General Dynamics IS&T is improving profitability through efficiency initiatives and an evolving portfolio mix

By Sebastian Lagana, Analyst

General Dynamics IS&T’s U.S. Army exposure is resulting in steep revenue declines, but efficiency initiatives are improving margins

General Dynamics IS&T faced strong headwinds during 2Q14. Expected tepid demand from U.S. Army clients weighed heavily on results, driving a 15.2% year-to-year revenue contraction. Despite this steep decline, a growing backlog of new business enabled IS&T to improve guidance tendered at the outset of FY14 by 500 basis points. Despite this improved outlook, new guidance for a full-year revenue contraction of 15% implies double-digit year-to-year revenue declines in 3Q14 and 4Q14. Continue reading

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EMC is switching portfolio gears to capitalize on data-driven disruption

By Krista Macomber, Analyst

As EMC’s federated businesses make strides in targeted growth initiatives, long-term success will depend on careful go-to-market execution

The EMC federation reported record second-quarter revenue of $5.9 billion during 2Q14, representing an increase of 4.7% over the year-ago quarter. Each of EMC’s federated businesses — EMC Information Infrastructure (EMC II), VMware, Pivotal and RSA — achieved growth, indicating success in evolving their portfolios and executing around selling cross-federation solutions to maximize opportunities emerging in the transition to big-data-centric and cloud-enabling IT infrastructures. However, increases in cost of goods sold and SG&A and R&D expenses outpaced top-line gains, driving operating margin down 330 basis points year-to-year to 14.9%. Particularly as EMC II endures a period of revenue transition away from legacy high-end hardware, TBR expects the EMC federation’s bottom line to remain pressured over the next 12 months. EMC II CEO David Goulden underscored that executing alongside partners around cross-federation, customer-centric solutions is critical to maximizing opportunities. For an organization with a historic focus on technology speeds and feeds and entrenched in the IT department, execution bears watching. Continue reading

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VMware is cross-selling its way into end-to-end IT management credibility

By Krista Macomber, Analyst

VMware will sustain double-digit revenue growth and inch toward operating margin stability by capitalizing on mobile and cloud industry disruptors

VMware’s focus on diversifying its revenue base in an evolving and competitive server virtualization marketplace enabled the vendor to achieve in 2Q14 its highest year-to-year revenue growth since 4Q12. Under its coalescing “device through data center” management narrative, VMware continues to make strides in leveraging its vSphere installed base as a jumping-off point to incrementally increase installed base share of wallet with newer offerings. These cross-selling initiatives enabled VMware to grow its corporate revenue by a reported 17% year-to-year to $1.5 billion, but they came at the expense of the bottom line. Largely hindered by its January acquisition of enterprise mobility management (EMM) provider AirWatch, its largest acquisition to date, VMware’s operating income fell 26% year-to-year to $200 million during 2Q14. As VMware incrementally monetizes portfolio investments — notably those within its End User Computing (EUC) and vCloud Hybrid Service (vCHS) offerings — TBR believes VMware’s bottom line will begin to stabilize during 2015. Continue reading

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Unisys is facing challenges in its shift to the cloud, although its clear strategy to address the obstacles positions it for a successful transition

By Elitsa Bakalova, Analyst, and Jacob Gordon, Research Analyst

Unisys’ services revenue is under pressure from the shift to cloud-based solutions and the change in the systems integration market toward smaller contracts

Unisys’ services revenues declined 3.6% year-to-year in 2Q14 due to the shift toward cloud-based solutions eroding demand for the company’s infrastructure services offerings and the change in the system integration market toward shorter-term projects. Unisys’ services margin was flat on a year-to-year basis and grew 210 basis points sequentially in 2Q14 driven by the transition of some offerings to cloud-based delivery models and growing channel sales, which carry higher margins. Unisys faces significant challenges going forward in its transition to a cloud-focused software and services provider due to the firm’s lack of progress adding talent with cloud skills and its dearth of proprietary software offerings. Despite the obstacles ahead Unisys has a clear strategy to reignite revenue growth including investing in IP to bolster its cloud portfolio, expand its channel partner network and boost investment in marketing to raise market awareness around its marquee solutions such as Stealth. Unisys is also implementing a strategy to achieve sustainable margins in the 8% to 10% range by consolidating its non-U.S. federal services businesses into one organization, rationalizing its services portfolio, continuing the shift toward cloud-based delivery models and moving its headcount to low-cost locations. TBR believes Unisys’ position as a leading public sector cloud services provider and strong services offerings for the air transportation and mortgage segments will carry the company through this difficult period, allowing it time to transition to become a next-generation IT services provider. We believe it will take at least two years for Unisys to see demonstrable results from its restructuring efforts. Continue reading

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One-Juniper is working, but network virtualization and aggressive competitors are impediments to Juniper’s long-term growth

By Scott Dennehy, Senior Analyst

Juniper will capitalize on revenue opportunities in its core customer base by sharpening its focus on high-performance networking

Juniper’s year-to-year revenue growth of 6.8% in 2Q14 was driven by strong performance in the Service Provider segment (up 14.6% year-to-year), as customers around the world invested in the company’s routing and switching products to alleviate bottlenecks, simplify their networks and deliver new services. However, Juniper’s total revenue growth was hampered by a 6.4% year-to-year decline in the Enterprise segment, although the decrease was in relation to an exceptionally strong 2Q13 in which the company recognized $34 million in previously deferred revenue. Not including the deferred revenue, Juniper’s enterprise business grew 2% year-to-year and total company revenue grew 10%. Continue reading

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Verizon re-established itself as the leader in the postpaid market with 1.4M net additions following a weak 1Q14

By Eric Costa, Analyst

Verizon’s shared data plans and rapid LTE device adoption will propel industry-leading wireless revenue and subscriber growth through 2H14

Verizon’s 2Q14 marketing of XLTE, FiOS and its More Everything plans resulted in accelerated total revenue growth of 5.7% year-to-year. Verizon recovered from weak postpaid net additions in 1Q14, posting 1.4 million postpaid net additions in 2Q14 due mostly to 1.2 million tablet net additions. Tablets continue to outperform traditional phone subscribers, signaling that a shift toward connections rather than just phone subscriptions is well underway. This strong performance will help Verizon vie for the lead in postpaid subscribers over AT&T and T-Mobile. Verizon will lead AT&T in margins, revenue growth and postpaid subscribers in 2Q14 and will use this momentum to maintain the lead in LTE subscribers throughout 2H14. Continue reading

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Bitcoin edges closer to mainstream legitimacy through Dell’s support

By Krista Macomber, Analyst

Noting customer demand for payment flexibility and reduced processing fees, Dell backs bitcoin to expand its customer base

As of Friday, July 18, Dell is the largest company to accept digital peer-to-peer payment system bitcoin, with the PC giant accepting the currency as a payment method for consumer and SMB purchases in the U.S. Although supporting bitcoin will help Dell expand its customer base in the consumer and SMB sectors by providing a wider selection of payment methods, TBR believes the announcement will have a larger impact on the mainstream legitimacy of bitcoin currency. Continue reading

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