In a market ripe for DT, Logicalis’ LATAM roots and innovative portfolio position it to lead the charge

TBR perspective

As the LATAM ICT market rapidly catches up to North America and Europe in terms of adoption of digital-related technologies and, most importantly, a transformational mindset, Logicalis’ investments across its Digital Accelerators and Digital Solutions portfolios, backed by a strong foundation enabled by the company’s heritage as an infrastructure provider, strengthen its value proposition when it comes to scale and trust among regional buyers. With Logicalis LATAM’s footprint spanning virtually all (99%) of the region’s 500 largest companies, the next chapter for the company will be about growing mindshare through cross-selling and upselling services in new areas. Adopting an integrated approach by blending business consultants, security specialists and Digital Accelerators’ professionals will enable Logicalis to elevate the value around digital transformation (DT). Remaining cognizant of pricing and budget constraints among regional buyers will likely compel Logicalis to further adopt outcome-based contracts, a necessary step as clients seek to offload the financial burden of managing legacy infrastructure to vendors’ “as a Service” offerings.

Strong foundation provides reliable use cases as Logicalis strives to shift its value proposition

Logicalis’ roots in LATAM date back to 1960 and engineering services company Promon, which currently owns a 35% stake in the company and boasts a large footprint across most of South America. The combination provides the integrated scale necessary to support price-sensitive clients, especially as most of the services opportunity is fueled by legacy infrastructure. According to Logicalis’ executives, 80% to 90% of the current market opportunity is tied to “lift and shift”-type activities, but the trend is rapidly changing toward scalable transformation. In TBR’s view, Logicalis’ heritage supporting clients’ IT infrastructure will play to the company’s advantage as regional buyers increasingly adopt and seek support for managing both the infrastructure and software layers of their hybrid IT environments. According to TBR’s December 2019 Digital Transformation Insights Report: Voice of the Customer, “Cloud computing remains the most common technology investment area for DT initiatives. Removing the cost and capacity constraints of fully on-premises infrastructure enables enterprises to explore new ways of working and leveraging their data through mobility, IoT, analytics and collaboration software. Complexity continues to drive demand for integration tools, new skills and management services.” We believe as regional buyers gradually shift toward “as a Service” offerings, Logicalis’ value proposition will also have to adapt or even lead the change when it comes to risk sharing and new pricing models.

While the company’s business consulting unit spearheads outcome-based pricing initiatives, we believe Logicalis could further accelerate its value proposition transformation if it approaches every opportunity with scale in mind from the beginning. To execute on such a strategy, the company would need to further build out its consulting and application services capabilities, with acquisitions in these domains highly likely.

We acknowledge the volatile environment Logicalis LATAM must navigate to operate in, but the company has an opportunity to use the region as a test bed to deploy DT-ready frameworks across global operations. For example, Logicalis’ Software Defined X unit’s NEPAL framework provides a strong automation-centric use case around provisioning, troubleshooting, monitoring and event-oriented services supporting SD-WAN and SDN environments. This work will prove to be a steppingstone toward 5G infrastructure, a key area considering 50% of Logicalis LATAM’s revenue stems from telecom clients, largely fueled by Logicalis’ relationship with Cisco (Nasdaq: CSCO) and its work providing infrastructure management services.

Additionally, Logicalis’ services portfolio, enabled by Optimal, an integrated, automation-based services platform, acts as a strong backbone to the company’s infrastructure heritage and bridges clients’ legacy and new infrastructure support needs, helping Logicalis to ensure knowledge sharing across teams is standardized. As Logicalis continues to manage technology maturity across various countries in the region — being an incumbent in some and the challenger in others — addressing broad market challenges, such as specialized skills shortages, likely presents the greatest opportunity for the company. Working with regional universities to establish DT-aligned courses and curricula could help Logicalis deepen its roots and expand its addressable market for recruitment.

Logicalis Latin America Analyst Summit: Recognizing LATAM’s status as the region contributing the largest share of revenue and offering the most comprehensive portfolio opportunities, Logicalis tapped its Brazil headquarters in Sao Paulo to host an industry analyst summit. Operating under the slogan “Architects of Change,” a tagline the company recently adopted as part of its rebranding, Logicalis hosted a client and more than two dozen regional and international analysts at a two-day event, showcasing the company’s ability to drive change in a rather volatile market — from both a macroeconomic and political perspective. Logicalis’ ambition to transform from a reseller into a solutions provider is well aligned with the company’s investments in its portfolio, partners and staff.

The number of IoT use cases continues to grow, particularly those with smaller-scale and specific applications

IoT projects are proliferating across verticals and geographies, despite the reduced level of promotion and discussion among vendors. Customers, and therefore vendors, are focused on solutions, and IoT is a class of solutions, not a solution itself. Customers understand the broad concepts of IoT and are concentrating on using those concepts to solve specific problems. Vendors are addressing the market through vertically oriented products or vertically focused sales structures as well as technical and channel relationships with vertically oriented partners.

Though there are common use cases, they largely lack common vendors or offerings. TBR believes that the IoT market is continuing to evolve toward a large number of specialized offerings, increasingly self-contained as bundles and moving toward stand-alone solutions requiring less configuration and integration. Turnkey solutions and a market where buyers and sellers of specialized IoT solutions can easily connect are a long way off, however.

TBR’s semiannual Commercial IoT Market Landscape delivers overall market and top vertical insights, including identifying key use cases as well as trends in technology and buyer behavior. The landscape also captures the top public deals within those verticals and the lead vendors associated with them. Contact an account executive for more information.

Establishing realistic expectations for AI potential requires vendors to address economies of change management first, technology second

AI is one of the technologies that will help standardize the digital transformation (DT) market and turn the wildly loose use of the term digital into tangible business results. Though the technology sparks urgency for many buyers to accelerate the execution of their DT programs, they need to carefully balance messaging with external and internal stakeholders around the possibilities with shutting out the critics, many of whom project AI will kill jobs.

Principal Analyst Patrick Heffernan and Senior Analyst Boz Hristov dug into this topic this week during TBR’s webinar, Are digital transformation buyers ready for AI? The webinar covered insights into buyer’s AI readiness, AI market maturity and opportunity, and more. Check out the replay any time on TBR’s YouTube channel.

Additional reports recently published by TBR’s analyst teams

4Q19 Lenovo Group: PC business performs well ahead of COVID-19 impact

Lenovo’s Data Center Group has the right investments in place to thrive in 2020. Its services business is picking up, the channel program is armed with new leadership ready to expand and its portfolio is aligned to address emerging demands like the edge. However, macro factors such as supply chain implications of COVID-19 and server market softness will likely impact financials for the next year or so despite strategic investments.

4Q19 Atos: Establishing an industry-led organizational structure

In 1Q20 Atos’ new CEO, Elie Girard, will implement a new industry-led organizational structure with six global industries and five regional business units that has been in the works since early 2019. The new structure will reshape Atos’ portfolio and go-to-market approach to better align with clients’ specific industry needs. This is a positive move for Atos that will accelerate its transformational activities with clients; however, Atos will have to expand its bench of business consultants with industry expertise to successfully compete with established industry-specialized providers, such as Accenture.

4Q19 ManTech: Aggressive efforts across the board lead to outstanding results

ManTech’s performance in 2H19 underscores the company’s success with its core Department of Defense (DOD) and Intelligence Community (IC) customers as well as the alignment of its services and solutions portfolio with federal IT spending priorities, especially in areas such as space and cybersecurity. DOD and IC budgets continue to expand, presenting a great opportunity for ManTech to capture more spend from its largest customers. ManTech has also been very judicious in its recent acquisitions, gaining access to new agencies as well as new capabilities that should allow the company to expand revenue growth with additional new customers.

4Q19 T-Systems: Leveraging digital and agile to drive profitable growth

T-Systems is better equipped to upsell growth areas on its own platforms as well as support its partners’ digital platforms with migration and managed services. Improving access to technology and industry areas within Deutsche Telekom allows T-Systems to fill portfolio gaps without pursuing acquisitions. However, as T-Systems refrains from acquiring or forging a strategic alliance around consulting services and maintains a relatively small practice compared to peers, the company could be restricted to managed services and integration services opportunities, hindering its ability to diversify revenues.

CSP spend on edge compute infrastructure will grow at a TBR-projected 54.5% CAGR from 2019 to 2024 to $90B by 2025

Drivers and investments

The primary driver of edge build-outs during the forecast period is telcos’ and cablecos’ network transformations, which entail migrating to a cloudified and virtualized network, and wescales’ edge initiatives to support their cloud businesses and digital lifestyle endeavors.

CSPs will ultimately migrate to a vRAN architecture, which is a key aspect of the new networks they are evolving toward. The vRAN market will ramp up in the early 2020s as leading operators push the industry forward.

Telcos will spend the most, collectively, on edge infrastructure each year through 2022, at which time there will be an inflection point in 2023 whereby webscales become the largest investors in edge infrastructure starting in 2024.

CSP spend on edge compute infrastructure 2019 to 2024

For additional information, read our recent special report on edge compute and contact an account executive about TBR’s Telecom Edge Compute Market Forecast.

Two Back, Three Forward: Growth in the Western Hemisphere

In our new weekly blog series Two Back, Three Forward, we look at two numbers in TBR reports from the prior week as well as three numbers from our upcoming reports, highlighting the analysis TBR provides and the vast amount of data — the numbers — we’re working with every day. It’s all about the data and what that data means to you.

Two Back

11, vendors profiled in TBR’s 1Q20 Enterprise Edge Compute Market Landscape. A newly launched product from TBR looks at the far edge of the edge compute spectrum, which is “also known as the local edge, new edge, network edge, mobile edge, multiaccess edge or distributed new edge.” Within the market landscape, senior analysts Nicole Catchpole and Stephanie Long examine recent developments and provide a SWOT assessment on vendors as diverse as Atos, Equinix and Microsoft. 

5, clients TBR visited with last week in New York City. In a bit of a whirlwind tour continuing the spring travel season, TBR shared parts of our Digital Transformation Insights portfolio, our soon-to-be-released digital delivery platform, and six big ideas challenging the consulting and IT services space in 2020. Surprisingly, no clients challenged TBR’s assertion that the term digital is dead, while the most lively (and heated) debate centered on the unchanging nature of the largest strategy consulting pure play firms.  

Three Forward

21.6%, ManTech’s year-to-year revenue growth in 4Q19: As detailed in our upcoming full report on the company, ManTech grew rapidly through a couple of key acquisitions, namely Kforce Government Solutions and H2M Group. The latter, which brought along $30 million in revenue and around 180 professionals, follows ManTech’s typical acquisition strategy, which focuses on new capabilities and/or agency access that the company has been unwilling or unable to gain organically. As the full report will note in a scenario on acquisitions, “H2M Group has an extremely deep relationship with the National Geospatial-Intelligence Agency and strong expertise in the geospatial industry as well as in intelligence collection and analysis and business operations support.”

65%, of customers in Latin America/South America have stayed away from adopting IoT solutions, according to IT services vendor Logicalis: Senior Analyst Boz Hristov traveled to Brazil to meet with Logicalis’ local and global leadership and hear their perspectives on the local market for both traditional IT services and emerging technologies such as cloud and IoT. Analyzing Logicalis’ solid credentials, well-established client base and willingness to take a riskier approach to outcomes-based pricing, TBR offers expectations around the company’s consulting, applications services and acquisitions in the special report available this week.

$389 million, Atos’ 4Q19 revenue within Big Data & Cybersecurity: The company’s leading service line for revenue growth saw contract wins across multiple geographies and industries, bolstered by a strategic decision to leverage ecosystem partners and expand its own capabilities simultaneously. In a scenario discussion in the upcoming full report, Senior Analyst Elitsa Bakalova explains how Atos has made substantial headway with cybersecurity offerings outside its core European market. By folding new offerings into its established and well-regarded Prescriptive Security Operations Centers, the company provides clients, in TBR’s assessment, “visibility, control and compliance.”

Vendors are embedding IoT throughout their organizations

Vendors are rebuilding their IoT GTM strategies

Although vendors are deemphasizing IoT publicly, their overall businesses continue to grow at an accelerating rate slightly over 20%. While TBR is seeing more IoT-based projects than before, the average project scale is shrinking. And though a growing number of specialized solutions and components are entering the market, most still require substantial configuration and integration.

Many vendors enthusiastically embraced IoT as a way to open new markets and bring in new customers. Apart from the major IoT platform vendors — Amazon Web Services (AWS), Microsoft, Google and PTC — smaller vendors are now using IoT to enhance and promote their existing products and services, largely to existing customers. This reflects how IoT has become an often-implicit part of companies’ digital transformation offerings and go-to-market strategies. In many cases, IoT development, marketing and sales organizations have be folded into product, service and vertically oriented organizations.

The number of IoT use cases continues to grow, particularly those with smaller-scale and specific applications

IoT projects are proliferating across verticals and geographies, despite the reduced level of promotion and discussion among vendors. Customers, and therefore vendors, are focused on solutions, and IoT is a class of solutions. While customers concentrate on using IoT concepts to solve specific problems, vendors are turning to vertically oriented  products and sales structures as well as relationships with vertically oriented IT and OT partners.

As a result of multiple vendors having similar needs, there is a large variety of use cases from which common use cases in specific verticals are emerging. For instance, in manufacturing, there are production-related use cases that increase productivity and quality, as well as product-oriented use cases that help monitor and service products in the field. In the public and utilities verticals, there are many instances of smart metering of power and water. In the public vertical, use cases focusing on air quality, parking and lighting are common.

TBR’s semiannual Commercial IoT Market Landscape delivers overall market and top vertical insights, including identifying key use cases as well as trends in technology and buyer behavior. The landscape also captures the top public deals within those verticals and the lead vendors associated with them.

TBR predicts total enterprise spend on edge infrastructure will grow at a 41% CAGR through 2024 to almost $120B

Webscale drives projected forecast for enterprise edge

On Feb. 26, TBR senior analysts Nicki Catchpole and Stephanie Long were joined by hundreds of professionals across multiple vendors and verticals for TBR’s first webinar on the enterprise edge. The session, The emerging and evolving landscape of enterprise edge computing, focused on the components of the enterprise edge market — as defined by TBR — and projected market growth, in addition to touching on use cases in retail and agriculture that demonstrate the real-life applicability of edge computing across verticals.

In TBR’s definition, the enterprise edge market encompasses enterprises in all verticals, including communication service providers (CSPs). We explores CSP spend on edge infrastructure in depth in our Telecom Edge Compute Market Forecast (2019-2024).

Although edge technology is not new, it is still considered to be emerging, and growth rates are projected to increase significantly through 2024. The spending increase will occur to support connected devices, emerging workloads such as IoT, and faster time to insight on existing use cases and predictive analytics, with the ultimate goal of facilitating the adoption of digital transformation. The most notable driver of edge spend through 2024 will be the complex dynamics within the webscale space in support of digital transformation projects that were historically captured by OEMs.

Use cases in the agriculture and retail verticals demonstrate the value of edge computing across disparate industries

There are hundreds of individually documented and proven use cases for edge computing across many different verticals. A common theme is that edge computing across verticals makes it easier to process data at the source to refine and send it to an edge or cloud network for further analysis, AI applications and storage. During the webinar, TBR analysts covered use cases that touch consumers and vendors alike, focusing on examples in smart farming as well as retail.

Agribots enhance farm management while edge computing introduces benefits for brick-and-mortar retailers

Smart farming technologies mark a notable shift in how farms can be managed by introducing automation and predictive intelligence at scale. Even within this one industry, the examples are vast and varied. Agribots in the form of machinery, like autonomous tractors, interact with the surrounding environment, collecting data and communicating back to the cloud for longer-term analysis. Crop management and production life cycles are optimized through the automation and analytics enabled by edge at scale.

The examples in retail are as equally as diverse, ranging from in-store robots that can create a customized shopping experience to the implementation of AR/VR in fitting rooms. Benefits include improved customer experience as well as workforce and operational optimization.

Questions from attendees prompted a deeper dive

One attendee asked for more detail about what components TBR included in its market sizing estimates. There are many components of edge computing, with varying opinions around what should and should not be included. TBR’s enterprise edge market sizing includes hardware — server and storage networking — as well as close-to-the-box software and services.

Another attendee asked about the “vendor soup” among hyperscalers and whether there are online marketplaces such as Azure that facilitate the decision-making process or if it is largely left to systems integrators. TBR has seen offers from hyperscalers trying to sell more solutioning and recommending combinations of solutions to their customers. This type of approach, but with a more vertical focus in the marketplace, may promote market expansion to include solution advisory services. Implementation of edge computing is a multifaceted and dynamic process, and hyperscalers are well positioned to help customers through the process of selecting and integrating multiple different services.

Click here to listen to this webinar, The emerging and evolving landscape of enterprise edge computing, in its entirety

Insights from TBR’s inaugural Enterprise Edge Compute Market Landscape

The edge computing market spans a spectrum of use cases that meet various customer needs, including sensitivity for latency and analytics. According to TBR’s 1Q20 Enterprise Edge Compute Market Landscape, while the edge is not new, its use for low-latency-dependent applications and close-to-the-data computing has increased and will continue to do so to support connected devices, emerging workloads such as IoT, and faster time-to-insight. For example, in-store robots can interact with customers to create a customized shopping experience on the floor and use data around purchases to help restock inventory.

TBR predicts a rapid increase in enterprise edge spend through 2024. The dynamics within the webscale space  include a desire by managed service providers to run their offerings on bare metal hardware and ODMs with the ability to provide this bare metal hardware at lower price points than OEM peers. These dynamics will be a key driver behind the upswing in enterprise edge revenue through 2024 as webscales capture opportunities typically fulfilled by OEMs.

For additional information, read our special report Edge computing is a cross-industry revolution that will reshape every industry and contact an account executive about TBR’s Enterprise Edge Compute Market Landscape.

Perspecta prepares to move beyond NGEN loss

2020 will be critical as Perspecta attempts to make up for its NGEN-R bid loss, with federal spending priorities providing an avenue for growth

“Perspecta delivered steady top-line results in 4Q19 as it posted a very strong book-to-bill ratio (1.4) and continues to win new deals in areas of strategic importance for both Perspecta and the federal government, such as cybersecurity, enterprise IT and radio frequency technology,” said Research Analyst Brian Baker. “The federal budget continues to be extremely growth-friendly for IT vendors, especially in areas like IT modernization, cybersecurity and commercial off-the-shelf solutions.”

He continued, “Perspecta’s growth outlook is clouded significantly by the NGEN-R bid loss, but the effects of this loss are not likely to impact Perspecta’s top line much more in 2020 as the company is already executing on an extension of its existing NGEN contract, which will last until at least September 2020. The NGEN-R bid loss comes at a relatively ideal time for Perspecta, as only 8% of its book of business is up for recompete in the coming year, allowing significant opportunity to pursue new business. If business development efforts are successful, Perspecta may be able to mitigate a good portion of the NGEN loss, but TBR believes growth in 2021 will remain a significant hurdle for the company.”

Additional reports recently published by TBR’s analyst teams

4Q19 Google Cloud: Acquiring, partnering and innovating in triple-play strategy

“In 4Q19 Google Cloud saw rapid revenue growth that paralleled and validated its continued and planned investments in infrastructure, R&D, talent, partnerships and global expansion. TBR predicts this accelerated pace of growth, fueled by offerings like Google Cloud Platform, will help the company close the gap with market share leaders Amazon Web Services and Microsoft.” — Nicole Catchpole, Senior Analyst

4Q19 Hewlett Packard Enterprise Initial Response

“According to the original timeline, HPE Next was supposed to be nearing completion, but in 4Q19 HPE announced the HPE Next initiative will continue through the end of HPE’s fiscal 2021. The vendor promises ‘incremental savings’ from this move, but TBR believes the extension is likely to involve further restructuring and potential employee rationalization as HPE eliminates redundancies from acquisitions such as Cray.” — Stephanie Long, Senior Analyst

4Q19 Cisco Systems: Facing lower demand as macro headwinds mount

“Enterprises and SMBs embraced Cisco’s intent-based networking offerings for most of 2019, while communication service providers (CSPs) redistributed capex toward RAN for 5G and virtualized infrastructure rather than core network initiatives. In 2020 we expect Cisco CSP revenue to continue to shrink, though at a slower rate due to rising spend on 5G core networks. Enterprise spending will decline as well due to macroeconomic factors such as COVID-19-related capex delays.” — Michael Soper, Senior Analyst

4Q19 Cisco Customer Experience: Enhance core capabilities to drive client value

“Software- and subscription-based engagements provide consistent support and maintenance revenue, and emerging solutions that embrace AI, IoT, security and cognitive capabilities provide opportunities for Cisco Customer Experience to bolster performance through upselling. Additionally, Cisco’s expanded footprint helps foster client relationships and showcase its expertise, leading to higher-value transformation engagements. We expect Cisco will continue to lead with its deep domain expertise, particularly in cybersecurity, to create new opportunities within its existing client base as well as strengthen its share in underpenetrated markets including APJC.” — Kelly Lesiczka, Analyst

4Q19 Hewlett Packard Enterprise Cloud Initial Response

“HPE recently began reporting annualized revenue run rates (ARR), as it looks to transition its entire portfolio toward consumption-based pricing by CY2022. HPE’s ARR grew 19% year-to-year in 4Q19 to $511 million, driven largely by GreenLake revenues, but high-growth, software-defined platforms such as Aruba Central and the newly launched HPE Container Platform will become rising contributors. At its Security Analyst Meeting in October, HPE provided guidance of a 30% to 40% CAGR in ARR between FY2019 and FY2022. TBR expects the transition to favorably benefit margins during this time period, but it will likely take time for HPE’s top line to reflect the change.” — Catie Merrill, Analyst

Edge computing is a cross-industry revolution that will reshape every industry

The edge computing market spans a spectrum of use cases that meet various customer needs, including sensitivity for latency and analytics. According to TBR’s 1Q20 Enterprise Edge Compute Market Landscape, while the edge is not new, its use for low-latency-dependent applications and close-to-the-data computing has increased and will continue to do so to support connected devices, emerging workloads such as IoT, and faster time-to-insight. For example, in-store robots can interact with customers to create a customized shopping experience on the floor and use data around purchases to help restock inventory.

TBR predicts a rapid increase in enterprise edge spend through 2024. The dynamics within the webscale space   include a desire by managed service providers to run their offerings on bare metal hardware and ODMs with the ability to provide this bare metal hardware at lower price points than OEM peers. These dynamics will be a key driver behind the upswing in enterprise edge revenue through 2024 as webscales capture opportunities typically fulfilled by OEMs.

Nearly all webscales and some telcos utilize ODM hardware, and most enterprises are expected to use OEM gear for their edge environments

ODMs have perhaps the largest opportunity at the enterprise edge. White-box hardware is of rising interest to major service providers, and the low-margin, high-volume play that ODMs embrace is an excellent fit for the enterprise edge market.

ICT hardware continuum graphic

TBR’s Enterprise Edge Compute Market Landscape, which is global in scope, details edge compute trends among vendors and their customers. Vendor coverage includes Amazon Web Services, Atos, Cisco, Dell Technologies, Digital Realty, Equinix, Hewlett Packard Enterprise, Huawei, IBM, Lenovo and Microsoft. This research includes current-year market sizing and a five-year forecast. Interested in hearing more of TBR’s analysis on the emerging and rapidly evolving opportunity in the enterprise edge market? Check out the replay of our recent webinar, The emerging and evolving landscape of enterprise edge computing.