The cycle of complexity is back as infrastructure vendor portfolio transformations make digitization achievable

Moore’s law economics has reached a point where compute no longer constrains IT automation. Due to the miniaturization of electronics, distributed computing is taking place at the microprocessor board level, as evidenced by the rise of graphics processing units (GPUs) and the resulting hyperconverged infrastructures. As such, refresh cycles no longer consist of replacing old, standardized Intel servers with new variants. Now IT departments look at the cost economics of the traditional standardized servers against the increasing number of compute form factor variants coming to market as purpose-built edge compute instances.

As compute form factors proliferate, there has been a shift in the type of skills IT departments require. Manual taskwork becomes automated. Technical skills have to incorporate more software functionality to operate the various management control planes that can monitor, manage and dynamically provision an enterprise IT instance. Physical IT becomes less relevant based on abstraction, which allows for enterprise IT to reduce the number of primary suppliers. The margin protection for infrastructure vendors will come from the power and simplicity of the abstraction layer, be it PaaS or management, orchestration and provisioning.

The plot thickens when emerging technologies are placed on top of this evolving landscape. Cutting-edge capabilities and the growing need to secure environments are further adding to the complexity of IT infrastructure, as is necessary to achieve desired outcomes. Meanwhile, consumers want to reap the benefits of these emerging capabilities without dabbling in the complexities. Infrastructure vendors will undergo many transformations — in how they partner, in how they go to market, and in how they innovate — to maintain relevance in a rapidly evolving 2019.

2019 Predictions

• In an increasingly open-source world, the power of partnerships grows stronger within hardware-centric vendor strategies
• Innovation will be reimagined by infrastructure vendors, as R&D is shifted to address the overarching demand by customers to leverage their key IT vendor as a one-stop shop
• Emerging infrastructure technologies reshape customer demands, placing increasing emphasis on new ways of computing and managing data

Register for TBR’s webinar The pendulum swings: Customer demands reshape how infrastructure vendors do business, Feb. 6, 2019.

The most telling quote during the two days spent with Atos and Syntel executives came from newly arrived Atos North America CEO Simon Walsh, who noted the company’s struggles with cross-selling IT services prior to the acquisition of Syntel: “We have been challenged in cross-selling based on some capability gaps in our regional services portfolio. Now we have them.” Those last four words say it all: Now Atos believes it has end-to-end IT services capabilities, from infrastructure to applications, spanning all clients’ IT services needs.

The name of the game for Atos is scale

With the acquisition of Syntel, Atos gained substantial applications capabilities in the U.S., along with new clients, new talent and new opportunities to expand. TBR has covered the acquisition in our quarterly full report on the company and a recent blog post. The Dallas event increased our understanding of the acquisition’s impact on Atos overall, including how Syntel brought a missing element to Atos’ North America offerings, allowing the company to now credibly claim end-to-end IT services capabilities at scale. This last point — scale — became a repeated theme from Atos and Syntel executives, who acknowledged that previous acquisitions, such as Xerox’s ITO practice, helped the Paris-based company expand in the U.S. but did not adequately expand its range of offerings. Prior to purchasing Syntel, according to Atos leaders, the company could do a “handful of projects in North America,” but infrequently engage in multiple large projects simultaneously. With the Syntel asset, Atos can now tell its customers it can “do small $1 million deals” and tell Syntel customers it can “go to scale” with them. Atos executives repeatedly said a more complete set of end-to-end capabilities would allow them to assist clients in transforming their IT and broader digital environments at scale. Again and again, Atos and Syntel leaders emphasized that the combination of infrastructure and applications allowed the joined companies to finally provide the needed scale that would accelerate revenue growth.

Atos hosted a dozen analysts and three clients at its Dallas-based Business Technology & Innovation Center for a wide-ranging discussion of the recently closed Syntel acquisition. Over an informal dinner, formal presentations, extensive Q&A sessions, and well-managed one-on-one sessions with various Atos and Syntel executives, Atos provided TBR multiple opportunities to ask pressing questions on various aspects of the deal, including details on the implications for current clients, expectations for Atos North America, and the Atos-Syntel strategy going into 2019.

The first few years of the 5G era will be underwhelming, but the future looks brighter for the telecom industry, especially as Industry 4.0 gains steam

The telecom industry entered a brave new world with the inception of 5G in 2018. Stakeholders industrywide are hoping this newest network generation will provide much needed revenue growth after the prior network generation, 4G, fell short of this goal over the past decade. Stakeholders hope 5G enables Industry 4.0, which will spur revenue generation opportunities for service providers that provide the connectivity layer and value-added services to businesses.

Though TBR agrees Industry 4.0 will ultimately take hold, our research suggests the cycle will start later and take longer to play out than many expect. TBR expects 5G to drive a renaissance in new commercially viable use cases for the network between 2022 and 2025, which will be beneficial in the long run but makes the next few years a continuation of the same challenges the industry has been dealing with, namely a lack of growth prospects and additional margin pressure.

In the interim, communication service providers (CSPs) will focus on cost optimization and will allocate their initial 5G investments to enhancing their traditional connectivity businesses to more cost-effectively support the ever-increasing amount of data traffic coming onto their networks. This cost optimization mindset, coupled with digital transformation ambitions, will lead to an acceleration in spend on NFV/SDN-related initiatives as well as 5G access build-outs, particularly in lead countries.

2019 Predictions

• CSPs justify initial 5G investments for their cost efficiency attributes
• CSPs accelerate network transformation endeavors
• Wireless begins to disrupt the traditional fixed access business model

Register for TBR’s webinar 5G will be an evolution, not a revolution, Feb. 13, 2019.