1Q16 EMEA IT Services Benchmark at a Glance Infographic


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Posted in 1Q16, benchmark, IT services, TBR | Tagged , ,

Lockheed Martin IS&GS’ actions to align with its future parent company drive record margins as the company exits commoditized market areas

By Joey Cresta (joey.cresta@tbri.com), Research Analyst

IS&GS experienced a large margin boost amid its exit from less profitable work to ensure alignment with Leidos’ portfolio

With the Leidos merger rapidly approaching, Lockheed Martin Information Systems and Global Solutions (IS&GS) is focused on becoming a leaner business to ensure alignment with its future parent company. In addition to trimming headcount, IS&GS is ending its more commoditized enterprise IT programs for the U.S. Department of Defense (DOD) and intelligence community. These activities resulted in an 11.3% operating margin in 2Q16, IS&GS’ highest since TBR began covering the company. While we do not believe double-digit margins are sustainable, this indicates IS&GS’ focus on moving into higher-value engagements and letting lower-margin work come off the books. Continue reading

Posted in 2Q16, commentary, earnings release, professional services, PSBQ, TBR, Uncategorized | Tagged , , , , , , , , , ,

Through recent investments around digital platforms and the utilization of partner IP, Wipro is carving a path toward growth improvement

By Deleon Narcisse (deleon.narcisse@tbri.com), Research Analyst

Through successful deployments of organically built IP and cost savings from a refocused business model, Wipro is improving the approach toward transformational IT services delivery

In 2Q16 Wipro grew revenue 5.3% year-to-year and 0.6% sequentially, posting top-line IT services revenue of $1.96 billion. We attribute Wipro’s growth primarily to its ability to develop flexible IT platforms and services offerings that address customers’ transformational IT needs comprehensively, evidenced by contract wins involving the HOLMES artificial intelligence platform and LiVE Workspace offering secured during the quarter. Additionally, the company continues to realign its business structure to improve service delivery capabilities and reduce development costs, demonstrated by the reorganization of the Global Media and Telecom, Manufacturing & Hi-Tech and Retail, Consumer Goods & Transportation verticals during 2Q16. However, despite the growth improvement, we anticipate it will take a few quarters before Wipro can revitalize its growth to match that of peers including TCS (8.1% year-to-year) and Infosys (10.9% year-to-year), as the company must improve differentiation to win larger C&SI and managed services contracts. Continue reading

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Ericsson will double-down on cost reductions as headwinds mount

By Patrick Filkins (patrick.filkins@tbri.com), Analyst

Ericsson will weather a downturn in the radio market by targeting cost reductions

While Ericsson is funneling investment to growth initiatives (cloud, media, OSS/BSS, NFV/SDN, Internet of Things), the company is structured to deliver the majority of its growth and profitability from building networks, a business in decline. Total revenue declined 10.8% year-to-year, driven by across-the-board revenue declines in Ericsson’s subsegments. Ericsson’s Networks segment was impacted particularly hard, declining 14.1% year-to-year as the traditional RAN market is in structural decline. Ericsson recognizes the broader radio market will continue to decline over the next couple years ahead of commercial 5G deployments, which will enable it to sell next-generation radio access hardware at scale. In the meantime, Ericsson announced expanded cost cuts that will enable it to achieve an annual operating expense run rate of SEK53 billion ($6.2 billion) by 2H17. For reference, Ericsson’s 2015 total opex was SEK64 billion. To achieve this, Ericsson notes it will reduce R&D tied to IP research, an area ripe for pruning as it ramps up its partnership with Cisco. The cost reductions are achievable, but Ericsson will also need to accelerate headcount reductions. Continue reading

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Despite vendor-neutrality efforts in GS, IBM IP remains vital to developing differentiated automation capabilities and industry-specific solutions

By Jennifer Hamel (jennifer.hamel@tbri.com), Senior Analyst

IBM’s investments in strategic imperatives continue to pay off, but GBS remains a drag on overall services revenue growth

IBM remains on its slow and steady path to a higher-value services portfolio enabled by strategic imperatives, i.e., cloud, analytics, mobility, social and security (CAMSS). The company continued to shrink the rate of decline in total services revenue in 2Q16, which was virtually flat during the quarter (-0.3% year-to-year), the segment’s best performance since 1Q12. However, decelerating growth in strategic imperatives in both Global Business Services (GBS) and Technology Services and Cloud Platforms highlights the danger IBM faces in shifting emphasis from traditional IT services too quickly, particularly in GBS. Continue reading

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IBM on track to exceed its CAMSS goal and return to revenue growth

By Krista Macomber (krista.macomber@tbri.com), Senior Analyst

Increasing CAMSS contribution to IBM’s revenue in 2Q16 helped mitigate the vendor’s overall revenue decline

IBM’s commitment to restructuring its business to more closely align with evolving customer demands remains strong. The vendor restructured its financial reporting in 1Q16 to better reflect its new structure, and began consistently reporting its CAMSS (cloud, analytics, mobile, social and security) revenues — the key drivers of the company’s transformation. CAMSS now generates 38% of IBM’s total revenue, putting the vendor ahead of schedule for its stated goal of 40% CAMSS revenue contribution by 2018. In 2Q16, IBM maintained its aggressive R&D investments as it rapidly modernized its portfolio through organic development and acquisitions to grow revenue. However, IBM’s revenues from legacy businesses faced more challenges in 2Q16 and, as a result, IBM’s corporate revenue declined 2.8% year-to-year to $20.2 billion. IBM invests for long-term growth through CAMSS, but its profitability was also challenged in 2Q16, with operating margin falling 330 basis points year-to-year to 16.1%. Meanwhile, overall CAMSS revenue increased 12% year-to-year to $8.3 billion, maintaining its strong revenue growth rate and helping to offset legacy revenue declines. TBR believes IBM’s ongoing focus on monetizing its CAMSS initiatives will enable the vendor to quell revenue declines in its overall business by the end of 2016. Continue reading

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VMware’s cloud and software-defined solutions drive growth in 2Q16, indicating the vendor can win in markets beyond server virtualization

By Sanjay Medvitz (sanjay.medvitz@tbri.com), Research Analyst

VMware continues to grow top-line revenue year-to-year but faces ongoing challenges to improve licenses as its traditional virtualization business slows. We believe VMware will be challenged to achieve high-single-digit revenue growth over the next two years as it seeks to offset declining vSphere sales and competes in crowded growth markets for hybrid cloud and software-defined storage and networking. This evolution of VMware products puts the vendor in increasing competition with providers such as Microsoft, Amazon Web Services (AWS), Red Hat and Cisco. Continue reading

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