TBR Weekly Preview: May 20-24

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Before the long weekend here in the U.S., our teams will be publishing deeper analysis on some of the vendors that released earnings earlier this quarter. As always, our approach starts with the individual companies, then builds to an understanding of the larger market.

Additionally, don’t miss this Wednesday’s webinar Bringing the best: Talent and technology in management consulting. Register today!

Tuesday

  • The combination of Atos’ integration and technology capabilities with Google Cloud technologies, made possible by the pair’s global partnership, which marked its first year on April 24, is expanding Atos’ cloud client reach and driving revenue opportunities in secure hybrid cloud orchestration, data and AI, machine learning, and digital workplace solutions for enterprises. The acquisition of Syntel expanded Atos’ cloud advise-build-run portfolio and client reach, notably in North America, and provided critical scale for Atos’ Business and Platform Solutions division, which will accelerate Atos’ cloud advisory and implementation activities. Integration of security services and products into cloud solutions, enables Atos to transform clients’ IT and business models and securely support and manage both cloud and legacy IT environments. — Elitsa Bakalova, Senior Analyst
  • The most recent edition of TBR’s Colocation Benchmark highlights how hybrid IT adoption is a driving force behind colocation adoption as colocation providers offer both data center space and connections to leading cloud providers. The availability of hybrid PaaS and IaaS offerings such as Microsoft Azure Stack and, soon, AWS Outposts provides additional opportunities to extend enterprise colocation environments. — Cassandra Mooshian, Senior Analyst
  • TBR’s Cloud Professional Services Market Forecast details how healthy growth will persist across cloud professional services markets despite automation’s downward pressures as hybrid IT sprawl proliferates. Accenture and IBM remained the top two vendors overall in cloud professional services in 2018, while Accenture is expected to take on significant additional market share through 2023 as it benefits from its C-Suite exposure and position as a technology-agnostic third-party expert. — Cassandra Mooshian, Senior Analyst

Friday

  • TBR’s initial look into Hewlett Packard Enterprise’s (HPE) 1Q19 performance deep dives into HPE’s infrastructure strategy amid recent ongoing changes as HPE enters the final year of its Next initiatives. Commoditization continues to take its toll on infrastructure vendors’ bottom lines, increasing competition and encouraging more nuanced strategies to get ahead. — Stephanie Long, Analyst
  • The 1Q19 Fujitsu Cloud report deep dives into Fujitsu’s cloud strategy amid recent changes. As the company no longer competes for new IaaS opportunities outside of Japan, Fujitsu is leaning on partners and their expansive customer bases more significantly and strategically amid the company’s own strategic shift. — Cassandra Mooshian, Senior Analyst

Finally, publishing this week from John Caucis are 1Q19 assessments of federal IT majors CACI and Leidos, including key developments from the quarter and detailed analysis of each company’s fiscal performance. Nearly a year after losing out to General Dynamics in the competition to acquire CSRA, CACI aggressively jumped back into the M&A fray, spending nearly $1 billion on acquisitions during the quarter to deepen its capabilities in C4ISR, cybersecurity, signals intelligence and electronic warfare for the U.S. Department of Defense and intelligence community. In the past, CACI’s MO regarding acquisitions was often paying a premium to scoop up differentiating solutions capabilities, and after paying $225 million to acquire N.Y.-based Mastodon Design and its 50 employees, it appears CACI retains an aggressive, but judicious, M&A posture. CACI delivered 12%-plus year-to-year growth during 1Q19 — more than half inorganic in nature. Federal IT peer Leidos delivered strong organic growth in its first quarter following its “year of transition” in 2018, suggesting its revamped growth strategy, which hinges on effective leverage of the information systems and strategic solutions assets acquired from Lockheed Martin nearly three years ago, is working. With its operational and organizational revamp around its core markets complete, Leidos is beginning to turn its attention to adjacent market opportunities, including in the U.K., where it plans a significant ramp up of recruiting activities in 2019.

In its third annual blockchain summit, EY calls this ‘Year 0’ for blockchain

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EY lays out its digital blueprint as ‘now, next and beyond’ with blockchain use cases easily fitting into the construct

This fundamental playbook repeated in many of the use cases discussed in breakout sessions at EY Global Blockchain Summit:

  • Early efforts focus on cross-collaborative business entities establishing business rules.
  • The rules become the digital contracts.
  • The first use case is either low-dollar-value or intracompany; the sponsoring enterprise working with EY becomes “customer zero.”
  • Once fully operationalized, EY and the client partner look for ways to enroll additional participants to:
    • Broaden the use case into an industry utility
    • Extend the underpinning business logic into adjacent industries for the repeatable capability to build out industry utilities

Gaming: The editors for the EY-Microsoft playbook

Much of the content shared at the 2018 event revolved around EY’s ongoing collaboration with Microsoft to deliver a blockchain royalty payment system to track developer community activities in the gaming space. This year, EY and Microsoft touted the collaboration on many different levels that easily fit into the “now, next and beyond” construct.

EY Tesseract: A clear view not to be confused with a short distance

The Tesseract-like aspirational objective is autonomous vehicles; period. To achieve the objective requires prototyping the IoT sensoring and business rules ahead of when specific technologies and revised public policy regulations have been hardened. Interim steps revolve around building out the ecosystem participants required to allow autonomous vehicles to be serviced absent human accompaniment as the vehicles course through the physical world based on their digital instructions.

The third annual EY Global Blockchain Summit gave an indication of the rapid acceleration in adoption that had EY describing this as “Year 0.” With hockey stick charts for the number of proof of concepts (POCs) and live applications, blockchain appears poised to deliver on its anticipated promises to transform business interactions and greatly reduce operating expenses while creating new business services networks. The event was held at 32 Old Slip in the heart of New York’s financial district with several hundred attendees and 28 breakout sessions organized in four tracks consisting of blockchain business applications (where TBR spent most of its time); blockchain assurance, tax & compliance implications; financial services and the token economy (where TBR attended a session on decentralized finance); and blockchain technology.

HPE buys Cray: Is this the definition of insanity?

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We know Moore’s law drives consolidation in the industry. What we do not know, however, is if any two hardware-centric vendors can come together and build a business accretive to the top line. Michael Blumenthal tried this strategy by combining Burroughs and Sperry to create Unisys, and that certainly did not work. More recently Dell acquired EMC, and while jury remains out on that consolidation play, early indications have been positive.

HPE hardware acquisition history

Hewlett Packard Enterprise (HPE) has deployed this strategy multiple times over the years. Today HPE announced it will acquire Cray for $1.3 billion, which equates to $35 a share, or a $5.19 premium over yesterday’s closing price of $29.81. Similar hardware-centric deals HPE has conducted over the years include:

  • Acquiring Apollo after its first-mover advantage in engineering workstations was eclipsed by Sun Microsystems
  • Acquiring Compaq after it had acquired Tandem and Digital Equipment Corporation (DEC), which had likewise struggled as much in business model integration as with technology integration
  • Acquiring SGI, which was hemorrhaging cash but was a strategic HPE OEM partner that HPE could not afford to let fail or be acquired by a rival
  • And now Cray, the last of the venerable high-end niche vendors to double down on higher-margin high-performance computing (HPC)

HPC becomes mainstream as accelerators keep pace with big data compute demands

HPC certainly has growing appeal. That appeal stems from several economic drivers

  • As always, Moore’s law theory gets borne out in reality as cost and form factors decrease to the point where distributed computing (a fundamental tenet of Ken Olsen’s original business plan for DEC in the early 1960s) can be done at the board level if not the chip level. Graphics processing units (GPUs), tensor processing units (TPUs) and field-programmable gate arrays (FPGAs) can keep pace with increasing demands coming from big data analytics.
  • Supply chain excellence and software tuning of these commodity components can allow for custom-designed systems, purpose-built to the compute demands of the HPC customers.
  • IBM certainly keeps innovating in HPC, especially with its RISC-based Power chips suited for analytics.
  • Lenovo has taken a huge bite out of HPE’s share of the HPC space through its design engineering and supply chain flexibility, manufacturing commodity Intel boards at scale through Lenovo’s global manufacturing space. Per Lenovo it went from having none of the top 500 HPC installations in the world in 2014 to having 140 of them in 17 countries in 2018. Much of this success came at HPE’s expense.

Will the acquisition go against type and be viewed as a sane move?

A definition of insanity is to engage in the same activity over and over again while expecting a different outcome. HPE’s history has been to acquire struggling firms in niche hardware areas in hopes of growing share. With fewer and fewer silicon-centric vendors left standing, the odds of success can certainly increase in time.

The Cray acquisition may well aid HPE in stalling Lenovo’s recent successes in the HPC space, but Lenovo’s operating best practices are well suited to commoditizing markets. Supply chain excellence honed to attack the hyperscale market brings decided cost advantage to the HPC space. Talent recruited from Intel and other firms likewise gives Lenovo the software tuning competencies necessary to extract fit-for-purpose performance from commodity chipsets.

Quantum also looms large on the horizon as the next chapter for the high-end compute requirements to help solve the world’s intractable problems. Seven nanometer wafers may not be the end of the line for silicon innovation, but it is certainly getting close. This acquisition seems poised to satisfy the immediate here and now, while once again being eclipsed by niche innovation elsewhere, with that elsewhere coming in the quantum domain in three to five years.

Recent articles have come out suggesting HPE is cutting back on quantum research, intending instead to extract more life out of the traditional computing space with processors for deep learning and analytics. HPE has certainly acquired a company that has been admired for decades as being the “tip of the spear” in silicon innovation. HPC innovations certainly can work for today, but that tip of the spear will be blunted by the inexorable laws of physics, making further silicon innovation increasingly more challenging. Future offerings in what has been Cray’s core market will come from quantum innovators. Once quantum reaches economic advantage over high-end classical computing, the industry will see yet another round of business exits for those vendors lacking transformation fearlessness. Like many of HPE’s other hardware-centric acquisitions, this move appears to have reasonable short-term impact and limited long-term upside.

Kick-starting innovation takes smart thinking, not just action

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An innovation leader at a fast-growing Europe-centric consultancy shared with me tactics his firm uses to make its innovation engagements creative and pragmatic, with principles centered on adding real business value while capturing as much opportunity as possible for meaningful change.

First, pick one area to innovate, based largely on where you can expect value to come from. This echoes the age-old advice to search for what’s missing where it likely is, not where the lighting is best. And it echoes a recent theme we’re hearing from consulting and IT services vendors that clients need help making choices, not just understanding what choices they have.

Second, assemble the micro-learnings — the initial ideas and concepts — just to get people thinking, which I think reflects a trend of consultancies intentionally leaning away from “design thinking” as a term of art, while keeping the principles in place. Get creative, with purpose, but don’t get locked into an over-hyped and little-understood approach.

The third ingredient is multiple points of views, far wider than the perspectives of clients and their clients. If you’re considering supply chain, seek views from the HR managers at your client’s supplier. If you’re in the pharma space, talk to nurses actually distributing the meds. We’ve heard multiple stories of consultancies taking extra steps toward understanding a client’s ecosystem, but typically, this takes place when a minimum viable product is being tested, rather than early in the thinking-and-design phase.

Finally, when it comes to building something to test, focus on testing, whether you’re innovating around the right problem with the right idea, rather than the specific product or solution. Again, we’ve seen plenty of innovation engagements that move to testing and become too focused on the technology and making it work, not evaluating, continually, whether the innovation is being applied to the real problem.

Thinking on this discussion and reflecting on the last year of discussing innovation — as an offering, as an element of what consultancies and IT services vendors bring to their clients — we’re considering how to more fully capture innovation within the larger context of digital transformation. Look for specific assessments of innovation in the upcoming Digital Transformation Insights reports and the supporting vendor-specific quarterly reports, including Accenture, IBM Services and Management Consulting Benchmark Profiles for PwC, EY and McKinsey & Co.

TBR Weekly Preview: May 13-17

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As we move further into May, we will shift from initial earnings reports to larger, detailed reports on the vendors we cover, plus the benchmarks and market forecasts for the broader areas, such as cloud and telecom. And definitely do not miss Wednesday’s webinar on digital transformation.

Monday

  • The IBM Cloud report highlights how cloud remains an increasingly key component to IBM’s hybrid business model and long-term strategy. IBM reported single-digit cloud year-to-year growth, at 7%, a remarkably smaller rate than its larger cloud peers, which underscores the continued messaging and go-to-market shortcomings it needs to overcome. Cloud is often relied on as IBM tries to bounce back, but the cloud business also needs some attention. IBM will continue to sell off noncore software assets to hone its hybrid IT focus and messaging — the success of which is largely contingent on the planned acquisition of Red Hat in late 2019 by IBM. — Cassandra Mooshian, Senior Analyst

Wednesday

  • Strengthening its focus on premium customers enabled AT&T to improve the EBITDA margins of its Mobility and Entertainment Group divisions in 1Q19, despite competitive pressures hindering subscriber growth. Though AT&T will continue to trail T-Mobile in postpaid phone net additions throughout 2019, AT&T will boost Mobility margins through its premium unlimited data plans and by being disciplined in its device promotions. Conversely, AT&T continues to lose video subscribers to over-the-top platforms, but the operator’s higher DIRECTV price points will help strengthen Entertainment Group margins. — Steve Vachon, Analyst

Thursday

  • TBR’s first public sector IT services report of the quarter, Raytheon Intelligence, Information & Services (IIS), will discuss how Raytheon’s IIS business group continues to deliver market-leading fiscal performance, despite the run-off of a major defense sector support contract. IIS delivered double-digit top-line growth in 1Q19, driven principally by continued robust expansion of its core cybersecurity and space programs. Growth in these key sectors, particularly in the classified arena, was critical in enabling IIS to deflect the impact of declining work volumes on the Warfighter Field Operations Customer Support program, though the wind down of this program will become increasingly taxing during 2019. Meanwhile, a newly centralized base of operations in the United Arab Emirates will generate mindshare and market share gains for Raytheon in the Middle East while the company positions itself at the forefront of the 5G revolution in federal IT as the premier contractor to escort defense agencies into the 5G era. Finally, Raytheon is targeting the lucrative European security market as an opportunity to leverage its cyber leadership and expand international sales. — John Caucis, Senior Analyst
  • Cisco strengthens its portfolio by attaching services to new product offerings to capture data center, IT infrastructure and workplace transformation engagements. However, declines within its deferred revenue signal the company could face challenges in maintaining services revenue expansion. — Kelly Lesiczka, Analyst
  • Capgemini continues to sustain its profitable growth through an operating model based on three pillars: a unified go-to-market strategy that presents one face to the client and sells the entire Capgemini portfolio, industry focus, and an agile and competitive portfolio. Changes Capgemini made during 2018 to its portfolio, organizational structure and sales model enable the company to address rising demand from clients’ business side and strengthen relationships with clients to expand wallet share. Offering industry expertise, such as through the new Unified Commerce Solution for Grocery, enables Capgemini to attract clients’ C-Suites by addressing their business-specific needs. Capgemini has a competitive portfolio and global services capabilities around fast-growing and emerging solutions and revitalized core outsourcing offerings that will continue to drive revenue growth for the company. — Elitsa Bakalova, Senior Analyst
  • Industry specialization is becoming a central focus of Atos’ strategy as the company articulates and delivers digital value and customer excellence leveraging its technology expertise and partnerships in areas such as security, cloud, IoT and quantum computing. One of Atos’ strengths is its ability to strictly execute on the plans it sets for its financial performance over three-year horizons and present consistent messaging to the industry analyst community. TBR expects Atos to execute on its plan to provide clients with innovative solutions that enable technology-powered strategies and business models. Deconsolidating Worldline as a stand-alone business as of Jan. 1 is a logical move that will have an immediate positive impact and enable Atos to focus on its core digital services activities. — Elitsa Bakalova, Senior Analyst
  • Despite the maturing smartphone market and competition from new mobile virtual network operators such as Xfinity Mobile and Spectrum Mobile, significant opportunity remains for T-Mobile to sustain subscriber growth, exemplified by the company gaining higher postpaid phone net additions in 1Q19 compared to 1Q18. Decreased postpaid phone churn, which has been lower than that of AT&T the past two consecutive quarters, is a main driver of T-Mobile’s higher net additions, as customers are becoming more satisfied with T-Mobile’s service options, network coverage and customer service. — Steve Vachon, Analyst
  • The strength of its broadband business will enable Comcast to sustain Cable Communications revenue growth through 2020 despite continued video subscriber losses as consumers shift to over-the-top offerings. Comcast will also sustain revenue growth long term through the company’s burgeoning businesses, including Xfinity Mobile, Xfinity Home and its machineQ IoT venture. — Steve Vachon, Analyst

Friday

  • Fujitsu Services benefits from portfolio investments but needs to reorient its focus on client retention to sustain growth. We expect Fujitsu will look to its services portfolio offerings and onshore centers, showcasing its technology expertise to create differentiation and extract additional wallet share as well as generate opportunities outside its traditional client base. — Kelly Lesiczka, Analyst

Off the road and on your screen: A webinar featuring our latest look at digital transformation

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Seven of the last nine weeks spent traveling has included an incalculable number of meetings and countless great stories, ranging from ground-breaking IoT solutions and stand-out blockchain presentations to a surprising utilities-selection app. All the events confirmed, for me, that we’re on the right track with how TBR has structured its research and analysis around the IT services and broader technology space, including our new Digital Transformation Insights Portfolio. In listening to consultancies and IT services vendors talk about how they run their companies and how they deliver to their clients, I heard that models with the right combination of strategy, performance and bonuses provide the foundation of our analysis, echoed perfectly in our quarterly reports and benchmarks. 

On May 15 I’ll present parts of our digital transformation portfolio in a webinar titled, “30 Minutes, 3 Months, 3 Years: Evolution of Digital Transformation.” In addition to walking through how we developed the portfolio and what we’re researching and writing about each month, I’ll pull in examples from the last nine weeks and preview some of the analysis we will be publishing in the coming months, including the much repeated theme/complaint/reality that humans consistently become the weak link in any digital transformation. Nearly every client story I’ve heard recently included lessons learned around change management, leadership commitment and team selection, regardless of whether the featured technology was IoT, blockchain, RPA or run-of-the-mill ERP. I’ll walk through some observations on this theme as well as other commonalities from clients’ stories and vendors’ evolving digital transformation strategies.

Join me for the webinar and send comments and questions directly, as our research traditionally has been shaped answers to the key intelligence questions we develop based on clients’ questions. 

Most CSPs in developed countries will widely deploy 5G networks by mid-2020s

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According to Technology Business Research, Inc.’s (TBR) 5G Telecom Market Forecast 2018-2023, an increasing number of CSPs globally, predominantly in developed countries, are accelerating and broadening the scope of their 5G build-outs, which prompted TBR to increase its 5G infrastructure market size forecast compared to 5G Telecom Market Forecast 2017-2022. There are a few reasons for this pull forward, including the need for CSPs to stay competitive for customers of traditional mobile broadband and high-speed internet services, reduce the cost-per-gigabyte of carrying traffic (network opex efficiencies), and build a foundation in preparation for new use cases of the network. The availability of 5G devices, including a variety of smartphones, in 2019 is another key driver prompting earlier infrastructure investment.

The software upgradeability of some newer LTE base stations will enable some CSPs to more quickly and seamlessly migrate to 5G. However, nearly all CSPs will need to deploy net-new 5G base stations and 5G mobile core over time as CSPs transition from a Non-Standalone (NSA) to Standalone 5G architecture. This seamless software upgradability of new RAN platforms to 5G will facilitate deployment at incremental cost, keeping overall 5G capex spend scaling quickly but at a relatively lower level compared to prior RAN generation upgrades.

Mobile broadband (MBB) and fixed wireless access (FWA) will be the two predominant use cases for 5G technology by CSPs through the forecast period, with other use cases materializing in the middle to later years of the forecast period, mostly as it pertains to machine-type communications such as massive IoT or mission-critical IoT.

Now. Next. Beyond.: EY’s road map for moving from current to future

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TBR perspective

Norman Lonergan, EY global vice chair, Advisory, opened the EY 2019 Global Analyst Summit with an outline for a new strategy called Now. Next. Beyond. Having executed extremely well against its earlier strategy, EY needed to raise its own bar. In a way, it is adhering to a strategy that it likewise seeks to use to assist its key clients in adopting and leveraging technology to enter the digital economy as a stronger and more vibrant operating business.

Achieving these objectives does not happen overnight, nor will it occur without false starts and shelved proof of concept trials. From TBR’s perspective, Now. Next. Beyond. broadly translates into the following:

  • Now: The point in time where the heavy advisory lifting takes place to establish the foundational business rules required for further automation on the way to becoming a truly digital business.
  • Next: Obtainment of the low-hanging fruit in quick operational enhancements to cut costs (and prove value) and to enhance the overall customer experience. This phase likewise lays the foundation with anchor ecosystem participants to harden the automated or smart contract pieces necessary for the network effect at scale.
  • Beyond: The aspirational objective that in some ways could be entirely different business models made possible through atypical partnerships with business entrants from radically different business domains.

The EY construct is not necessarily groundbreaking or unique, but it is the strategic framework and corporate language the firm intends to deploy as it moves forward in the industry evangelizing its best practices and promoting the tight working relationships it has built over the past decade with enterprise technology stalwarts such as Microsoft and SAP.

Appropriately, EY hosted its annual Global Analyst Summit at a working cruise terminal at the water’s edge of Boston’s Seaport District, in a facility that served as an EY innovation hub before turning back into the assembly area for an oceangoing cruise ship. The venture-forth vibe in the physical facility amplified the sentiments expressed by EY’s leaders, particularly around making the firm more global, including global engineering across service lines and developing IP in a more industrialized way. As one EY professional explained, “When we solve a problem through applying tech, and thus creating an asset or tool, we want to productize and commercialize and globalize.” Like a ship making course corrections while still navigating toward a desired destination, EY has adjusted its business model, folded asset-based consulting and managed services into traditional consulting, and committed to emerging technology.

Cyber liability insurance: Modern security apparatus for modern security threats

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Cyber liability insurance: Leveraging an old concept for modern challenges

Despite modern security challenges, there are modern solutions emerging to help customers navigate security risks, reduce risk for enterprises, generate better security hygiene, and perhaps even foster stronger standard bodies. One solution is taking an old concept, insurance, and modifying it for the data age.

Insurance is a concept that has existed since the Babylonians built the hanging gardens, and likely in some form before that. Insurance generally exists in a love-hate relationship with those that are covered. However, it is often deemed essential (or made essential through law) to cover the many what-ifs of life.

We discussed in the prior section several ongoing security challenges related to liability and business risks that are causing customers to reconsider pursuing digital transformation. However, what if customers’ digital footprints were insured? What if damages from a breach were paid through an insurance company, or if an expert recovery team was funded through a policy that would be dispatched as soon as there was an incident? And what if such a policy included damage control and positive marketing services following a breach? This would make customers much more comfortable by mitigating part of the risk associated with taking the technological leap toward digital transformation.

This is not an “aha” moment. Cyber liability insurance already exists on the market. It is defined by the International Risk Management Institute Inc. as:

 A type of insurance designed to cover consumers of technology services or products. More specifically, the policies are intended to cover a variety of both liability and property losses that may result when a business engages in various electronic activities, such as selling on the Internet or collecting data within its internal electronic network.

Most notably, but not exclusively, cyber and privacy policies cover a business’ liability for a data breach in which the firm’s customers’ personal information, such as Social Security or credit card numbers, is exposed or stolen by a hacker or other criminal who has gained access to the firm’s electronic network. The policies cover a variety of expenses associated with data breaches, including: notification costs, credit monitoring, costs to defend claims by state regulators, fines and penalties, and loss resulting from identity theft.

Companies such as Nationwide and Hiscox, among a long list of others, provide it. However, it is hardly brought up in the digital transformation discussion, and TBR believes it has important market impacts as well as drives opportunities for current security vendors. In terms of the market, TBR believes the more mature cyber liability insurance becomes, the faster organizations will adopt digital transformation. It would be beneficial if cyber liability insurance were part of the conversation when a vendor leads a digital transformation implementation, just as car insurance must be a consideration when buying a new car.

TBR Weekly Preview: May 6-10

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We are still cranking through our initial analysis of vendors’ earnings for the first quarter, with more detailed analysis available two weeks after the announcements.  

Monday

  • Growth of Wipro IT Services’ (ITS) emerging business lines, such as Digital Ops and Platforms, shows recent investments are paying dividends; however, steep declines in its legacy outsourcing business are offsetting gains. Though Wipro ITS is moving in the right direction, it will require a more aggressive acquisition agenda to compete with peers. — Kelly Lesiczka, Analyst, Professional Services Team 

Tuesday

  • In TBR’s 1Q19 IBM Initial Response, we discussed the waning IBM Z product cycle and its effect across IBM’s businesses. In TBR’s full report on IBM, we will unpack some of the company’s strategies that were announced at IBM THINK 2019 as well as explore the impact of IBM’s quantum computing breakthroughs on its strategy and business performance.
    — Stephanie Long, Analyst, Data Center Team
  • Despite experiencing pockets of growth, such as in consulting and cloud, IBM Services’ revenue continued to decline in 1Q19. IBM Services’ struggles to balance market demand with stakeholders’ expectations and the company’s relentless emphasis on improving profitability via productivity, such as implementing new ways of working and infusing automation and AI into processes, overshadowed any revenue growth. IBM has the incumbent advantage, which has been built on the company’s portfolio breadth, global scale and years of execution, making it one of the most trusted technology brands for large enterprises. However, IBM Services will continue to experience fierce competition from peers, such as Accenture, which is using its industry and functional expertise to expand client mindshare, particularly as it invests in talent development and intellectual property and shifts its value proposition to becoming a technology-enabled solutions broker. — Elitsa Bakalova, Senior Analyst, Professional Services Team

Wednesday

  • TBR’s 1Q19 Sprint Initial Response will examine why the proposed T-Mobile merger is in Sprint’s best interests, as Sprint’s long-term survival as a stand-alone company is threatened by the company’s weak financial position, subpar network quality and struggle to attract customers apart from utilizing aggressive pricing tactics. — Steve Vachon, Analyst, Telecom Team
  • Ericsson is successfully executing its strategies on multiple fronts, as demonstrated by the company’s organic sales growth and improvements in gross and operating margins in 1Q19. Its U.S.-centric 5G strategy has enabled the company to secure large-scale contracts with the country’s Tier 1 operators, as well as with U.S. Cellular, for 5G-ready RAN and LTE densification, and Ericsson will be able to sustain revenue growth throughout 2019 as these contracts ramp. Increasingly optimized headcount and the restructuring or exiting of unprofitable Managed Services and Digital Services contracts are benefiting margins.

Thursday

  • Execution of T-Systems’ transformation plan, combined with increased client adoption in emerging areas, will help the company capture sustainable growth. During 1Q19 T-Systems expanded its presence in Europe to increase its work with its existing clients, leveraging its portfolio investments. — Kelly Lesiczka, Analyst, Professional Services Team 
  • Mode 2 and Mode 3 services and solutions transition HCL Technologies’ (HCLT) portfolio into newer areas and help extract additional wallet share from clients. Additionally, HCLT pursued investments in 1Q19 to develop niche portfolio offerings, such as within the digital marking services space, to help differentiate from its India-centric peers. — Kelly Lesiczka, Analyst, Professional Services Team 

Friday

  • Integrating Capgemini’s established management consulting expertise with digital design and creative studios, as well as with the broader capabilities across its portfolio, will enable the company to provide holistic, consulting-led offerings and approach clients with a business transformation value proposition. — Elitsa Bakalova, Senior Analyst, Professional Services Team