OpenStack adoption coupled with Linux share gains help Red Hat deliver higher-than-expected revenue growth

By Andrew Smith, Analyst

Below is TBR’s commentary on Atos’ acquisition of Xerox’s ITO business. Please feel free to use this content with TBR and analyst attributions. Contact Andrew Smith at (603) 929-1166 or for additional commentary.

Red Hat delivered another quarter of revenue growth in 4Q14, increasing a reported 15% from the year-ago quarter to $456 million. This marks the 11th straight quarter of year-to-year revenue growth for the vendor. Red Hat’s operating margin was 23.8%, down 1% from the year-ago quarter. Steady midteen growth in Red Hat’s core Linux business buoyed Red Hat’s operating margin. During earnings, the vendor explained aggressive investments in its emerging products and services may continue to eat into its overall operating margin — a scenario the vendor is comfortable with as long as its emerging technology products continue to experience “hyper growth.” Emerging technology products grew a reported 48% year-to-year during the quarter. Red Hat’s focus on growth and investment in emerging technology coupled with OpenStack and OpenShift platform growth continues to be the focal point for long-term success. TBR believes the vendor will continue to lean on core Linux and middleware solutions as it seeks increased wallet share among customers adopting open-source cloud and analytics workloads in their enterprise environment. Continue reading

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Atos is becoming a disrupter in North America with the Xerox ITO business acquisition

By Elitsa Bakalova, Analyst

Expansion in North America is now a dream come true for Atos through its acquisition of Xerox’s ITO business on Dec. 19, 2014. Over the past several years, Atos has struggled to build scale in North America and increase its revenue in the region but without success, as the company could not go over the 7% of annual revenue mark. Atos was challenged by its weaker brand recognition relative to multinational IT service providers, while India-based players challenged Atos’ efforts to attract talent and clients. With the Xerox ITO business purchase Atos tackles both obstacles, immediately improving its brand recognition, particularly among the Xerox ITO client base and the overall IT services market, where clients want alternatives to legacy IT services providers and expect more agility in pricing along with capabilities to deliver at scale. With two acquisitions almost equivalent in size in 2014 (Xerox ITO and the May 2014 acquisition of Bull), TBR expects Atos to cool off its M&A activities in 2015 and focus on integration and execution of its growth strategy. Atos will have an expanded reach in North America and a solidified base in Europe. Atos is creating new competitive pressures for MNCs and India-centric vendors with established positions in North America and for Atos’ Europe-based peers, such as Capgemini and T-Systems, both of which are struggling to grow in North America. Continue reading

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Accenture accelerates its investments in digital marketing and cloud to gain a position that will allow it to dictate market trends

By Bozhidar Hristov, Analyst

Accenture’s innovative digital vision is paying off as its aggressive execution approach allows it to stay ahead of competitors

The permeation of digital services across all operating groups, markets and employees’ skills allows Accenture to capitalize successfully on demand for such offerings from mature and emerging market clients seeking to transform IT operations and/or create operational efficiencies. While Accenture continues to hire at a double-digit rate (13.4% year-to-year), the company has managed resources to market conditions and provided an agile structure in which pairing investments in digital with cloud delivery services and strategy consulting allows the company to develop and deliver market-relevant, price-competitive offerings showcasing business outcomes to IT budget keepers. Moving forward, Accenture is positioned to stay ahead of rivals. In CY15, however, it will be required to deliver at speed ahead of the digitally enabled IT services market maturation as MNCs and India-centric competitors are investing increasingly in similar capabilities and hiring similar digitally experienced talent. Continue reading

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Cloud accounts for half of Oracle’s total revenue growth

By Meaghan McGrath, Research Analyst

Oracle beats guidance, led by execution on its revamped cloud strategy and proven leadership from Catz and Hurd

With new CEOs Safra Catz and Mark Hurd in the driver’s seat for a full quarter, Oracle beat FY2Q15 guidance, growing net revenue nearly 3.5% to $9.6 billion. One brief storyline was that the hardware business saw slight growth this quarter. The more pervasive storyline, however, mirrored the message Oracle has been pushing steadily since Oracle OpenWorld: Cloud is the company’s future. Fueled by 150 new subscribers to Oracle’s recently announced PaaS offering and more than $170 million in new SaaS and PaaS annually recurring revenue, cloud SaaS and PaaS subscription revenue reached $361 million in the quarter, as growth accelerated to 39.4% year-to-year. Cloud IaaS also saw accelerated growth, up 59.8% year-to-year to $155 million. Continue reading

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By Jacob Gordon, Research Analyst 

SAIC’s focus on expanding into new markets and developing proprietary solutions will lead to revenue and margin growth in 2015

SAIC’s revenue declined 0.3% year-to-year in 3Q14 but grew 2% year-to-year if you remove revenue earned by its former parent company. Despite SAIC’s seventh consecutive quarter of revenue declines, its protect, grow and expand strategy is beginning to gain traction, as it has won six contracts worth more than $140 million each since September. To revive revenue growth SAIC is expanding into markets where it is under-represented relative to public sector peers like Lockheed Martin IS&GS, such as in the federal civilian and state and local markets. SAIC is also ramping up alliance activity to expand its cloud and cybersecurity capabilities and will leverage its partners’ client relationships to expand into adjacent markets. SAIC’s more aggressive go-to-market strategy and growing portfolio of cybersecurity and cloud offerings positions the company to generate revenue growth in 2015.

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Government spending constraints and underperforming assets continue to dampen Leidos’ performance metrics

By Allison Mulligan, Research Analyst

Leidos’ conservative portfolio-shaping approach will not stem the tide of sales declines and margin pressures through the end of 2014

Overseas contingency operations (OCO) funding constraints and Leidos’ underperformance in its targeted growth markets of commercial healthcare and engineering resulted in revenue contraction of 9.8% year-to-year for the company in 3Q14. Leidos will focus on business development, cost optimization and portfolio shaping as the primary levers to restore the health of the company. Key business development hires are expected to improve capture rates and increase the volume of new business in the next 12 to 18 months. This combined with divestitures of underperforming businesses, shifts to more profitable areas of the portfolio and a return to core competencies in ISR and federal healthcare are expected to inch revenue forward in 2015, with some improvement to margins as early as 4Q14. Continue reading

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HP Software will continue to embrace subscription-based solutioning to seek revenue growth in FY15

By Andrew Smith, Analyst

With cost containment established successfully, TBR believes HP Software must continue to transform its go-to-market to subscription-based solutions to generate long-term revenue growth in the segment. HP Software’s revenue declined 1% year-to-year to $1.1 billion in 3Q14. HP’s corporate revenue declined 2.5% year-to-year to $28.4 billion. Software revenue suffering was primarily due to 3% and 1% year-to-year declines in services and support, respectively, which licenses revenue gains of 2% were unable to offset. TBR believes HP Software will remain focused on product go-to-market transformation and SaaS-based revenue bookings during 4Q14 as well as continuing the growth of key solutions portfolios, namely Vertica, Application Delivery Management and Enterprise Security. Continue reading

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