization from mobile devices, Lenovo’s PC revenues declined by 1.6% year-to-year, but still outpaced the industry average, as major PC vendors like HP posted double-digit declines. Lenovo exploited a wide range of new touch-based Windows 8 notebooks such as the IdeaPad Yoga series to help drive a more premium sales mix in the global consumer and SMB market segments. TBR believes a stronger premium consumer PC portfolio combined with a strengthened presence in North America contributed to a 160 basis point increase year-to-year in corporate gross margin to 12.3% in 1Q13.

HP continues to assemble its IT solutions strategy amid prolonged revenue slumps in PC and server product segments

By Jack Narcotta, Analyst

If 4Q12 (HP’s fiscal 1Q13) heralded HP’s first steps toward developing, as CEO Meg Whitman stated during a March 2013 analyst summit, “solutions for the new style of IT,” then the actions taken by the company in 1Q13 (fiscal 2Q13) have widened paths into new areas of consumer and enterprise markets. By augmenting its consumer product lines to include devices built on Google’s Android operating system, unifying its sprawling enterprise product portfolio into integrated solutions that feature unique technology, the company continues to make strides toward Whitman’s goal of transforming the technology stalwart into a more agile and adaptable company.

Workday will take market share in CY13 with sustained investment in portfolio expansion and product updates

By Elizabeth Hedstrom Henlin, Analyst

Workday’s unified portfolio strategy will accelerate human capital management (HCM) sales — and including financials will drive revenue growth into CY15

Workday is positioned for accelerating sales of its core HCM portfolio across 2013, courtesy of an established brand and high-profile customer success stories. Revenue performance in CY1Q13 reflects those accelerating sales, as total revenue grew 61% year-to-year to top $91 million while subscription revenue exceeded $68 million (rising 85% year to year). With the bulk of Workday’s subscription revenue base stemming from its HCM portfolio, we maintain that install base defense will be a critical 2013 market tactic as the company’s increased profile attracts attention from competitors. As demonstrated by the launch of Workday 19, Workday remains committed to product updates every three months. To maintain that timeline while expanding its portfolio will require Workday to escalate investments in personnel and development across CY13.

HP Software’s revenue growth turnaround will be driven by investment in partner engagement and solution development

By Jillian Mirandi, Analyst

HP Software is expanding its portfolio and channel presence to reignite growth for 2014

TBR believes HP and HP Software in particular are correctly prioritizing long-term growth goals, staying the course with the overall business plan laid out in October 2012 despite HP Software’s third consecutive quarter of year-to-year decline (with revenue dropping 3% to $941 million) amid HP’s overall corporate declines of 10% year-to-year. We concur with HP CEO Meg Whitman’s opinion that HP customers and partners are “feeling the turnaround,” and expect a growth recovery for HP in 2014, fueled by channel and portfolio investments that will position HP to address market trends including SaaS, mobile, security and analytics.

HP is positioning to capitalize on growth opportunities around converged systems, emphasizing the push toward solutions-led sales

By Cassandra Mooshian, Analyst

HP Services’ financial performance will continue to weaken through 2H13 during HP’s year of rebuilding, positioning for long-term growth in 2014 and onward

HP reported $8.27 billion in services revenue in 1Q13 (fiscal 2Q13), down 6.3% from the year-ago quarter and up 1.3% sequentially. Technology Services revenue declined 2.7% from 1Q12 to $2.27 billion, which TBR attributes to weakened unit shipments within HP’s product businesses. Technology Services revenue, however, improved sequentially by 1.3%, which we believe is a benefit of bringing Technology Services into the Enterprise Group and closer to HP hardware to better bundle service and support with technology. IT Outsourcing revenue declined 5.9% year-to-year to $3.72 billion during the quarter as customer transitions to cloud environments pilfer away at traditional ITO revenues and HP actively runs off its lower margin outsourcing contracts.