The IoT market continues to stabilize, with the overall market growing at a moderate accelerating CAGR of 24.8%

TBR projects total commercial Internet of Things (IoT) market revenue will increase from $456.1 billion in 2019 to $1.4 trillion in 2024, a CAGR of 24.8%.

It is important to remember that IoT is a technique for applying technology components, not a technology itself, which leads to certain drivers and inhibitors. Because it is a technique, IoT has an unlimited shelf life. Vendors that invest now and solidify their IoT go-to-market strategy will benefit in the long run. Methods for connecting equipment and solutioning may evolve, but the overarching technique is not going away. However, IoT growth is limited by the components and solutioning that compose the technique, including capabilities, standards and cost. This leads the numerous submarkets and sub-technologies of the IoT ecosystem to experience varied growth.

IoT revenue will accelerate as technological capabilities and standards mature and common solutions appear, culminating in lower cost and complexity.

Graph showing commercial iot market forecast alternative market performance scenarios 2019-2024

TBR believes an emerging growth accelerator is the fact that IoT offerings have evolved from the initial DIY stage to easily integrated components to component kits to, finally, almost complete solutions. At each point in this evolution, IoT becomes less expensive, less burdensome and less risky to customers, while still delivering business benefits. This greatly broadens the market, resulting in market growth and revenue growth for vendors that participate in this evolution.

However, customers remain concerned with the cost of IoT solutions, including the expense associated with transmitting, processing and storing data. The amount of data stored increases as IoT projects remain in operation, and a thoughtful data collection and storage policy is key to maintaining positive ROI.

Inside IBM earnings: Global Business, Technology Services help Big Blue beat Street

We expect IBM to invest in DT sales and delivery talent to improve signings and achieve sustainable and profitable revenue growth.

GBS reported growth of 4.1% in 4Q18 as IBM Services’ technical and industry expertise resonate well with clients, transitioning its pipeline to revenue growth. GTS revenue declined 3.8% during the quarter, following declines in technical support services, offsetting growth from IBM Cloud Private adoption. — Kelly Lesiczka, Research Analyst

Reconsidering TCS’ SWOT assessment: M&A comes alive

In November our detailed report on Tata Consultancy Services’ (TCS) performance and strategy included a SWOT slide with the following item in the Threat category: “Competitors are building assets and scale quickly through acquisitions; TCS retains a conservative M&A stance.” Just a couple of weeks into 2019, we’re seeing a change from the company: a willingness to attack this threat head-on. As noted in our Jan. 10 initial response on the company’s 4Q18 earnings, “TCS’ purchase of London-based digital design atelier W12 Studios will be integrated into TCS Interactive beginning in 1Q19.” BridgePoint, a Georgia-based consultancy, and W12 Studios are TCS’ first acquisitions since 2014, ending a four-year hiatus in M&A for the largest of the India-based IT services majors TBR tracks.

While the acquisitions of BridgePoint and W12 Studios represent a commendable departure for TCS from its traditional aversion to inorganic growth, neither will significantly move the needle for TCS in revenue, added human resources, or market reach. It also remains unclear how much, if any, intellectual property or new client access TCS will obtain from either acquired company. In the digital marketing space, TCS gains no meaningful or material ground on any of its chief peers, particularly Accenture, which generates over $8 billion a year in digital marketing services revenue.

Reflecting these developments, we will update our SWOT slide in the coming full report.

TCS corporate SWOT analysis update for January 2019

We fully expect TCS will continue down the M&A path, particularly in the Consulting & Services Integration (C&SI) and Digital Transformation Services business lines, as both businesses built a war chest for acquisitions and need to enhance their offerings to continue to compete. Our most recent assessment describes the company as having “successfully repositioned, recalibrated and revamped its solution suite to go beyond operations optimization and deliver scalable, digitally based growth and transformation enablement for its global clientele. All of its internal delivery processes have also been completely renovated to support a growing volume of Agile-based projects in the company’s pipeline, while nearly three-quarters of TCS’ workforce has been upskilled in Agile methodologies. Digitally based engagements continue to constitute an ever-expanding share of TCS’ revenue base and order book, driving a strong deal pipeline that is well balanced across multiple geographies and vertical industry sectors.”

Look for our complete analysis of Tata Consultancy Services Feb. 1, 2019.

Services Weekly Preview: January 14-18

As the first quarter of the new year gets rolling, TBR’s Services team will be reporting on IT services vendors’ 4Q18 earnings, evaluating their performance and strategies, and pulling through trends across the entire IT services space.

A recap of TBR’s 3Q18 findings can be found in the IT Services Vendor Benchmark, now available for download in TBR’s Client Portal.

Here’s what’s you can expect this week:

Wednesday: 

  • In 3Q18 we estimated Accenture’s revenue would expand 9.6% year-to-year in 4Q18 due to Accenture’s ability to convert bookings to cash and established delivery frameworks. Seasonal softness and headwinds among Financial Services clients in Europe and U.S. Federal caused bookings to decelerate and consulting book-to-bill ratio to drop under 1, at 0.99, for the first time since 3Q15. Accenture reported revenue growth of 7.3% year-to-year in 4Q18 due to some of these headwinds. However, we expect Accenture’s ability to execute on its consulting-to-operations approach will help it gain traction and expand wallet share among its 182 Diamond clients, including the 13 clients it gained in FY18.
  • In our Accenture Healthcare IT Services report, we note Accenture’s M&A ambitions in the healthcare sector seem to have cooled. Accenture finished 2018 without making a major healthcare-related acquisition, despite large companies, both inside and outside the technology services sector, leveraging M&A to enter the digital healthcare space and accelerate investment in healthcare IT innovation. While a continued robust volume of M&A activity in healthcare IT is expected in 2019 and will only serve to further inflate the valuation of healthcare IT acquisition targets, Accenture’s fiscal health surpasses most competitors’ and it could compete vigorously for these acquisitions. Because Accenture is focused on using M&A to enhance nonhealthcare-related growth initiatives, high-quality healthcare IT and consulting assets are falling into the hands of competitors with aggressive M&A strategies. TBR expects Accenture will stop allowing peers (especially smaller peers) to snatch up high-quality assets, IP and capabilities and will narrow the healthcare IT capabilities gap, as it has done in the digital market space.

Friday: In 3Q18 we estimated Wipro IT Services’ (ITS) revenue would remain flat from the year-ago quarter as weaknesses in core services and solutions offset expansions in the company’s digital business. Wipro ITS’ ability to upsell its clients helped extract additional wallet share from its top five clients; however, the company faces pressure in client retention, as its total number of active clients dropped during 3Q18. We expect these challenges combined with the elimination of Wipro ITS’ data center hosting business will have negatively impacted revenue performance during 4Q18.

Last week TBR rolled out its initial assessment of Tata Consultancy Services (TCS). In 3Q18, based on TCS’ historical conservatism regarding acquisitions, TBR predicted TCS would likely remain quiet on the M&A front in 4Q18: The company “has demonstrated a strong preference for expanding its portfolio and global delivery resources organically rather than through M&A.” Over the last two years (driven by the digital wave), we have observed TCS earmarking free cash flow and investment capital to internal R&D and co-innovation with clients at regional innovation hubs rather than making acquisitions (unlike more acquisitive peers, such as Accenture and Cognizant). However, TCS surprised us with not one but two acquisitions in November: BridgePoint Group (financial services consulting) and W12 Studios (digital and creative design). Given TCS’ four-year hiatus from M&A and that these acquisitions are small-scale and will not impact TCS’ revenue substantially (TBR estimates they will contribute only $10 million to $20 million in new organic revenue annually, compared to TCS’ $20 billion in sales expected in FY19), we do not expect TCS to acquire again until these new assets are fully and successfully integrated. Given TCS’ four-year hiatus from M&A, and even though these acquisitions are small-scale and will not substantially move the revenue needle for TCS (we estimate both companies will only contribute between $10 million and $12 million in new inorganic revenue on an annual basis – TCS will generate over $20 billion in sales in its fiscal 2019), we expect TCS will not make further acquisitions until the newly acquired assets are fully and successfully integrated.  We believe this quiet period could end, however, by 2H19, as TCS is compelled to shed its traditional aversion to inorganic growth to keep from losing more addressable market to peers such as Accenture, which has acquired its way to the top of the digital marketing space. For additional information on TCS, contact Senior Analyst John Caucis at [email protected].

 

In the next few weeks we will issue our initial 4Q18 reports on each vendor in TBR’s Services portfolio.

Intel: Optimizing its scale advantage for Business of One flexibility

TBR perspective

Usually sound business execution of world-class engineering, coupled with world-class monolithic manufacturing, has made Intel a dominant force around which technology businesses have orbited for decades. Intel’s dominance has been baked in the PC and server form factors, while ever smaller price points and form factors have shifted end-customer purchase criteria from computational performance specifications to business outcomes and user experiences.

Intel’s success has broadly expanded IT to address business problems and reshape our personal lives. Intel’s revenue growth prospects have diminished as its innovation has continued to increase the capacity and shrink the form factors and unit cost of its products. Intel delivers mature components that are embedded in mature products. Nevertheless, Intel thrives. The company has made mistakes, though, such as failing to address the mobile market. Intel’s capital- and engineering-intensive business requires it place large bets on its vision of the future. Now, facing waves of innovation in artificial intelligence (AI), Internet of Things (IoT) and processor design, Intel is, in effect, rearchitecting the company to reduce its dependence on the CPU, and thereby expand its market.

The key to Intel’s new architecture is companywide integration. Intel has always had more products and technologies, including video, networking, storage and memory silicon, than CPUs. As silicon becomes more diversified and is embedded in an increasing number of devices, Intel aims to create, along with customers, a far larger variety of solutions, often at a much smaller scale than the company’s monolithic products. To capitalize on the company’s enormous intellectual property, Intel must break down silos within the company. This will result in products that will often benefit from breaking down silos in silicon by facilitating the integration of computation, storage and communications.

The cultural challenge Intel will face will be in orchestrating and timing the various development teams such that the innovation cycles come together in world-class packages of tightly coupled compute, storage and networking form factors to power the smallest of edge compute instances and the largest of the high-performance computing (HPC) instances. The necessary work of rearchitecting the sales and marketing organizations remains for the next CEO, who has not yet been named, but the task is far less daunting than coordinating development and manufacture.

The thread that will stitch together these instances in the multicloud, always-on world of compute will be software. Software made interoperable through a “pruning,” as Intel Chief Engineering Officer and Technology, Systems Architecture & Client Group President Murthy Renduchintala described it, of the existing assets and frameworks into a cogent set of frameworks and tool sets to power innovation and optimize these scaled designs for specific workloads powered by AI is fed by voice and video as much as they have been fed by human interaction through keyboards in the past.

 

Intel Analyst Summit: Intel (Nasdaq: INTC) hosted an analyst event for the first time in four years to outline its technology road maps through 2021 and to articulate the business and cultural changes it believes are necessary for it to capitalize on the growing business opportunity Moore’s Law economics has unleashed. The senior leadership team gave about 50 analysts very detailed and frank briefings under a nondisclosure agreement (NDA), with ample time for follow-up conversations throughout the event.

IT budgets are shifting in HCI’s favor

Infographic discussing TBR's hyperconverged infrastructure research for 2H18

Key findings from TBR’s hyperconverged infrastructure (HCI) customer survey

87% of respondents indicated that they were likely to make their next HCI purchase from their current HCI vendor.

80% of respondents are leveraging HCI for a cloud installment.

68% of respondents cited their desire to purchase hyperconverged directly from teh vendor rather than through channel partners or systems integrators — an increase from 59% in 1H18.

66% of respondents indicated software quality and reliability and 63% indicated hardware quality and reliability were important factors in their HCI purchasing decision.

 

For more information, contact Data Center Analyst Stephanie Long at [email protected].