Acquiring to expand in IoT: Capgemini, Altran and Engineering/Industry 4.0

The Altran acquisition will develop Capgemini’s OT capabilities and improve its ability to compete in segments such as IoT and edge computing

The acquisition of Altran, announced on June 24, will expand Capgemini’s engineering and R&D services capabilities and complement the company’s established consulting and IT capabilities. Capgemini is positioning as an “intelligent industry” vendor that can provide solutions around Engineering 4.0 and Industry 4.0. and expand in smart technology-driven segments such as IoT, AI, 5G, cloud, edge, data and cybersecurity. While Capgemini has well-established IT expertise and digital transformation (DT), design and innovation consulting capabilities, as evidenced in Capgemini Invent, the company will gain Altran’s operational technology (OT) capabilities, which are a key component in IoT models (see TBR’s special report IoT is trending toward smaller, easy-to-replicate projects that will generate increased data over time).

TBR notes that Capgemini is catching up to some of its peers in IoT. For example, Capgemini’s direct competitor Atos already has a history in OT due to its acquisition of Siemens’ IT Solutions and Services business and global strategic alliance with Siemens AG, giving it a head start in IoT. Atos increased its investment in ongoing joint efforts with Siemens in IoT, and in May Atos launched the BullSequana Edge server, which manages data at the edge and can be used securely for IoT environments. But in February Capgemini partnered with AR solutions provider Idemia to develop an IoT device management platform that strengthens the security and connectivity of devices and data. The platform will be based on Capgemini’s IoT device management platform X-IoT, which securely connects and manages cloud gateways and protocols, and on Idemia’s M-Trust solution.

The acquisition of Altran, which is expected to close at the end of 2019, will add 47,000 employees and provide Capgemini with access to key decision makers and technology budget holders around intelligent industry solutions. While Capgemini already has reach with IT and business leaders, Altran will grant access to leaders in manufacturing, supply chain and engineering R&D.

Voice, business and device design: For business, smart speakers need a button

The expanding scope of conversational user interfaces

There are many applications for conversational interfaces in business, for both customer and employee users. Input devices include not only smart speakers but also phones, PCs and vehicles. The conversational interface also works without voice; for someone at a keyboard, typing the command is easier, faster and less disruptive than speaking it.

Conversational interfaces offer benefits far beyond hands-free operation. Users need not remember specific applications and commands, but rather the interface can suggest a possible meaning of what the user has asked or can say it does not understand and users can then rephrase and try again. This reduces the burden on the user to learn how to make a command and thereby expands the number of commands available. For some commands, like making an appointment, speaking or typing a command in natural language is far easier to use than any point-and-click or touch-and-swipe interface.

Additionally, when there is a wide range of possibilities from which to select, the conversational interface is supreme. The user need not remember the exact name of the item. Naming the item as the user remembers it, and then correcting as necessary, is far easier than any of the conventional user interface tools for choosing from many possibilities, including hierarchical menus, scrolling lists and incremental search. Items include names of people as well as names of songs, television shows or podcasts for consumer applications along with products, regions, or variables for business users. A well-implemented conversational user interface can make it very easy for businesspeople to query a complex database, and they can do it using a smartphone. Widespread adoption of conversational interfaces in business will drive up the value and utilization of data, leading to more applications that create potentially valuable data.

As conversational user interfaces evolve, they are becoming more powerful. Currently, the popular consumer voice interfaces process user input on servers, so each conversational interchange requires a round trip between the user’s device and the cloud. As devices become more powerful and conversational software improves, there will be a migration of voice processing from the cloud to the edge. Google (Nasdaq: GOOGL) has announced that the next generation of Google Assistant will process requests on the Android smartphone, starting with the company’s Pixel phone. Google claims this change will improve responsiveness by a factor of 10, and will allow a richer vocabulary of commands, more complex back-and-forth dialogues between the user and the device, and greater adaptation of the interface to the needs of each user. TBR believes this local processing will leverage AI capabilities built into the devices and, in the case of the Google Pixel, will use Google’s Edge TPU, the mobile version of the company’s server-oriented Tensor Processing Unit (TPU). With increased power and better security and privacy, this migration of processing to the edge will drive growth of business applications.

IoT is not a technology or a market, but it certainly drives revenue

TBR estimates the contribution of commercial IoT to the overall IT market will increase from $456.1 billion in 2019 to $1.7 trillion in 2025, a CAGR of 24.9%. IoT is not a technology or a market, but a technique for applying IT components, made more relevant by the increased ease of connecting sensors and collecting and processing data. It serves as a tool in the larger toolbox of traditional IT solutioning. As vendors and customers move beyond the stigma that IoT is exotic, untested and expensive and begin to understand that IoT is just an iteration of everyday IT solutioning, IoT is being implemented at an increasing rate, albeit slowly and steadily. While these projects are generally smaller, as customers leverage IoT to solve targeted problems and prove ROI, they are set to grow over time and expand into parallel projects, contributing long-tail revenue to vendors that are amenable to projects that are smaller in scope.Dan Callahan, Analyst (See his special report here.)

Additional assessments publishing this week from our analyst teams

TBR’s 2Q19 Hewlett Packard Enterprise (HPE) initial report dives into the recent infrastructure-centric developments within HPE. This particular report will discuss in detail HPE CEO and President Antonio Neri’s pledge to offer everything “as a Service” by 2022 and the ongoing cloud-centric developments the organization has been making to better address the needs of digital transformation. Edge computing is another focus of the vendor, which TBR will touch upon in the initial response and examine more deeply    in the full report. Stephanie Long, Analyst

Leveraging acquisitions to strengthen vertical expertise and product offerings improves HCL Technologies’ (HCLT) competitive position relative to peers. HCLT benefits from the addition of market expertise as well as headcount to support its transformation initiatives. Through inclusive training programs, HCLT equips its existing employees to work with digital technologies in the vertical areas.
Kelly Lesiczka, Analyst

Partnering with technology-led vendors enhances growth segments and will help T-Systems generate revenue growth. However, as the company is slow to reorganize and adopts IFRS 16, profitability continues to struggle. Lesiczka

DXC Technology reinvests savings from automation and facility rationalization to help fund the costs related to attracting and retaining higher-value resources skilled in industry, consulting and/or emerging technology areas. We expect substantial inorganic revenue boosts beginning in 3Q19; however, margins will be pressured in the short term as integration costs mount from the Luxoft acquisition. Kevin Collupy, Analyst

5G benefits in healthcare industry

The 5G network will augment the facilities in healthcare, however, according to technology business Research’s Antlitz, CIOs should not consider telemedicine as a ‘low hanging fruit’.

“5G can revolutionize healthcare from that perspective,” commented Antlitz. “It’s basically just video conferencing. It’s a real-time, high-resolution, no buffering type experience that you can’t get with 4G.”

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HCLT sets strategy; makes smart move to software

HCLT’s recent acquisitions will develop software services and consulting capabilities, enabling the firm to evolve its strategy to better compete in the dynamic IT services market

At the end of June, HCLT finalized its acquisition of IBM Software products (analysis and details of which can be found in our most recent full report on the company). We believe HCLT is taking the right approach as it develops a dedicated software business unit, as opposed to transitioning corporate culture, sales models and brand identity from an outsourcer toward a software-centric organization, a strategy pursued by Infosys that resulted in culture clashes and conflicting company visions. There are bright spots in developing software products and offerings with a vertical orientation. For example, Infosys’ Finacle platform and Tata Consultancy Services’ BaNCS solution enable both firms to generate banking processes and system transformation engagements that propel financial services revenue. HCLT’s launch of HCL Software as a small business unit will help the company offer products and enterprise software without shifting the entire organization’s vision but still reaping the benefits of an increase in managed services opportunities tied to license and subscription-based revenues around the new products. HCLT is also better suited to bundle its legacy IT and emerging technology offerings using its product-focused sales staff.

In addition, the acquisition of Strong-Bridge Envision will help HCLT strengthen its advisory services. However, TBR believes the company may want to further develop its ability to guide digital transformation projects, pursuing a partnership with an established consulting brand such as PwC or EY. The additional advisory services improve HCLT’s ability to market its software portfolio while folding in offerings that address client demand for business process transformation offerings.

In a messy, transitioning and highly competitive IT services and software market, we think HCLT has been making smart moves to evolve its strategy. As 2019 winds down, we will continue looking at the company’s progress against peers and within the broader digital transformation landscape. 

Embedding multicloud and software-driven services in portfolios helps vendors execute on strategy, expand addressable markets

Google Cloud revenue surpassed the $2 billion mark in 2Q19, doubling in size in six quarters. Under the guidance of CEO Thomas Kurian, Google Cloud is improving its enterprise appeal by launching its multicloud management tool set, Anthos; leveraging acquisitions to build out its migration, storage and analytics capabilities; and expanding its global sales and delivery capacity. Similarly, Salesforce complements internal innovation around solutions such as Customer 360 with ongoing acquisition activity and investment in its partner network. TBR estimates the vendor attained $3.95 billion in revenue as sales teams expanded single-product customer engagements, many of which are led by Service Cloud, into multiproduct deals.

Additional assessments publishing this week from our analyst teams

Capgemini continues to gain momentum in cloud services, with cloud revenue driven by offerings in the Capgemini Cloud Platform portfolio, which supports clients when building, migrating and managing applications and infrastructures in cloud environments. By delivering a cloud-first option, Capgemini enables enterprise and public sector clients to become agile through offerings related to data center modernization, cloud-native solutions, application modernization, intelligent applications, and emerging technologies such as IoT, blockchain and AI. Offering each client its entire portfolio enables Capgemini to provide holistic transformational solutions and effectively compete with peers. Elitsa Bakalova, Senior Analyst

TBR’s Public Sector IT Services Research practice will publish its 2Q19 ManTech report this week.  With top-line revenue expanding 9.4% year-to-year to $537 million, ManTech should be one of the top-performing vendors in 2Q19 in terms of sales growth. ManTech’s top-line expansion owes largely to accelerating spend among classified customers in the Department of Defense (DOD) and Intelligence Community that are increasingly engaging ManTech to enhance warfighting capabilities across all domains, but particularly in space and cyber. ManTech’s addressable market is set to expand and diversify into the civilian sector as the integration of Kforce Government Solutions (KGS) continues. KGS will add 500 employees with large-scale IT infrastructure modernization and transformation expertise, primarily with the Department of Veterans Affairs, to ManTech, while contributing roughly $100 million in revenue (based on revenue of $98 million reported by KGS in 2018). Inorganic sales will largely accrue in ManTech’s Mission Solutions and Services segment, where the core customer focus is the DOD, the Department of Homeland Security and federal health agencies. Look for TBR’s 2Q19 Perspecta report next week, as we examine how the company is leveraging its R&D-led approach to maintain its growth momentum as it begins its second full year as an independent, federal IT competitor. John Caucis, Senior Analyst

Weakness in Cognizant’s core industry segments overshadowed increased growth in digital in 2Q19. The company’s ability to rapidly scale its digital revenue will be key to offsetting this weakness, specifically in Financial Services and Healthcare. In the near term, Cognizant must emphasize cross-sales of acquired assets, such as Zenith Technologies, within its existing and acquired install bases. Kelly Lesiczka, Analyst

IBM’s play post-Red Hat deal: Dominate ‘Chapter 2 of the Cloud’

IBM will use OpenShift to bring a consistent cloud value proposition, remaining agnostic toward delivery method, location or cloud provider now that it has acquired Raleigh-based Red Hat.

In 2015 Red Hat’s CEO Jim Whitehurst made a statement at an analyst day presentation that Red Hat aimed to do to the PaaS [platform as a service] layer with OpenShift what it had done to the enterprise operating system layer with RHEL [Red Hat Enterprise Linux].

That strategy was thoroughly validated with IBM’s $34 billion acquisition of Red Hat, a deal that recently closed.

At the core of the recent IBM Cloud Summit were discussions of how OpenShift was the only platform layer capable of running on multiple clouds, in what IBM describes as hybrid multicloud. In IBM’s definition, hybrid denotes the ability to run applications on premises, in private clouds, in public clouds and at the edge. — Principal Analyst and Practice Manager Allan Krans

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Why license when you can buy? Salesforce to acquire ClickSoftware

After 3-plus years of licensing, Salesforce intends to acquire ClickSoftware to augment Field Service Lightning

One week after Salesforce completed its acquisition of Tableau, the vendor announced its intent to acquire ClickSoftware, a field service management solutions provider, for $1.35 billion. ClickSoftware is a practical acquisition target for Salesforce; the vendors have been partners since 2016 and Salesforce licensed ClickSoftware’s field service scheduling and optimization technology to build Salesforce Field Service Lighting. Once the acquisition closes, Salesforce would integrate the remaining capabilities from ClickSoftware’s flagship product, Click Field Service Edge, such as demand forecasting and contractor management, into Field Service Lightning. These additional capabilities would better enable Salesforce to fulfill customers’ field service needs, particularly those of enterprises to manage the scheduling and dispatching of large field service employee bases.

Field Service Lightning is part of Salesforce’s Service Cloud, which exceeded $1 billion in revenue for the first time in 1Q19. TBR expects Service Cloud will surpass Sales Cloud as Salesforce’s largest revenue driver this year. Based on the inflated value of technology companies, ClickSoftware’s revenue contribution to Service Cloud would likely be marginal. Rather than acting as a catalyst for Service Cloud’s revenue growth, ClickSoftware would fill capability gaps in Salesforce’s soon-to-be flagship offering. Why would Salesforce make this acquisition after a four-year-long successful partnership in licensing ClickSoftware’s technology? Well, that licensed technology would become part of the foundation for Field Service Lightning. If a competitor was looking to purchase ClickSoftware’s technology, it could leave an unexpected gap in Salesforce’s portfolio following a fast breakup between the two vendors. So, why not get hitched and make sure no one else takes ClickSoftware off the market?

Salesforce’s front-office portfolio will help the vendor fend off competitors in the field service space

Augmenting Field Service Lightning with the remainder of ClickSoftware’s technology will better enable Salesforce to compete with vendors such as Microsoft, SAP and most notably Oracle. In 2016, when Salesforce first launched Field Service Lightning and partnered with ClickSoftware, Microsoft, SAP and Oracle were acquiring around field service. Since then, each vendor has developed a field services value proposition. For Microsoft, field service is a module within its Dynamics 365, where the vendor also offers AR apps and HoloLens devices that can be utilized by field service workers. Oracle and SAP are leaders in the ERP market but are complementing their field service applications with growing front-office and service-related SaaS offerings. However, a broader and more deeply integrated front-office portfolio would help Salesforce fend off competition, particularly if it integrates a field service leader into its arsenal.

Acquisitions help European-heritage vendors Atos and Capgemini continue expanding in North America and globally

Atos is preparing to accommodate the explosion of data across enterprises by effectively managing, storing, securing and analyzing data. Revenue and cost synergies from the Syntel acquisition will enable Atos to achieve its financial goals in 2019. Newly established relationships with technology partners, the release of new product offerings that support edge and quantum computing, and the planned acquisition of IDnomic in cybersecurity will improve Atos’ ability to deliver business outcomes to clients through next-generation technologies and  sustain the company’s growth through 2020. Atos Europe-based rival Capgemini is reaping the rewards of its strategic expansion into next-generation and industry-specific solution areas, as evidenced by sustained midsingle-digit organic revenue growth over the past several quarters and an increase in digital and cloud revenue as a percentage of total revenue, from 45% in 1H18 to 50% in 1H19. The planned acquisitions of Altran and KONEXUS Consulting Group will solidify Capgemini’s ability to deliver digital transformation to industrial and energy & utilities clients and expand its reach across clients’ C-Suite, increasing its access to budget stakeholders. Portfolio expansion and bookings growth with technology partners such as Amazon Web Services and Microsoft will enable Capgemini to maintain its digital and cloud momentum and modernize its applications development and maintenance services portfolio to sustain growth in Application & Technology, which accounted for 71.1% of revenue in 2Q19. — Elitsa Bakalova, Senior Analyst

Additional assessments publishing this week from our analyst teams

Utilizing partners and leveraging emerging technologies enabled Cisco Customer Experience to maintain profitability and generate growth in 1Q19. As the company continues to invest in its portfolio to offer a broader range of software-driven services, such as for security solutions, and leverage its partner network to support the development of emerging technologies and delivery, we expect revenue growth will improve in 2H19. — Kelly Lesiczka, Analyst

Fujitsu Services’ portfolio investments such as for cloud and hybrid IT are evolving, but an increased pace of restructuring and new branding initiative would further sustain growth. Fujitsu continues to update North America and Europe sales operations to drive productivity and adoption around new portfolio offerings, which will help the company offset challenges within its legacy business. — Kelly Lesiczka

AT&T is becoming a more profitable company despite market saturation, competitive challenges and shifting consumer trends limiting subscriber growth. AT&T’s Entertainment Group and Mobility EBITDA margins continue to improve as the company moves from promotional pricing and transitions customers to premium service plans to boost average revenue per user. Subscriber growth remains challenged, however, due to T-Mobile’s continued dominance in postpaid additions, Xfinity Mobile’s growing momentum and video customers moving to rival streaming platforms. — Steve Vachon, Analyst

T-Mobile’s strong financial and subscriber performance in 2Q19 highlights how the company’s long-term outlook remains favorable regardless of whether the proposed Sprint merger gains final approval. 600MHz network deployments are at the foundation of T-Mobile’s success as its expanded LTE coverage, which is now on par with that of Verizon and AT&T, contributed to reduced churn in 2Q19, enabling T-Mobile to increase postpaid and prepaid subscriber net additions year-to-year despite the maturing wireless market. —Steve Vachon

The federal IT earnings season concludes at TBR this week as Perspecta releases its 2Q19 fiscal results after the close of business on Wednesday, August 14. FY20 began for Perspecta in 2Q19, its second year as an independent federal IT contractor, and the company looks to build off a strong close to FY19, when it successfully defended its incumbency on several ongoing federal programs and accelerated bookings of net-new awards. TBR projects the company will realize year-to-year growth in 2Q19 of between 4% and 5% to reach revenue of between $1.08 billion and $1.09 billion, owing in part to $1.7 billion in new cybersecurity-related programs won during the quarter — much needed contract awards that will help offset the loss of the $2.9 billion NASA End-User Services and Technologies contract to Leidos in 1Q19. Federal budgets in IT and programs to support national defense priorities are expected to sustain growth into 2020. With this spending environment as a backdrop, Perspecta appears well positioned for improving growth and profitability in its FY20. — John Caucis, Senior Analyst

Apple faced another quarter of sluggish revenue as Western consumers hold out for the next generation of the iPhone. However, the company is growing its install base in China and emerging markets, which are paramount for its long-term services play, through discounting, reselling and financing iPhones and other Apple devices. — Daniel Callahan, Analyst

Lenovo has had a few stellar quarters in a row, as it consolidated premium PC market share, reaped higher ASPs as a result of the Intel silicon shortage and benefited from inorganic revenue compares from its Fujitsu PC business acquisition. As we move into 2Q19, inorganic growth will decrease (only one month will include inorganic revenue), the silicon shortage will begin to subside and PC consolidation opportunities will slow. TBR still expects Lenovo will see growth, but it will fall in the midsingle digits. Details on Lenovo’s mobile and data center business will be published this week in TBR’s 2Q19 initial response on the company. — Daniel Callahan

And this week join TBR for a webinar, “The Evolving Battleground for Winning Private Cloud Customers.”  

Streamline and extend: IBM’s play for what it calls ‘hybrid multicloud’ or ‘Chapter 2 of the Cloud’

IBM will use OpenShift to bring a consistent cloud value proposition, remaining agnostic toward delivery method, location or cloud provider

In 2015 Red Hat’s CEO made a statement at an analyst day presentation that Red Hat aimed to do to the PaaS layer with OpenShift what it had done to the enterprise operating system layer with RHEL. That strategy was thoroughly validated with IBM’s acquisition of Red Hat. At the core of the IBM Cloud Summit were discussions of how OpenShift was the only platform layer capable of running on multiple clouds, in what IBM describes as hybrid multicloud. In IBM’s definition, hybrid denotes the ability to run applications on premises, in private clouds, in public clouds and at the edge. Multicloud denotes the ability to mix and match different cloud providers across the hybrid continuum. Many vendors can deliver single brand — or monocloud — hybrid that is a new version of vendor lock-in. IBM asserts OpenShift is the only cloud operating system and development layer that can enable customers to code once and deploy on any form factor from any technology vendor.

Stefanie Chiras, VP and general manager of the RHEL Business Unit, articulated the central Red Hat value proposition as being an enterprise software company with an open-source development model. Involved in a variety of different open-source projects, Red Hat monitors these myriad projects, filtering the most powerful innovations from these upstream contributions into the RHEL operating system before hardening these projects into enterprise-grade products and adding the necessary security and DevOps deployment features needed for large enterprises.

This hardened curation of open-source community projects has seen Kubernetes container management rapidly emerge as a de facto deployment standard, which has Linux as the underpinning operating system. OpenShift stitches RHEL and Kubernetes together with additional development services, and IBM will pivot all its software into cloud-native deployment models resting on top of this foundation to enable the software to run anywhere its customers require.

IBM bets on Cloud Paks to simplify application modernization migration to the cloud in what it calls the ‘second chapter’

IBM’s point of view is that the cloud is entering its second chapter. In the first chapter, which has been the last 15 years, enterprises have moved some development and some customer-facing applications to the cloud, but the deep back-office systems of record have remained on premises for a variety of reasons, including the technical debt of the custom applications, as well as concerns around security and compliance.

Cloud Paks are the manifestation of three to five years of ongoing development work to refactor their monolithic middleware applications into containerized, cloud-ready services. From a packaging standpoint, the Paks simplify the sprawling IBM middleware portfolio into pre-integrated solutions that address the most pressing challenges to cloud migration and operations. All Cloud Paks sit atop RHEL and OpenShift, with IBM promising “single button push deployment” when running applications on the IBM Cloud. Being underpinned by RHEL and by OpenShift maintains infrastructure independence and enables enterprise customers the ability to choose any vendor cloud or underlying on-premises infrastructure to run these applications anywhere.

The IBM Cloud Summit 2019 combined several main IBM initiatives into a full day of executive presentations for the analyst community. IBM’s presentations on strategy and innovation centered on the opportunity to migrate 80% of the workloads still run by traditional IT delivery methods to the cloud. IBM’s legacy strengths, combined with more recent investments, make the company well suited to help customers address the remaining 80% of IT workloads, most of which are mission critical. IBM’s recent landmark investment was the purchase of Red Hat, and IBM laid out in even greater detail how that will benefit customers. This was followed by a series of presentations taking aim at the untapped market opportunity as well as the various middleware services and professional services IBM can bring to bear on the application migration and modernization efforts for its customers resting on the foundational elements of Red Hat Enterprise Linux (RHEL), Red Hat OpenShift and Kubernetes container management clusters.