The build-outs of Fujitsu’s cloud and service delivery capabilities reinforce IT services growth while profitability remains a challenge

Cassandra Mooshian, Analyst

Below is TBR’s commentary on Fujitsu Services’ 2Q14 earnings announcement. Please feel free to use this content with TBR and analyst attributions. Contact Cassandra Mooshian at (603) 758-1827 or cassandra.mooshian@tbri.com for additional commentary.

Revenue growth was not enough for Fujitsu to realize operating margin in its Services business, indicating inefficiencies remain as the Global Delivery organization begins to roll out

Fujitsu’s Services revenue expanded in 2Q14 by 4.6% year-to-year in local currency to ¥580.5 billion (1.3% year-to-year growth in USD to $5.69 billion). Revenue growth during the quarter was driven by sustained momentum in Fujitsu’s systems integration unit, particularly due to steady demand from the public sector and financial services verticals. Growth was steady across geographies, with revenue attributable to Japan up 3.4% over the year-ago quarter and revenue outside of Japan increasing 6.3% over the same compare. However, Fujitsu reported that on a constant currency basis, Services revenue outside of Japan declined 2% due to lackluster demand for hardware-related services (support and maintenance) in Europe as a result of declines in its Devices revenue.

Despite revenue growth and noteworthy success at the corporate level in terms of operating margin (2Q14 marked Fujitsu’s first FY1Q since FY2010 of reported operating profit), Fujitsu continues to struggle with operating profitability in its Services segment. Fujitsu’s Services 2Q14 operating margin dipped 70 basis points year-to-year to 2.3%. In the coming quarter, however, we expect improvement in Services and anticipate operating margin will reach 5.8% in 3Q14, flat when compared to the year-ago quarter but an improvement over margin decline. TBR believes Fujitsu’s corporatewide organizational restructuring and 1Q14 establishment of its Global Delivery organization will drive efficiency improvements throughout its business segments, but in Services in particular as the service delivery structure and process improve. Continue reading

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Fujitsu shifts gears from restructuring to investing for long-term growth

By Stephen Belanger, Research Analyst

Below is TBR’s commentary on Fujitsu’s 2Q14 earnings results. Please feel free to use this content with TBR and analyst attributions. Contact Stephen Belanger at (603) 929-1166 or stephen.belanger@tbri.com for additional commentary.

2013 corporate restructuring drove Fujitsu’s first second-quarter operating profitability since 2010

In 2Q14 Fujitsu achieved an operating profit in the second calendar quarter for the first time since 2010. TBR attributes profitability gains to corporate revenue growth of 3.5% year-to-year in U.S. dollars, which was only the company’s second quarter of year-to-year growth since 1Q12. Profitability was further driven by structural reforms implemented in 2013 for Fujitsu’s mobile phone business and chip-manufacturing unit, along with reduced headcount expenses. As a result, the company’s operating margin rose 290 basis points year-to-year to 0.6%, or $63 million.

PCs and Mobile Phones unit revenue growth of 26.6% year-to-year supported Fujitsu’s corporate revenue, driven by PC sales stemming from the end of Microsoft-provided Windows XP security updates and technical support in April. Additionally, new mobile phone launches including the Raku-Raku series drove smartphone sales. Fujitsu’s Services unit, which accounted for more than half of total revenue, increased revenue 1.3% year-to-year. Continue reading

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Delivering added value in outsourcing engagements will enable HCLT to sustain long-term client relationships and revenue streams

By Jennifer Hamel, Analyst

Below is TBR’s commentary on HCLT’s 2Q14 earnings. Please feel free to use this content with TBR and analyst attributions. Contact Jennifer Hamel (jennifer.hamel@tbri.com) at (603) 758-1875 for additional commentary.

Infrastructure management services and growing adoption of higher-value transformation offerings drive double-digit revenue growth for HCLT

HCLT’s 2Q14 performance confirms that appealing to cost-conscious enterprises with short-term cost savings and long-term practical road maps for IT transformation is a winning strategy for consistent double-digit revenue growth. Revenue increased 14.6% year-to-year to $1.41 billion, driven by continued expansion in Europe, particularly in infrastructure management services and the financial services and public services verticals. Plans to scale delivery capabilities to address clients’ evolving IT needs, including investments in infrastructure security offerings and onshore and nearshore engineering-focused innovation labs, will improve HCLT’s ability to mine existing accounts and attract new clients in the long term. In 3Q14 we expect ramp up from recent large-scale deal wins to sustain revenue growth above 14%.

HCLT continues to secure large-scale outsourcing and transformation engagements by promising cost savings and flawless execution to enterprise clients. For fiscal year 2014, which ended in 2Q14, the company signed more than 50 transformation deals with a combined contract value of greater than $5 billion. On its earnings call, HCLT reported a strong pipeline in infrastructure management services in the renewal market and among first-time outsourcing buyers in APAC and Continental Europe. The company also gained three new clients for its Digital Systems Integration (DSI) offering during the quarter. We expect HCLT will continue to expand wallet share in client engagements through 2H14 as the company guides clients to reinvest cost savings into transformational offerings such as DSI, ALT ASM and Enterprise of the Future. Continue reading

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Technology-related offerings and business value proposition will help Capgemini improve revenue growth and expand profitability in 2014

By Elitsa Bakalova, Analyst

Below is TBR’s commentary on Capgemini’s 2Q14 earnings. Please feel free to use this content with TBR and analyst attributions. Contact Elitsa Bakalova at (603) 929-1166 or elitsa.bakalova@tbri.com for additional commentary.

Innovation, competitiveness and people will help Capgemini reach its 2% to 4% year-to-year organic revenue growth and 8.8% to 9% operating margin targets for 2014

Capgemini has set a clear strategy for its business globally, investing in innovation, competitiveness and people to effectively compete, catch up to competitors and separate itself from the pack in the long term. Capgemini’s strategic emphasis is in response to increased competition from IBM, Accenture, and Europe- and India-based vendors, as are its efforts to diversify from its European base, which are progressing rather slowly in TBR’s view. TBR expects Capgemini will reach its 2014 revenue and profit goals. Bookings growth of 19% year-to-year in strategic offerings such as cloud, mobile, big data and analytics, Digital Customer Experience, and industry-specific and IP-rich solutions indicate the company’s innovation and business value proposition attracts clients and will contribute to near-term revenue growth. Continue reading

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ServiceNow beats expectations with another strong quarter of execution and product expansion beyond ITSM

By Jillian Mirandi, Senior Analyst

Below is TBR’s commentary on ServiceNow’s 2Q14 earnings. Please feel free to use this content with TBR and analyst attributions. Contact Jillian Mirandi (jillian.mirandi@tbri.com) at (603) 929-1166 for additional commentary.

Leveraging IT as an entry point, then an expansion channel, broadens ServiceNow’s presence in and revenue from its customer base

While ServiceNow’s go-to-market strategy remains focused on selling to IT, the company is successfully leveraging IT as a channel into other lines of business (LOBs) in the organization, namely human resources (HR), finance, manufacturing and facility management. HR case management is especially taking off, with 23 transactions in the quarter. Unlike other born-on-the-cloud vendors that initially target LOBs prior to IT buy-in, IT serves as the critical point of contact for ServiceNow. Execution against this strategy led to 32% of ServiceNow’s business in the quarter residing outside of IT (an understated number based on legacy customers contract structures). IT service management (ITSM) and IT operations management (ITOM) teams and skill sets are moving closer together, and the ServiceNow platform will help facilitate bridging the gap between these two and other functions. Continue reading

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Sprint will attempt to reverse subscriber losses by rolling out enhanced network services and driving adoption of Framily plans

By Eric Costa, Analyst

Below is TBR’s commentary on Sprint’s 2Q14 earnings. Please feel free to use this content with TBR and analyst attributions. Contact Eric Costa (eric.costa@tbri.com) at (603) 929-1166 for additional commentary.

Subscriber and revenue losses will continue to plague Sprint in 2H14 due to the lack of differentiated offerings and a competitive market

Sprint will be unable to grow revenue and subscribers in 2H14, as it continues to be pressured by an anemic wireline business and strong competition in the postpaid market. Sprint lost 864,000 total retail subscribers in 2Q14 and reported a year-to-year decline in corporate and wireless service revenue, yet the wireless business grew 0.2% in 2Q14 due to its growing wireless equipment revenue.

To improve subscriber retention, Sprint’s primary focus remains building out its Sprint Spark initiative and migrating its subscribers to more lucrative postpaid LTE plans. Network Vision and additional layoffs will start to bend the cost curve down in 2H14, at which point Sprint will show consistent margin growth. Continue reading

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Industry specialization, cloud and customer-centric sales will aid Atos’ growth recovery in 2H14, while the Bull purchase will lift revenue in 2015

By Elitsa Bakalova, Analyst

Below is TBR’s commentary on Atos’ 2Q14 earnings. Please feel free to use this content with TBR and analyst attributions. Contact Elitsa Bakalova (elitsa.bakalova@tbri.com) at (603) 929-1166 for additional commentary.

Growth areas such as cloud, big data, security and industry specialization will help Atos ramp up revenue through 2016

Despite the 1.9% year-to-year organic revenue decline in 1H14, TBR expects Atos’ growth to recover in 2H14 and support the company’s goal for positive organic revenue growth in 2014 compared to 2013. Higher-value services with industry specialization across Atos’ core verticals, especially in consulting & SI (C&SI), cloud and customer-centric sales model will help Atos ramp up revenue through 2016. The acquisition of Bull, if approved at the end of July, is a natural move for Atos given its emphasis on growing in the cloud market. The combined organization that will be set up in January 2015 will help Atos augment its cybersecurity portfolio and establish the foundation of its big data capabilities. Atos will be able to start narrowing the gap with competitors that have developed capabilities and client bases in the two segments. Continue reading

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