Atos and COVID-19: Serve now and prepare for the future

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Atos, its clients and its communities will be ‘Future Ready’

In a one-hour virtual session with analysts, Atos’ Pierre Barnabe, head of Public Sector & Defense as well as Big Data & Cybersecurity, and Robert Vassoyan, head of Healthcare & Life Sciences as well as Unified Communications & Collaboration, detailed the company’s response to COVID-19, framing the discussion around communities, clients and technology and explaining what Atos expects as the world emerges into a post-pandemic, “Phase 2 Future Ready” world. In contrast to some peers in the IT services space, Atos’ initial emphasis on “serving our communities” reflected an ecosystem-centric view of the changed environment that brought the company’s responses to the pandemic to a different level. Barnabe and Vassoyan spoke specifically about serving national governments, healthcare providers, schools and public safety officials.

In addition, Atos mentioned helping clients facilitate an increase in remote and contactless payments, adjust their responses to new behaviors and consumption patterns (such as in utilities), broadcast media from remote and global locations, and enhance cybersecurity in work-from-home environments. In all, Barnabe and Vassoyan emphasized that the company’s ethical commitment to being an active and responsible corporate citizen was not challenged in response to COVID-19 but was, instead, core to how the company managed the pandemic and positioned itself and its clients for the next phase. 

Atos uses an industry-led organization to understand clients’ business priorities

Atos leads with technology-enabled solutions and technology expertise to solve clients’ business problems. The new industry-led organization, which has been in the works since early 2019 and was implemented in 1Q20 with six global industries and five regional business units, improves the company’s ability to cater to clients’ industry-specific needs and generate business outcomes. According to TBR’s 1Q20 Atos report, “While Atos’ performance will be negatively affected by the COVID-19 outbreak, the company has a relatively resilient business profile that will enable it to operate in the crisis. Approximately 67% of Atos’ revenue is generated by multiyear contracts that contribute recurring revenue streams; 10% by big data and cybersecurity solutions, which are in demand due to COVID-19; and 23% by projects, which depend on discretionary spending and usually experience slowdowns during economic uncertainty.”

TBR also noted that “a balanced vertical mix with revenue contributions of between 12% and 20% across the six industry groups will allow Atos to use growth opportunities in sectors such as telecommunications, healthcare and public sector to compensate for growth challenges in industries highly impacted by COVID-19” such as automotive, retail, and travel and transportation.

Atos in a post-pandemic world: Atos is utilizing its industry-led approach and technology expertise in areas such as supercomputing and machine learning to address clients’ immediate needs driven by the global COVID-19 outbreak, help clients recover and adapt, and prepare their businesses for the future.

Rooted and stable yet innovative, HCLT relies on core strengths to drive profitable growth

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TBR assessment

HCL Technologies’ (HCLT) Mode 1-2-3 strategy remains a core pillar in the company’s efforts to navigate the dynamics of the ever-evolving IT services market, and positions it to transition its portfolio and address client needs now and post-pandemic. At the 2020 Analyst and Advisor Day, HCLT President and CEO C Vijayakumar noted, “The strategy is applicable to any business or enterprise.” Executing successfully on the strategy requires equal commitment from leadership and employees.

HCLT’s leadership is “strong and stable,” according to C Vijayakumar, with 30 top executives with an average of 26 years of experience with HCLT — a striking contrast to some of the company’s peers that have experienced a slew of executive departures and changes at the helm in recent years, such as Wipro’s (NYSE: WIT) May appointment of former Capgemini executive Thierry Delaporte as CEO. As such, HCLT is able to stay the course of its strategy — to utilize engineering and infrastructure services as a core enabler to drive digital transformation engagements and profitable growth — without deviating too far into unchartered domains. Its leadership also acts as a talent magnet, as a charismatic and consistent vision often trumps micromanagement tactics.

Services remains a people business, and HCLT knows it. While the company continues to embed automation to augment services, it relies heavily on its greatest asset, its employees, to extract the most value from its investments. With engineering services at its core, HCLT can execute on what the client wants — provided the client knows what they want — and the company is not shy about challenging its clients as it seeks to not simply solicit new business but to introduce innovative ideas. All of this would not be possible if HCLT did not stay true to its talent strategy.

Just like with its portfolio offerings, HCLT relies on staff with core capabilities. Consulting engineers, not consultants, are what differentiates HCLT from many of its peers, which often lose sight and aspire to be something for which they are not known. Just as talent carries a significant weight in HCLT’s differentiation, the way the company manages its partner network also has an impact on value proposition. As services and software relationships evolve to account for changing buyer expectations, HCLT must remain vigilant in not just how it partners but also with whom it partners. With COVID-19 shifting buyers’ digital transformation priorities and forcing clients to consolidate budgets, maintaining trusted relationships with business leaders will be key, compelling HCLT to forge exclusive relationships with technology-inclined business consultancies to ensure long-term success.

“A simple strategy and relentless focus on execution” fueled HCLT’s ability to accelerate revenue growth while maintaining margin performance over the past two years. During the HCL Analyst and Advisory Day, company executives, along with regional and segment leaders including the CEO, walked through HCLT’s business performance and growth areas, identifying bright spots within industry and service segments that align with the company’s business investments. While HCLT’s areas of investment, such as security, cloud, IoT and digital, do not vary significantly from those of its peers, the company has differentiated itself with its Mode 3-specific investments and leans on its talent and culture, ongoing innovation, and business outcomes achieved for clients to capture new opportunities around these growth areas.

Cloud professional services and hosted private cloud markets will grow over the next 5 years as COVID-19 drives cloud adoption

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COVID-19 has undoubtedly created financial pain for businesses across all verticals. Business operations have been disrupted and revenue streams have declined in many industries across the globe. At the same time, the pandemic has required additional investment to support remote work and adjust business processes to align with public health guidance from the Centers for Disease Control and Prevention, including social distancing. However, even amid these financial challenges, businesses have spent and plan to continue spending more of their IT resources on cloud-delivered services. Cloud’s benefits of agility, innovation and a high degree of automation have been reinforced during the pandemic and have prepared adopters for the next unknown disruption to their business.

Given these circumstances, TBR’s market forecasts for cloud professional services and hosted private cloud have been adjusted to reflect the impact of COVID-19 over the five-year forecast period. In the next two years, we anticipate growth will slow slightly due to the impacts social restrictions are having on supply and demand. Particularly given the uncertain environment, business spending will likely take longer to rebound than in previous economic downturns. This holds true across IT departments, as many businesses that have on-premises IT infrastructures will postpone cloud deployments until after the pandemic abates.

As such, workload activity including legacy SAP, VMware and Oracle migrations to bare metal IaaS and the associated services opportunity will be affected. While these impacts will reduce market growth by a few percentage points through the remainder of 2020 and into early 2021, the flexible nature of cloud-based transactions make the cloud professional services and hosted private cloud markets less susceptible to the virus’s near-term effects than other markets within the IT industry. COVID-19 is testing many companies’ IT preparedness, and as a result, a notable increase in cloud usage will occur once the virus subsidies and IT spending returns to normal, driving accelerated growth from 2022 to 2024.

TBR’s Cloud Professional Services Market Forecast and Hosted Private Cloud Market Forecast provide insights into how market sizes, growth and vendor positions will change over the next five years. Each forecast is broken down into four subsegments and both forecasts cover the Americas, EMEA and APAC.

Accelerated adoption of cloud due to COVID-19 will lift cloud professional services and hosted private cloud markets

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COVID-19 impacts and assumptions

COVID-19 has undoubtedly created financial pain for businesses across all verticals. Business operations have been disrupted and revenue streams have declined in many industries across the globe. At the same time, the pandemic has required additional investment to support remote work and adjust business processes to align with public health guidance from the Centers for Disease Control and Prevention, including social distancing. However, even amid these financial challenges, businesses have spent and plan to continue spending more of their IT resources on cloud-delivered services. Cloud’s benefits of agility, innovation and a high degree of automation have been reinforced during the pandemic and have prepared adopters for the next unknown disruption to their business.

Given these circumstances, TBR’s market forecasts for cloud professional services and hosted private cloud have been adjusted to reflect the impact of COVID-19 over the five-year forecast period. In the next two years, we anticipate growth will slow slightly due to the impacts social restrictions are having on supply and demand. Particularly given the uncertain environment, business spending will likely take longer to rebound than in previous economic downturns. This holds true across IT departments, as many businesses that have on-premises IT infrastructures will postpone cloud deployments until after the pandemic abates.

As such, workload activity including legacy SAP, VMware and Oracle migrations to bare metal IaaS and the associated services opportunity will be affected. While these impacts will reduce market growth by a few percentage points through the remainder of 2020 and into early 2021, the flexible nature of cloud-based transactions make the cloud professional services and hosted private cloud markets less susceptible to the virus’s near-term effects than other markets within the IT industry. COVID-19 is testing many companies’ IT preparedness, and as a result, a notable increase in cloud usage will occur once the virus subsidies and IT spending returns to normal, driving accelerated growth from 2022 to 2024.

TBR’s Cloud Professional Services Market Forecast and Hosted Private Cloud Market Forecast provide insights into how market sizes, growth and vendor positions will change over the next five years. Each forecast is broken down into four subsegments and both forecasts cover the Americas, EMEA and APAC.

IBM Z’s relevance will persist in the digital world

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Software abstraction converges ICT onto single platforms

Software-defined networking essentially virtualizes the last leg of the three-cornered compute, storage and networking stool. Similarly, the software abstraction makes compute and networking mere workloads on the compute instance. Vodafone’s (Nasdaq: VOD) customer case study at Think 2020 addressed this integrated data and networking construct being delivered from one cloud computing architecture. New terms are now being coined to talk about the various compute form factors rapidly coming into view. Edge computing, edge cloud and fog computing all seek to describe new compute instances being deployed closer to humans and connected machines that will drive economic and social activity in the digital age. A single cabinet Z, therefore, can become the converged ICT install at the department and branch level. Carry out several more form factor reductions, and the concept of Z at the edge does not seem so far-fetched or beyond the realm of IBM (NYSE: IBM) engineering to achieve.

Form factor miniaturization comes to the Z; is Z at the edge on the horizon?

Most people unfamiliar with Z view it as a “behind the glass” monolith in need of air-cooled rooms and water-cooled architectures. Z now comes in standard 19-inch rack cabinets, with the first air-cooled model introduced this year at Think 2020. IBM aims this form factor at SMBs and startups, each of which represents new markets for Z. This design enhancement is the latest of many innovations IBM has brought to the Z architecture in recent product cycles.

Chapter 2 of the cloud, as IBM defines it, will be the unlocking of enterprise data for distribution throughout a hybrid multicloud world. Distributed, ubiquitous computing might flip the axis on the business considerations and technology applications for risk mitigation as the frictionless movement of data among and between enterprises becomes the norm, but it does not signify the death knell of the mainframe. If anything, this new computing architecture requires a virtual custodian and traffic cop for data security and for dynamic identity access and management. Recent design enhancements to the venerable Z architecture, coupled with bringing the Red Hat developer community to Z, have the potential to defend and extend Z’s market relevance far into the future.

Egypt and IT and the center of the world

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What makes Egypt attractive

Egypt’s growing IT services and technology sector has been built on important natural advantages and few forward-looking investments in recent years. The country’s proximity to Europe, considerably large and educated talent pool, and relatively low costs compared to nearshore locations such as Poland, Romania and Bulgaria make Egypt a natural hub for IT services, just as it has been a hub for commerce for millenniums. In addition, multinational companies have long-established histories of doing business in Egypt, building up the trust and goodwill needed for large investments and sustained operations. IBM has had a presence in the country for 66 years, and in addition to its six regional delivery centers in Cairo, in 2019 it opened two new centers — an Innovation and Industry Client Center and a Marketing Services Center — to accelerate digital transformation for public and private sector clients through next-generation solutions such as AI, cybersecurity, digital technology, blockchain and hybrid cloud. Sharing a time zone with much of Europe provides Egypt with a natural advantage, particularly relative to India and the Philippines, two outsourcing megacenters. 

Atop these advantages and potentially separating Egypt from other growing outsourcing locations has been active investment by the Egyptian government in developing a business ecosystem, creating jobs and exports, fostering entrepreneurship, encouraging foreign direct investment, and assisting Egyptians in innovation efforts. While this mandate may sound ambitious, Egypt, a country known for large projects, has kept a tight focus on successful development of IT services and technology exports.

Sustained investment in talent

Egypt’s critical advantage could be its talent base, particularly due to the group’s size, technology skills and fluency in multiple languages. According to the Central Agency for Public Mobilization and Statistics in Egypt, approximately 500,000 students graduate from universities in Egypt every year, of which around 90,000 speak English. To assist graduates in finding employment with multinational companies — and to help those companies develop their employees’ skills — the Egyptian government, through ITIDA, partners with companies to provide mentoring, tools and competitions for startups as well as sponsor various hackathons and other initiatives.

The Egyptian IT sector exported around $4.2 billion in services in 2019, according to the Egyptian Information Technology Industry Development Agency (ITIDA). The country’s IT sector has become a substantial part of the overall economy growth, contributing both jobs and export revenues, primarily from BPO, software, application development and maintenance, and technical support services. TBR sees advantages for Egypt in the post-coronavirus world.

COVID-19 will have a relatively limited impact on the TIS market overall as CSPs remain committed to and focused on deploying new technologies

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Strong investments by webscales and China-based telcos will carry the telecom infrastructure services (TIS) market through the COVID-19 crisis relatively intact, with a shallow decline of relatively short duration expected in the overall market followed by a robust, sustained recovery as CSPs in other key countries accelerate their infrastructure initiatives to align with the new normal, post-pandemic world.

COVID-19 was a catalyst to accelerate and broaden the scope of digital transformations as well as 5G and edge computing adoption in addition to other trends that were already in motion before the virus entered the picture, such as network transformation via virtualization and cloudification.

The Telecom Infrastructure Services Global Market Forecast tracks spend by communication service providers (CSPs), which includes telecom operators, cable operators and webscales, on infrastructure services. TBR categorizes infrastructure services into four distinct buckets: deployment services, maintenance services, professional services and managed services. This research includes current-year market sizing plus a five-year forecast across services segments and regions as well as examines growth drivers, top trends and leading market players. Vendor market share is also included.

COVID-19 dealt only a glancing blow to federal IT, but market dynamics are still shifting

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COVID-19 will accelerate a range of secular trends in federal IT

Despite the inevitable short-term impact of COVID-19 on federal technology outlays, IT infrastructure modernization will eventually return to the top of the list of federal IT spending priorities, as will investments in cybersecurity, analytics, AI, big data, cloud and machine learning. The epidemic will disrupt contract delivery, create resource deployment challenges at federal IT vendors and their agency clients, and may cause nonhealth-related discretionary spending to be redirected to healthcare areas, benefiting vendors such as Leidos, Accenture Federal Services, Maximus and ManTech (Nasdaq: MANT).

As federal agencies transition large portions of their workforces to remote environments IT infrastructure improvements and migrations to cloud and everything “as a Service” will follow, along with projects to improve private networks and broadband connections and engagements to enhance security requirements as the “threat surface” exposed to new security breaches expands. Federal IT decision makers are increasingly seeking methods of combating COVID-19 that have been proved in the commercial sector.

Federal spending levels are expected to increase on preparedness and response activities and other disaster recovery or mitigation work in the fiscal 2021 budget, with a growing volume of IT modernization opportunities around disease surveillance improvement, including the implementation of new IT systems and advanced analytics. Still, the overall landscape for products and services to counter biothreats remains unclear and federal IT vendors will be tapped to provide the vision and road map for the adoption of biothreat surveillance solutions. Spending on electronic warfare, countering drones and unmanned systems and other areas of the National Defense Strategy will remain strong for the next two years and in fact may expand to include bio-monitoring and bio-surveillance technologies.

Most of the results from the 1Q20 earnings season are in, and federal technology contractors have provided initial reactions to the impact of the coronavirus pandemic on their fiscal performance and their outlook for federal fiscal 2020 and beyond. By and large, the fiscal effects of COVID-19 were limited to the final few weeks of the quarter, according to a plurality of federal IT vendors, minimizing the top- and bottom-line impacts for most federal technology contractors. Negative impacts were most concentrated in the global aerospace sector, and as such, companies with a footprint in commercial or government aeronautics encountered severe growth and margin headwinds. However, all federal contractors had to scramble to acclimate resource management, operations, service delivery, business development and supply chain management strategies to the new COVID-19 environment.

Benchmark security revenue continues to increase, driven primarily by acquisitions in 2H19

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Key 2H19 benchmark takeaways

Total benchmarked revenue

Double-digit growth among covered vendors was due to steady industry acquisitions and strong performance from many of the vendors, including IBM (NYSE: IBM), F5 Networks (Nasdaq: FFIV), CyberArk (Nasdaq: CYBR), Fortinet (Nasdaq: FTNT) and Splunk (Nasdaq: SPLK). TBR believes security demand continues to rapidly accelerate as companies execute digital transformation projects and cyber threats continue to increase. The COVID-19 pandemic is resulting in an increase in cyberattacks aimed at multiple verticals such as healthcare and financial services, as institutions are forced to operate online in a greater capacity than prior to the outbreak.

Application security and mobile security segments

Higher demand for email- and web-related security as well as application vulnerability scanning led to an increase in application security segment revenue. The mobile security segment is seeing high revenue growth as the number of mobile devices continues to rise and the need to provide endpoint detection to all mobile and IoT connected devices increases.

TBR’s Security Benchmark provides clients a deep dive into the enterprise security market, highlighting the financial performance of public and private, multiline, and pure play vendors within the industry.

With use cases built on public chains in production, attention turns to public and private sector interaction

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Near-term market implications: What is next, rather than beyond

TBR believes the intersection of public policy and commerce is the next area where technologists will apply their energies within the blockchain realm. The core platform elements are in place with clearly articulated road maps for ongoing development work. At issue will be the policy regulations and compliance methods needed to ensure blockchain-enabled business activity can be seamlessly imported into legacy systems of record for financial reporting purposes.

Similarly, nation states and native-cloud platforms such as Facebook will vie to become the de facto economic exchange mechanism for blockchain transactions. Notably, Libra Association, the Facebook-created digital currency, recently named former U.S. Department of the Treasury Under Secretary Stuart Levey as its first CEO, indicating Facebook’s strategy for bridging the nation state-commercial entity divide. Taking a conservative posture to minimize security threat vectors to protect the value of the currency in question appears, on its face, to be the most prudent course of action. On the other hand, taking a more aggressive position that allows for deeper embedding into commerce chains and exposes the currency to more programmability — and consequently creates a greater surface area for malicious attacks — is a risk nation states and businesses will undertake to gain greater participation in the digital economy.

In the short term, then, the conservative posture is prudent. In the long term, however, such conservative viewpoints could result in shifting geopolitical power. The U.S. dollar, for example, has been the de facto foreign exchange clearing mechanism for decades. A conservative posture on the part of the U.S. Federal Reserve on digital currency opens the door for other entrants to displace the U.S. dollar as the international clearing mechanism and, in so doing, removes a valuable foreign policy tool from the U.S. diplomatic toolbox at a time when U.S. diplomacy is already severely challenged.

The fourth annual EY Global Blockchain Summit had a vastly different look and feel as the COVID-19 pandemic shifted the engagement to a virtual forum and turned the spotlight on the rapidly coalescing use cases that blockchain technology underpins. The core coterie of blockchain builders does not have to prove technical value through “use case show and tell” of how the technology works, but rather needs to discuss what the technology delivers in terms of business process improvement. However, technology companies do need to outline product road maps to ameliorate persistent concerns. More important, though, is the need for automated interaction, adjustment and compliance with business rules and the ever-evolving public policies designed to mitigate risk. It appears clear that as revolutionary as blockchain can be to business commerce by shifting the tracking of such activity from general ledgers to distributed ledgers, it can be equally transformative to nation states, depending on what form of currency exchange settles out as the de facto clearing mechanism for multi-enterprise blockchain business networks.