Oracle will invest to realize its FY15 priorities: Executing its evolving database business while accelerating applications sales


by Elizabeth Hedstrom-Henlin, Senior Analyst

Creating a path to solutions across Oracle’s broad and deep portfolios will drive Oracle to rethink how it operates in the next 24 months

Customer paths to refresh database installations and the applications and engineered systems designed to support increased performance will create a narrative of in-memory as driving business value, increasing share of wallet with install base customers and moving Oracle’s perception in the market from point product to solution. With Oracle executives noting that only 30% of existing maintenance contracts are from its applications install base, opportunities remain to extend applications sales into the Oracle database install base to support broader growth. Double-digit growth in cloud applications overall and on-premises applications sales in North America in CY3Q14 illustrates a growing install base for Oracle applications. Continue reading

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Microsoft’s purchase of ‘Minecraft’ maker Mojang shows its commitment to building up its cross-platform appeal

By Jack Narcotta, Analyst

For Microsoft, “Minecraft” is more platform than game

Microsoft’s $2.5 billion acquisition of Sweden-based software company Mojang, the developer behind the popular building game “Minecraft,” which has sold over 100 million copies since its release in 2009, illustrates the degree to which Microsoft CEO Satya Nadella’s long-term vision for Microsoft is taking root at that company. Since July 2014 Nadella has evangelized a device-and-platform-agnostic strategy for Microsoft. TBR believes the acquisition of Mojang — combined with Microsoft’s pledge to continue support for Android, iOS and PlayStation versions of “Minecraft” in tandem with Xbox and PC — is among the strongest statements to date that Microsoft is cognizant of its new role as a platform for devices and software. Continue reading

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The acquisition of TriZetto solidifies Cognizant’s presence as a solutions-led vendor in the U.S. healthcare market

By Jennifer Hamel, Analyst; Joseph Walent, Analyst

TriZetto adds the onshore resources and solution IP Cognizant needs to be a serious long-term player in the U.S. healthcare IT services space

In a move that confirms Cognizant’s commitment to becoming a solutions-led vendor on par with IBM and Accenture, the company announced on Sept. 15, 2014, the acquisition of healthcare software and IT solutions provider TriZetto Corporation for $2.7 billion in cash. The acquisition, once closed, will add 3,700 employees in the U.S. and India with expertise in delivering healthcare administration and IT solutions to the payer and provider industries. Cognizant and TriZetto generate an estimated $3 billion in combined annual healthcare revenue, compared to the $2.3 billion Cognizant earned from the segment in 2013. The companies share more than 30 clients, but the acquisition provides Cognizant access to new clients, particularly in the provider space, presenting opportunities to cross-sell additional C&SI, application and business process services. Cognizant expects approximately $1.5 billion in potential revenue synergies, the majority of which will come from integrated deal opportunities, between the two companies over the next five years. Continue reading

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The acquisition of Eucalyptus closes a gap in hybrid cloud and expands HP’s reach against a $7 billion-and-growing hybrid cloud integration market

By Cassandra Mooshian, Analyst

Interoperability and open source technology are key focus areas for HP’s cloud and corporate strategies going forward

HP’s long-term goal with its cloud portfolio is to give enterprises the option to have open source private and/or hybrid cloud environments that are compatible with public cloud software from various providers as well as its own cloud systems that can be built, implemented and managed entirely by HP. TBR believes this is the first of many smaller, open source-focused acquisitions to come over the next two years. The company has made significant efforts over the past year to reduce its debt and has also reported notable improvements in free cash flow, better positioning HP to make such an investment. Continue reading

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Greater focus on the high-demand areas of cyber and cloud will provide needed sales traction for SAIC

By Joseph Walent, Analyst

Shrinking market places a premium on efficient operations

SAIC’s revenue contracted 7.9% year-to-year in 2Q14 — a larger decline than most of its federal IT service delivery peers. SAIC continued to adjust to the federal IT market of shorter, smaller contracts by expanding its capabilities in cyber- and cloud solution delivery, areas where government funding has been more fluid. Despite the introduction of new offerings and a broader available market, the federal IT environment will remain hostile to growth in 2014, compelling SAIC to maintain its previously tendered guidance for midsingle-digit sales contraction through 2H14.

Generating greater efficiency in service delivery resulted in an improved operating margin of 6.2%, allowing for more pricing flexibility in pursuit of new awards and in contract renewal negotiations. SAIC’s plan to improve profitability 10 to 20 basis points annually is achievable but positions the company well behind peers in the federal IT space, which have been securing margins of 8% to 10%. Continue reading

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Tepid demand from key clients and significant goodwill write-downs impact Leidos’ financial performance during 2Q14

By Sebastian Lagana, Analyst

Leidos revenue growth and profitability will remain pressured through 2014 as portfolio and operational restructuring continues

Leidos reported a year-to-year revenue contraction of 10.4% during 2Q14, as overseas contingency operations (OCO) funding constraints, tepid commercial healthcare demand and lower than anticipated revenues from engineering-related projects continued to pressure revenue performance. Additionally, Leidos’ 2Q14 operating margin of -31.4% was severely impacted by a $510 million goodwill write-down in the Health & Engineering segment. Most of the goodwill reduction was related to assets acquired in 2012 to boost Leidos’ commercial healthcare business; specifically the acquisition of electronic health record (EHR) provider MaxIT.

Given the poor return on investments in commercial health and energy plant operation to date, we anticipate Leidos will refocus its portfolio development efforts on core capabilities in systems engineering, federal healthcare and U.S. military support. Continue reading

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Workday expands its portfolio, industry and geographic focuses to sustain momentum as competitors mature their own clouds

By Jillian Mirandi, Senior Analyst

Workday leverages a three-pronged strategy to expand addressable market and sustain revenue growth

Workday’s continued revenue growth, 74% year-to-year in 2Q14, demonstrates the company’s ability to lead with its core cloud-delivered human capital management (HCM) application and drive share-of-wallet expansion through product add-ons and new applications. TBR believes competitors such as Oracle and SAP are feeling pressure from Workday’s inherent cloud delivery model and agility, spurring investments in solution simplification and cloud-based HCM. We expect Workday, while lacking the scale and distribution channels of its larger competitors, will leverage a three-pronged strategy to broaden its addressable market: Expand services partner ecosystem, tailor solutions to industries and increase global presence. We anticipate Workday will put a larger emphasis on building out Workday Financial Management, which has reached nearly 100 customers and offers more opportunities for industry and regional customization than HCM. Continue reading

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