Strategic investments will pave the way for Fujitsu to grow its Services portfolio and reach, albeit with financial challenges in the interim

By Cassandra Mooshian, Analyst

Pockets of revenue growth were not enough to offset weakened IT services spend globally while the rollout of the Global Delivery organization took a further toll on profitability

Fujitsu’s Services revenue expanded in 3Q14 by 2.7% year-to-year in local currency to ¥648.5 billion, but declined 2.3% year-to-year in USD to $6.24 billion. Revenue decline (in USD) during the quarter was driven by weakened IT services spend on bundled SI and hardware solutions from the public sector as well as an invigorated focus on profitability in the Nordics, which caused Fujitsu to follow in suit of its peers in the IT services space and turn away less profitable contracts or convert them into repeatable cloud transactions. Services revenue grew 11.7% and 9.7% sequentially in 3Q14 in JPY and USD, respectively, as a result of seasonality as well as continued growth in the financial services sector. Fujitsu reported sustained growth in its infrastructure services segment as customers seek third-party assistance with the implementation, integration and management of their increasingly complex, hybrid IT infrastructures consisting of cloud, virtualized and on-premises elements. Continue reading

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Alcatel-Lucent’s Shift Plan restructuring delivered improved margins but lower revenue in 3Q14

By Michael Soper, Analyst

Alcatel-Lucent’s Shift Plan is delivering on its promise of margin growth

In 3Q14, Alcatel-Lucent’s gross and operating margins rose year-to-year for the fifth consecutive quarter, indicating that the Shift Plan is addressing key pain points that have historically kept the company a laggard among its peers. This Shift Plan is helping the company reduce SG&A costs dramatically and transition product lines away from legacy technology. TBR expects Alcatel-Lucent to achieve consistent operating margins of 5% to 6% once the Shift Plan is completed in 2015. Margin growth will continue as IP Routing – which represented 18.3% of total revenue in 3Q14 – increases within the business mix and as headcount reductions are carried out. Continue reading

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Fujitsu’s revenue and profitability deteriorates in 3Q14 as the vendor struggles to differentiate

By Stephen Belanger, Research Analyst

In 3Q14 Fujitsu’s corporate revenue declined 7.2% year-to-year in U.S. dollars to $10.8 billion following two consecutive quarters of year-to-year growth. Operating margin was 2.3% of total revenue, down from 3.4% in 3Q13. TBR believes cost savings stemming from structural reforms implemented in 2013 were unable to offset revenue losses caused by each of the vendor’s key businesses, data center hardware, services and PCs. Double-digit data center hardware and PC revenue declines were the primary causes of the revenue challenges. Continue reading

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Despite a dearth of deal activity in recent months, Samsung Networks continued to grow revenue in 3Q14

By Michael Soper, Analyst

Samsung Networks will need to expand its LTE customer base to continue to drive revenue growth through 2015

Samsung Networks has experienced difficulty expanding its LTE customer base in the past six months. The company did not announce a new LTE customer in 2Q14 or 3Q14, but continues to achieve revenue growth, likely because the company is providing densification and LTE-Advanced solutions such as carrier aggregation to its domestic customers in South Korea as well as others in foreign markets, including Verizon and Sprint. Continue reading

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Booz Allen Hamilton seeks to mitigate U.S. public sector pressure through investment in relatively budget-insulated domestic and international markets

By Sebastian Lagana, Analyst

Booz Allen Hamilton is utilizing improved profitability to facilitate increased capital investment in target growth markets

Booz Allen Hamilton (BAH) announced 3Q14 year-to-year revenue contraction of 5.3%, as double-digit growth in its nascent commercial and international business was offset by across-the-board revenue contraction within its legacy federal business, driven largely by volume declines on existing programs. Despite this, the company’s robust bookings during the quarter, along with a significant bump in funded backlog, point to a potential growth rebound starting in the company’s fiscal year 2016, which kicks off next April. Continue reading

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Ericsson delivered revenue growth in 3Q14 as it reshapes to capitalize on opportunities outside its core telecom market

By Michael Soper, Analyst

Ericsson is navigating its transformation into an ICT provider while continuing to cater to its core customer base

Ericsson is making headway in its ambition to transform into an ICT provider through acquisitions and internal investment in technologies such as SDN and cloud, but the company’s revenue remains driven by communications infrastructure and the services around these products. Ericsson delivered 8.8% revenue growth — its highest since 3Q11 — due to LTE investment in China, new spending on infrastructure and services in India, and 3G investment in the Middle East. Continue reading

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AWS will move from public cloud dominance to hybrid IT atop networking partnerships

By Jillian Mirandi, Senior Analyst

AWS’ public cloud dominance will remain unchallenged — but dictates AWS determine its ‘next act’ to stay relevant long-term

Over the last two months, AWS expanded its partner ecosystem, adding AT&T and Verizon to improve networking and hybrid IT integration capabilities, launched its second EU region in Frankfurt to address data sovereignty issues and introduced Directory Service to integrate on-premises Microsoft Active Directory or set up new, AWS-based directories. These launches highlight AWS’ strategic shift to enter global hybrid IT conversations and willingness to work more directly with large, traditional vendors.

TBR believes public cloud IaaS will be dominated for the foreseeable future by AWS, Microsoft, Google and IBM SoftLayer along with regional players including Alibaba. Public cloud IaaS is a scale game, and one which the aforementioned vendors will win. AWS remains significantly larger than Microsoft and Google in public cloud IaaS revenue, generating an estimated $4.7 billion in 2014, while Microsoft will generate an estimated $156 million and Google an estimated $66 million in the year. (To note, Google Compute Engine was made generally available in December 2013, and Microsoft Azure IaaS in April 2013, giving AWS a six-year head start.) Supported by 90% year-to-year AWS usage growth and over 350 service and feature releases over the last nine months, noted by Amazon executives, TBR estimates AWS generated $1.2 billion in 3Q14, growing 43% from the year-ago quarter. However, continued price cuts, such as the 28% to 51% cuts in April, pressure top-line revenue growth and margins but drive increased usage among customers. Continue reading

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