Lenovo optimizes to gain share in a market poised for fragmentation by use case

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TBR perspective

At Lenovo’s Transform 2.0 event, Chairman and CEO Yuanqing Yang (“YY”) laid out the Lenovo strategy crisply in his opening remarks, relying on multiple proof points from analyst firms in the process. The company has been gaining share in a market in the aftermath of consolidation, and it sees nothing but brighter days ahead. The source of Yang’s optimism rests on scale, a traditional lever that has pulled commodity component manufacturing to Asia for decades. How Yang believes Lenovo wins stems from the company’s supply chain best practices, where it can optimize the full stack of compute to serve the full stack of instances on the one hand and create a vast array of endpoint devices for humans and machines alike on the other.

The tight partnership with NetApp (Nasdaq: NTAP) was the biggest news at the event. The venture essentially melds the Lenovo and NetApp product lines in a manner similar to the scale advantage amassed when the former Dell and EMC merged to form Dell Technologies (NYSE: DVMT). The two companies have also created a joint venture in China, with Lenovo having 51% ownership as required by Chinese law, and plan to develop a line of storage products to meet the unique requirements of customers in China while leveraging Lenovo’s scaled manufacturing footprint in region.

Supply chain alone cannot help vendors differentiate, as many past Asian manufacturing giants have come to learn as overlapping channels confused markets and compressed middleman margins in the bygone era of transaction selling. Services selling requires an equally as deft and varied set of commercial offers to fit the financial strategies of the business entities Lenovo targets, and the seeds of these early “as a Service” commercial offering wrappers have been in flight for several years.

Commercial flexibility, while lagging the supply chain competencies, remains far ahead of the professional services wrapper commodity components required in the pivot to selling outcomes or solutions. Lenovo’s partnerships with leading systems integrators will be imperative for enterprise adoption as the business translation and advisory services increasingly relegate the compute and device acquisition to a derived decision.

 

 

Canonical’s growth play: Make customers’ and partners’ lives easier (and more economical)

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TBR perspective

At Canonical’s 2018 Analyst Day, CEO Mark Shuttleworth laid out a very compelling construct for Canonical’s vision of being the link between the operating system (OS) layer and the cloud control planes. Canonical has Ubuntu OS versions to run from the largest high-performance computers with NVIDIA graphics processing units to the smallest device OSes at the heart of offers from niche vendors such as Rigado. Throughout the event, Canonical stressed multicloud interoperability through Kubernetes. The big unknown on the horizon is how to provision infrastructure for edge analytics, which sits at the heart of the strategic relationship Canonical has with Google Cloud as Google donates Borg to ensure Kubernetes does not challenge Borg the way Hadoop forked from MapReduce.

Existing virtualization economics has stalled, with premium pricing models emerging from the major and better-established competitors Red Hat (NYSE: RHT) and VMware (NYSE: VMW). The Canonical play further compresses the economics of the infrastructure abstraction and OS components, where parts will be provided for free and the services and update provisions will become the basis for the monetization model. Akin to how free Android disaggregated the device OS space and gained share against Microsoft, Canonical bets on market projections showing devices used/owned per person growing from two to three devices today to as many as 20 devices within the next five years.

It is from this vantage point that one open-source Linux distro, Canonical’s Ubuntu, was taking direct competitive aim at another (Red Hat), while likewise suggesting VMware’s time as the market maker would quickly start to fade as more and more app modernization efforts move code from virtual machines (VMs) into lightweight Kubernetes containers (clusters).

 

Canonical hosted its 2018 Analyst Day in New York City on Sept. 20, 2018. The event featured presentations from the top leadership at Canonical, including Shuttleworth, Finance Director Seb Butter, SVP of Global Data Centre Sales Jeff Lattomus, and VP of Global Sales, IoT & Devices Tom Canning. Canonical focused on business and go-to-market updates as well as key presentations by partners, such as Paul Nash from Google Cloud, outlining how Canonical has accelerated or added value to their businesses. At this year’s event, there was a noticeable blurring of the lines between cloud and IoT discussions in comparison to years past where there were more definitive tracks. Regarding both Canonical’s own strategy and its conversations with customers, it is exceedingly difficult to have a discussion about one and not the other, which is reflected in the broader IT landscape as of late.

Federal initiatives around IT modernization translate to revenue growth for public sector services providers

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Growth opportunities across defense and civilian agencies uplift vendor performance

The results of TBR’s 2Q18 Public Sector IT Services Benchmark demonstrate clear top-line benefits for services providers as government agencies accelerate IT modernization initiatives. Revenue for the 16 benchmarked vendors improved 5.3% year-to-year, which does not even factor in General Dynamics IT essentially doubling in size through its acquisition of CSRA. Including the impact of the acquisition, revenue grew 13.5% from 2Q17.

 

Industry consolidation remains a prevailing theme in the market as the near-term opportunities tied to U.S. federal budget growth and the pursuit of innovation create a sense of urgency for vendors to capitalize. Scale advantages, complementary capabilities and broadened customer relationships make consolidation a compelling tool to facilitate near-term deal capture. Consolidation will remain a prominent strategic concern, evidenced by the announcement after the close of 2Q18 that SAIC (NYSE: SAIC) plans to acquire Engility (NYSE: EGL). However, in the long run, TBR anticipates the importance of scale will diminish as rapid technological change disrupts legacy business models.

TBR believes that the door is open for industry stalwarts to be disrupted if they elect to ignore the prevailing signs that the federal government, in particular the U.S. Department of Defense, seeks change in how it procures and fields technology.

 

TBR’s Public Sector IT Services Benchmark examines the key strategies, investments and performance metrics of leading government consultants, systems integrators, and IT and professional services providers. The benchmark examines 16 vendors across three groups: services units of aerospace and defense firms, U.S. federal government pure play vendors, and public sector verticals of commercially led IT services companies. We mix qualitative analysis of key investments and strategic initiatives with quantitative analysis of financial performance to uncover the drivers of business success for vendors that offer services to government customers.

Telecom vendor revenues trend upward as operators pull forward 5G investment

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According to Technology Business Research, Inc.’s (TBR) 2Q18 Telecom Vendor Benchmark, revenue growth improved for the largest vendors as they capitalized on early 5G investment but saw reduced spend in China. Operators, particularly those in the United States, are pulling forward investment in 5G and deploying small cells to densify networks. However, the RAN market will decline in 2018 as operators in China reduce spend significantly following the conclusion of LTE coverage deployments.

TBR believes Ericsson has staked an early lead in 5G, but Nokia (NYSE: NOK) and Huawei can leverage their end-to-end portfolios to regain share. In 4Q17 and 1Q18 Ericsson (Nasdaq: ERIC) aggressively priced its Ericsson Radio System (ERS), which is software-upgradeable to 5G, undercutting competitors to gain market share ahead of commercial 5G build-outs. Nokia and Huawei remain well positioned in 5G due to their ability to leverage end-to-end portfolios as a one-stop shop for network transformation in the 5G era.

ZTE was banned from sourcing components from the U.S. for part of 2Q18, which drove the company to essentially cease operating, leading to drastically lower revenue and a deep operating loss. The company is once again operating, but its reputation was tarnished, particularly in Western markets.

 

 

TBR’s Telecom Vendor Benchmark details and compares the initiatives and tracks the revenue and performance of the largest telecom vendors in segments including infrastructure, services and applications and in geographies including the Americas, EMEA and APAC. The report includes information on market leaders, vendor positioning, vendor market share, key deals, acquisitions, alliances, go-to-market strategies and personnel developments.

Increased market clarity drives 16.1% year-to-year growth in commercial IoT revenue

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Technology Business Research, Inc.’s (TBR) 2Q18 Commercial IoT Benchmark recorded revenue growth of 16.1% year-to-year, to $10.3 billion, in 2Q18, among the 28 IT and operational technology (OT) vendors we benchmark. The revenue growth is largely a result of continued implementation of Internet of Thing (IoT) and growth of installed IoT solutions.

The dousing of rampant IoT hype, which only served to confuse and overwhelm customers and vendors, is helping drive the growth of installed IoT solutions. As the hype dies out, a wave of increased clarity and maturation is forming with vendors rationalizing their go-to-market strategies and messaging, leading to customers better understanding how to apply IoT and vendors learning how to assemble solutions. Packaged solutions are emerging as vendors cooperate, focusing on their strengths, and assemble components sets that solve verticalwide challenges. TBR believes these factors are driving tactical business-focused IoT projects to supersede overambitious projects stuck in proof-of-concept limbo.

However, while easier than in the past, IoT design and implementation are still a challenge. TBR does not expect a huge explosion of revenue beyond midteen growth going forward.

Total 2Q18 commercial IoT benchmarked gross profit increased 16.6% year-to-year to $5.1 billion. Reduced complexity in IoT due to increased knowledge around building and applying IoT as well as the streamlining of portfolios as a result of increased partnering is improving vendor profitability. Also, vendors are leveraging specialized tools, such as artificial intelligence (AI), to justify higher pricing.

 

TBR’s Commercial IoT Benchmark highlights current commercial IoT revenue and gross profit for vendors. TBR leverages financial models and projections across a diverse set of IT and OT components. Additionally, the benchmark outlines the major vendor drivers and trends shaping the market.

Ending consulting roulette: BXT evolves from grand idea to engaged approach

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Aspirational ideas while executing on BXT

Flight delays and cancellations spark anger in travelers and cost the airlines, in both revenue and brand, making predictive maintenance an easy sell to airlines looking for help. Delivering on the promise of being able to predict when a plane needs to be serviced, the positioning of the necessary technicians and parts, and how to best streamline, analyze, and improve the entire process requires an intricate understanding of an airline and its operating environments, the disparate data sets, and the regulatory complications requiring strict compliance. Most importantly, a consultancy needs to bring trust — deep, proven and sustained levels of trust — something PwC explicitly maintains it delivers, as the firm has stated, “We trade in earned trust.” PwC’s airline-based predictive maintenance case study demonstrates the firm’s ability to attack a client’s business problem, understand the user experience and apply a technology-infused solution, in addition to highlighting three of PwC’s current strengths: 1) earned confidence that the firm understands clients’ industry, regulatory and business intricacies, 2) client expectation that the firm will bring “aspirational ideas,” not simply routine consulting suggestions and solutions, and 3) evidence that the firm’s Business, Experience, Technology (BXT) approach has grown from a well-conceived goal to a functioning, well-engrained way of doing business.

 

Over two days, PwC hosted 50 analysts in its New York City offices, providing opportunities to meet PwC leaders and consultants from nearly every aspect of the firm’s advisory practice. In contrast to recent events, PwC opted to hold its Global Analyst Day sessions in somewhat traditional office spaces, rather than one of its dedicated Experience Centers, subtly reinforcing the message that its BXT approach permeates the entire firm and is not something that is practiced only at special locations. In addition, PwC discarded the traditional analyst day playbook, instead requiring attending analysts act as consultants while PwC professionals acted as clients, giving the analysts a better feel for PwC’s challenges and solutions.

Digital transformation, which encompasses new business models and network architectures, drives demand for TIS

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According to Technology Business Research, Inc.’s (TBR) 2Q18 Telecom Infrastructure Services (TIS) Benchmark, the TIS market grew as digital transformation continued to fuel demand for services that accompany business model evolutions and the implementation of new network technologies, including 5G and NFV/SDN.

The complexity of new network architectures and the interoperability challenges they create have been a boon for professional services revenues, particularly those of IT services firms. A broad range of professional services are required to help operators transform into digital service providers, including consulting, network planning, design, optimization, systems integration, training services, security services and interoperability testing, among other services, all of which are in high demand. TBR estimates the TIS professional services market grew 6% in 2Q18.

TBR’s Telecom Infrastructure Services Benchmark provides quarterly analysis of the deployment, maintenance, professional services and managed services markets for network and IT suppliers. Suppliers covered include Accenture, Amdocs, Atos, Capgemini, CGI, China Communications Services, Ciena, Cisco, CommScope, CSG International, Ericsson, Fujitsu, Hewlett Packard Enterprise, Huawei, IBM, Infosys, Juniper Networks, NEC, Nokia, Oracle, Samsung, SAP, Tata Consultancy Services, Tech Mahindra, Wipro and ZTE.