TBR Weekly Preview: April 22-26

This week is one of the busiest weeks of the year for us, with plenty of earnings calls and scheduled benchmark publications.

Tuesday

• TBR’s Cloud Professional Services Benchmark highlights the leading vendors — and strategies — in each cloud professional services market as well as how evolving customer demands are fundamentally disruptive to the market as a whole. Enterprises are increasingly looking for vendors to supplement labor-intensive activities with automation to speed time to delivery and keep costs at bay, forcing vendors to establish more repeatable software and delivery frameworks. While Accenture and IBM continue to lead the market, regional systems integrators and cloud vendors themselves continue to build their solution sets, aiming to close the gap the two leaders have on the market. — Senior Analyst Cassandra Mooshian
• Under new CEO Hans Vestberg, Verizon is streamlining its operations and go-to-market strategies to highlight its strengths as a provider of premium network services. Verizon’s renewed focus on core services follows prior attempts to create growth engines via ventures such as Oath and go90, which ultimately fell short of expectations. TBR’s 1Q19 Verizon Initial Response will examine how Verizon’s restructuring strategies are impacting the company’s profitability and will include assessment on the operator’s early 5G initiatives. — Analyst Steve Vachon

Wednesday

• Market challenges and shifting consumer preferences are impacting investments AT&T has been relying on to sustain long-term revenue growth. For instance, DIRECTV continues to shed satellite customers and struggles to retain DIRECTV NOW subscribers amid the multitude of other over-the-top services in the market. WarnerMedia and Xandr will serve as new growth engines but will face market challenges as WarnerMedia’s streaming service competes against rival offerings such as Netflix and Disney+ and Xandr is challenged by the duopoly of Facebook and Google in the digital advertising market. In TBR’s 1Q19 AT&T Initial Response, we will analyze how AT&T’s WarnerMedia and DIRECTV initiatives are impacting the company’s overall financial performance and assess the operator’s growth initiatives in areas including 5G, IoT and NFV/SDN. — Steve Vachon

Thursday

• To drive cloud revenue growth in the next two years, Accenture’s Cloud practice will rely on its business-centric approach and ability to provide multicloud managed services. At the same time proper pricing scope and staff management are must-haves for Accenture to remain competitive. — Senior Analyst Boz Hristov
• 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, which TBR will highlight in this quarter’s initial response, 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. — Senior Analyst Elitsa Bakalova
• TBR expects Capgemini will sustain revenue growth through dynamic portfolio management while further improving profitability during 2019. Capgemini is positioning as a leading IT services vendor for clients facing mission-critical challenges. Capgemini helps clients reach their business goals by deepening industry specialization, approaching clients’ C-Suites and selling solutions across the portfolio. — Elitsa Bakalova
• In TBR’s semiannual Global Delivery Benchmark, we report that to sustain revenue growth, vendors have been transitioning from human capital-focused to technology-enabled organizations. However, vendors increasingly struggle to balance navigating the automation-enabled services market with meeting stakeholders’ expectations, forced to use labor arbitrage again. — Boz Hristov

Friday

• Digging into Atos’ Cloud practice, TBR notes that Atos seems to have solidified its cloud strategy and doubled down on its cloud go-to-market efforts over the past year, particularly benefiting from its partnership with Google Cloud and the Syntel acquisition in North America as well as opportunities to capitalize on bringing its cloud solutions and capabilities to Syntel’s customer base in the region, which is underpenetrated by Atos. The challenge, however, will be for Atos to establish, build and maintain brand awareness in North America, particularly as the region is arguably the most saturated cloud market globally.
• We reported in 4Q18 that Fujitsu Services continued to rely on its Japan client base as a primary driver of revenue expansion. TBR expects the same will be true in 1Q19 as Fujitsu reorients its talent in Europe, impacting its sales strategy and access to clients outside of primary focus areas in onshore Europe. While the shift will improve Fujitsu’s marketing and sales efforts in onshore EMEA, Fujitsu Services revenue could face challenges from the losses in offshore areas.

This week TBR will also publish 1Q19 initial responses on public sector-focused and healthcare IT services-centric vendors. Our senior analyst in these areas summed up developments in both as follows:

• Recent and ongoing actions by benchmarked public sector vendors (e.g., Northrop Grumman, General Dynamics) illustrate the priority equivalence of portfolio reshaping, enhancing operational efficiencies, and optimizing supply and service delivery chains to maintain growth and competitiveness in an evolving government IT investment environment. Some providers are allowing low-value contracts on their books to expire without replacement to reposition their business mix upmarket and away from increasingly commoditized technology areas. Despite the turmoil generated by the 35-day partial government shutdown, federal IT vendors saw their primary customer beginning fiscal year 2019 with a budget for the Department of Defense (DOD) in place and, for the first time in a decade, without a continuing resolution. The enhanced stability and predictability of the DOD spending environment is buoying the outlook for defense-focused contractors across the board and generating confidence about 2019.
• Healthcare IT services (HITS) vendors are finding increasing difficulty scaling revenues from existing provider clients simply on the coattails of prior health IT investments. Not only have health systems adopted a more judicious approach to their IT budgeting, but the burden is also increasing on health IT vendors to deliver maximum ROI with every engagement. Pockets of growth exist and new ones are emerging, even as the overall trend in health IT spend moderates. Average contract sizes are slowly expanding for several health IT vendors, particularly the electronic health record (EHR)-centric companies that are seeing more frequent services expansions with existing clients. The diversification of health IT contracts is also forcing vendors to streamline go-to-market approaches for selling wide-ranging solution categories and simplify the process for existing clients to work with them. The maturity of the U.S. EHR market (industry observers estimate 95% of hospitals and 87% of physician practices now have some kind of EHR system in place) is also pressuring HITS vendors to increase R&D to develop new solutions geared toward the impending industry adoption of value-based care and fee-for-value models of care remuneration and delivery.