IBM continues to separate itself from the pack

Senior Analyst Nicki Catchpole reports this week on IBM’s cloud and software practice, noting: “While IBM’s 3Q19 overall results continued to experience a downward slide, its Cloud & Cognitive Software sector experienced immediate positive effects from the much-anticipated $34 billion acquisition of Red Hat. Red Hat’s OpenShift technology and channel-driven approach have boosted IBM’s cloud growth, expanded the broader IBM portfolio, and opened doors to new customers and markets. Post-merger, IBM is focusing on emphasizing its value proposition at the PaaS layer, with the intent to capture enterprise IT spend in the lucrative hybrid cloud market and position itself as the industry’s only true hybrid multicloud platform. While IBM still faces strong headwinds post-merger, TBR expects that another quarter of executing a cloud-native portfolio approach will position IBM for differentiation and continue to yield positive growth results in this segment.”   

Additional assessments publishing this week from our analyst teams

Capgemini has sustained a midsingle-digit organic revenue growth trend over the past seven quarters, positively affected by strategic expansion into next-generation and industry-specific solution areas. Capgemini’s revenue growth will decelerate in 4Q19 due to potential softness in the banking sector and in the U.K. Capgemini indicated pockets of softness are developing, specifically in banking due to end-of-year budget management and in the public and private sectors in the U.K. due to uncertainty around Brexit. In September Capgemini’s board of directors chose Chief Operating Officer (COO) Aiman Ezzat to succeed Paul Hermelin as CEO in May 2020. While Ezzat will be responsible for the overall management of the company as CEO, Hermelin will remain chairman of the board. This will ensure a smooth transition in Capgemini’s top executive role. Ezzat has been with Capgemini for 20 years and has deep knowledge of the company from holding leadership roles, such as CFO and, most recently, COO.” — Elitsa Bakalova, Senior Analyst

Atos’ new CEO, Elie Girard, will continue to steer the company’s strategic direction in the next two years, with a focus on delivering business outcomes for customers utilizing Atos’technology and services expertise in cloud, cybersecurity and emerging areas such as IoT and edge and quantum computing. Revenue and cost synergies from the Syntel acquisition will enable Atos to achieve its financial goals in 2019. Atos is positioned well to support its expansion in North America by cross-selling solutions to existing clients. TBR expects Girard, who has been with Atos since 2014, to emphasize execution of financial targets, especially around improving profitability through productivity and efficiencies.” — Elitsa Bakalova

“With its marriage to United Technologies on the 2020 horizon, Raytheon is on the cusp of a game-changing merger that will impact the federal IT and global aerospace sectors for years to come. In TBR’s 3Q19 Raytheon Intelligence, Information & Services (IIS) report, we will begin to examine the implications of the blockbuster, multibillion-dollar consolidation on Raytheon’s government services business. Despite early disruptions from the looming mega-merger and the loss of the Warfighter FOCUS contract, Raytheon IIS continues to post robust fiscal performance, owing to a steady stream of new classified projects in cyber and space, particularly in its core U.S. market but also overseas with its long-established roster of foreign governments the company counts as clients.” — John Caucis, Senior Analyst

“Leveraging its portfolio network to integrate cloud, digital and security capabilities as well as support delivery of software-driven services will help Cisco Customer Experience maintain growth and profitability. Additionally, Cisco’s increased acquisition activity will provide Cisco Customer Experience with access to a broader client base and enable it to more quickly develop cloud and IoT capabilities to bolster revenue streams in 3Q19.” — Kelly Lesiczka, Analyst

HCL Technologies’ (HCLT) alliance and acquisition strategy helps the company enhance its portfolio to embed vertical and technical expertise and positions it for profitable revenue growth in 2020. Additionally, HCLT’s investments in talent, including fostering its ‘Employees First’ culture, supports the development of a digitally versed talent bench and will allow HCLT entryways into emerging markets.” — Kelly Lesiczka

“DXC Technology made several changes to its management team, including its CEO, following the retirement announcement of its current chairman, Mike Lawrie. New leadership across DXC will bring a fresh perspective and could help turn around its perpetual restructuring initiatives and financial underperformance. During the quarter, the company appointed Mike Salvino as president and CEO, and TBR believes his vision for the company complements DXC’s strengths and will align with much of his predecessor’s values, minimizing disruption, as Lawrie was involved in the selection process.” — Kevin Collupy, Analyst

Azure has become a consistently strong revenue driver for Microsoft, but it is also notable that Microsoft has been able to sustain growth of its licensed Server software products by stressing hybrid IT environments and high-value use cases like expansive IoT deployments.” — Meaghan McGrath, Senior Analyst 

Amazon Web Services’ (AWS) days of unrivaled public cloud PaaS and IaaS dominance may be numbered as key competitors such as Microsoft and Oracle rally together to unseat AWS. AWS is fighting to stem their progress, sacrificing margins to win customer workloads.” — Meaghan McGrath

Comcast’s Cable Communications business remains in an enviable position in the U.S. telecom industry as it continues to sustain solid revenue growth despite increasing competitive pressures and shifting consumer trends. Central to Comcast’s success is the high subscriber growth spurred by the accelerated speeds of its DOCSIS 3.1 broadband services while being free of the burden of maintaining a legacy network portfolio, which is hindering wireline revenue growth for rivals such as AT&T and Verizon.” — Steve Vachon, Analyst

“The fruits of Verizon’s restructuring initiatives, which focus on eliminating nonessential costs while renewing emphasis on the strength of the company’s wireless business, were evident in Verizon’s improved subscriber growth and consolidated operating margin in 3Q19. Verizon’s emphasis on improving the value proposition of its unlimited data plans led to the company gaining its highest third-quarter wireless phone gross additions in five years, but churn is also rising due to stronger competition from T-Mobile and Xfinity Mobile.” — Steve Vachon

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