AT&T’s recent revenue and subscriber growth is a result of its new postpaid offerings

By Eric Costa, Analyst

AT&T increased all subscriber segments in 1Q14, and plans to ride this momentum throughout 2014

AT&T’s 1Q14 results are promising heading into 2Q14, with strong subscriber and total revenue growth. Both the wireless and U-verse subscriber bases continued to gain traction in 1Q14 and will drive revenue growth throughout the year. Although AT&T will struggle to post higher postpaid net additions than Verizon and T-Mobile in 2Q14, the operator will use its strength in connected devices to regain momentum and drive revenue growth over the next five years. AT&T grew total revenue 3.6% year-to-year and added more than 1 million total subscribers in 1Q14. AT&T’s 625,000 postpaid net additions are the highest first quarter net adds in five years, yet TBR believes AT&T will continue to slightly trail T-Mobile for second place in terms of postpaid net additions in 1Q14. Verizon will maintain its dominance in this market with its Share Everything plans and market leading LTE-network. AT&T will achieve revenue growth in the low double digits in 2014 by rapidly deploying the remainder of its initial LTE network, executing Project VIP to improve its network quality and reliability and drawing additional subscribers to its Mobile Share plans. These initiatives will strengthen AT&T’s business and drive higher data consumption, enabling AT&T to better monetize its offerings and gain ground on Verizon, who TBR believes outperformed AT&T in revenue and subscriber growth in 1Q14. AT&T’s strengths are in its connected device and postpaid segments, and the operator will continue to rapidly invest in these areas.

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Unisys is struggling to build momentum, but its planned investments in marketing and services delivery in 2014 will position the firm for growth

By Elitsa Bakalova, Analyst and Jacob Gordon, Analyst

Unisys’ financial performance was under pressure from softening IT services demand as its core ITO and public sector businesses are undergoing significant changes

Unisys’ revenues declined 4.4% due to soft demand for IT outsourcing and exposure to the declining public sector market. Unisys’ services margin was under pressure in 1Q14 from accelerating pricing pressures in its core IT outsourcing business as ITO becomes increasingly commoditized, and was compounded by contract execution issues that led to a year-to-year contraction of 120 basis points to 1.9%. Although Unisys will face an uphill battle improving its revenue performance in 2014, it has established a clear set of objectives to revive growth, including expanding its channel partners, adding sales headcount, broadening its marketing scope and leveraging alliances to bolster its portfolio of higher-margin offerings in cloud and data center. TBR believes Unisys’ focus on enhancing its service delivery through increased automation and standardization as well as its efforts to sell more offerings with Unisys IP will lead to services margin improvement in 2014, excluding the increased spending on marketing and sales it has planned for the year.

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Apple’s 2014 trajectory will be dictated by iPhone as Android OEMs saturate the tablet market

By Jack Narcotta, Analyst

Apple’s revenue and margins are models of consistency, but iPhone and Mac gains are being offset by low-cost Android OEMs undermining iPad

Apple’s 1Q14 results illustrate the degree to which the company can leverage its brand to overcome objections by price-conscious consumers, counter new high-end devices from Samsung, HTC and Lenovo, and outpace the global PC market. In 1Q14 Apple’s revenue climbed 4.6% year-to-year to $45.6 billion in revenue, Apple’s highest-ever revenue for a first calendar quarter, fueled by strong shipments of 43.7 million iPhones and a 5% increase in Mac PC unit shipments at 4.1 million. With consumers continuing to exhibit strong loyalty for Apple’s devices, TBR believes the combination of customer demand and lofty profits — gross margin climbed 180 basis points to 39.3% — will enable Apple to counter a global slowdown in smartphone sales and stoke demand for its products in new regions such as China and India. Continue reading

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Armed with a solidified ‘data center to device’ story, VMware is poised to execute for long-term growth

By Krista Macomber, Analyst

VMware’s investments in the software-defined data center and end-user computing will facilitate expansion across the data center in 2H14 and 2015

VMware kicked off 2014 posting first-quarter revenue of $1.4 billion, up 18% year-to-year excluding Pivotal and divestitures, and operating income growth of 51%, reaching $241 million. VMware’s ability to act as a bridge to cloud environments will enable the vendor to extend its reach out from the hypervisor and across the data center. TBR believes that VMware entered 2014 with a solidified “data center to device narrative,” as a result of its expanding software-defined data center capabilities and formalized end-user computing portfolio and strategy. This narrative coupled with VMware’s focus on leveraging its entrenchment in virtualization to enable seamless access to mobile and cloud-based applications indicate plenty of opportunity in the firm’s pipeline; however, VMware’s ability to expand outside of its server virtualization marketplace will be dictated over the long term by its ability to compete against broader competition in the C-Suite with outcomes-focused messaging. Continue reading

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Xerox’s new services leaders and investments in its channel will position the firm for growth in 2H14

By Jacob Gordon, Research Analyst

Xerox’s challenges implementing healthcare platforms hurt performance, but M&A and productivity enhancements will lead to 2H14 improvement

Xerox’s challenges implementing its new MMIS platform and difficulty ramping up the Nevada healthcare insurance exchange overshadowed its sustained progress in its commercial healthcare and customer care businesses. In 1Q14 the services segment grew 0.1% year-to-year to $2.9 billion and contributed 57% of revenue, a sequential increase of 240 basis points. Although Xerox’s 8.6% margin was less than anticipated, its continued success improving productivity through automation and headcount optimization and the acceleration of its Project Compete initiative to shift high-cost headcount overseas will position the firm for margin growth in 2H14. Xerox’s recent appointment of new services chief Robert Zapfel to execute the firm’s five-plank strategy as well as its two recent acquisitions, Invoco and Smart Data Consulting, will position the firm for 1.9% year-to-year revenue growth in 2Q14. Continue reading

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Alliances and acquisitions remain a key component of Lockheed Martin IS&GS’ push into adjacent and international markets

By Sebastian Lagana, Analyst

Despite realizing losses, the pace of revenue contraction was slower than anticipated during the first quarter of the year

2014 began much the way 2013 ended for federally focused professional services providers, as Lockheed Martin Information Systems & Global Solutions (IS&GS) kicked off earnings season with another quarter of high-single-digit year-to-year revenue contraction. Despite this, IS&GS efforts to expand its position in adjacent and international markets, as well as holding of major sole-source, comparatively budget-insulated contracts such as the Global Information Grid, allowed the company to achieve year-to-year revenue declines of 9.3%, beating the low-double-digit contractions projected for the company in 1Q14. Continue reading

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To meet its 2017 growth targets, SAP will eliminate both internal and customer complexity to drive applications revenue

By Elizabeth Hedstrom Henlin, Senior Analyst

SAP’s focus on “eliminating complexity” for customers reflects SAP’s investments across the last 24 months to improve internal sales and development agility

To galvanize revenue growth and accelerate customer migration from SAP on-premises applications to SAP cloud offerings, SAP will accelerate investment in acquisitions and development that tie SAP applications to simple deployment and high-value features. Growth in SAP Business Suite powered by SAP HANA (1,000 customers since launch 12 months ago) will be a blueprint for SAP in driving customer and partner engagement around a new path to consume SAP applications. TBR believes that a key point of differentiation for SAP in evaluating potential acquisition targets in CY14 will be the ability for SAP to rapidly integrate purchased functionality across multiple products and portfolios.

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