DOGE Federal IT Vendor Impact Series: CACI

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The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of March 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

CACI spared from major DOGE disruptions: Growth and profitability on track for FY25 goals

CACI tendered its 1Q25 earnings on April 23, and TBR did not discern any material impact from DOGE on the company’s business during the quarter, the third fiscal quarter of CACI’s FY25 (ending June 30). The company posted sales of $2.17 billion in 1Q25, up 11.8% year-to-year on a statutory basis and up 5.6% on an organic basis. CACI’s gross margin of 33.8% in 1Q25 was up sequentially from 33.2% in 4Q24, while its operating margin of 9.1% in 1Q25 was up 50 basis points sequentially from 8.6% in 4Q24. The company’s adjusted EBITDA margin was 11.7% in 1Q25, up from 11.1% in 4Q24.
 
CACI believes demand will remain strong through the remainder of its FY25 and into its FY26 for technologies and capabilities at the core of the company’s portfolio: AI-enhanced and commercially honed software-defined solutions delivered with Agile development methodologies; signals intelligence (SIGINT) and electronic warfare (EW) technologies for warfighters, defense vehicles and platforms, and IC applications; and AI-infused financial management offerings.
 
Uninterrupted sales growth and consistent margin performance indicate CACI’s offerings remain well aligned to the Trump administration’s IT investment priorities, particularly as the new administration prepares to expand investment in cybersecurity, national security and national defense, and advanced space-based communications systems for defense, intelligence and civil applications. CACI executives also noted that the federal budget environment is slowly becoming more constructive and more transparent, a positive harbinger for CACI and its fellow federal IT contractors.

CACI’s order book was essentially immune to DOGE-related turmoil in the federal IT market

TBR did not observe any impact from DOGE activities on CACI’s book of business. CACI’s backlog fell 1.3% sequentially, from $31.8 billion to $31.4 billion in 1Q25, but his kind of decline is typical in the company’s third fiscal quarter. CACI’s trailing 12-month (TTM) book-to-bill ratio was 1.5 in 1Q25, down from 1.7 in 4Q24. However, a sequential decline from the second to third fiscal quarter is not unusual for the company. In 1Q25, both the TTM book-to-bill ratio of 1.5 and the quarterly ratio of 1.2 were consistent with figures from the same period last year.
 
Furthermore, CACI’s bookings of $2.2 billion in 4Q23 and $3.5 billion in 1Q24 came during a period of exceptionally robust Department of Defense and Intelligence Community-related award activity. CACI’s bookings were $2.75 billion in 1Q25, up from $1.2 billion in 4Q24, consistent with the seasonal, historical pattern of sequential bookings expansion in the company’s third and second fiscal quarters. CACI noted in its 1Q25 earnings discussion that DOGE examined seven contracts in the company’s order book, including one that had already been completed. The aggregate revenue impact of these awards being eliminated by DOGE would only be $3 million in TCV, though DOGE has only notified CACI that $1 million worth of this ongoing work is likely to be canceled.
 
The company acknowledged that its business development teams have experienced some deceleration in certain aspects of the sales cycle, such as invoice and funding approvals. CACI CFO Jeffrey MacLauchlan said during the earnings call that “things that used to take two or three days are taking four or five days.” CACI’s leadership expects the disruption, which according to the company has been “very manageable” to date, to wane during the second half of federal fiscal year 2025 (FFY25). If sales motions are being impeded by DOGE, TBR would expect to see this reflected in lower-than-expected margin performance by CACI, but we did not observe any DOGE-related margin erosion in CACI’s P&L in 1Q25.

Undeterred by the DOGE-disrupted environment, CACI elevates several elements of its FY25 guidance

CACI raised the low end of its FY25 sales guidance range in 1Q25 and is now calling for top-line revenue of between $8.55 billion and $8.65 billion, implying a growth range of between 11.6% and 12.9% over FY24 revenue of $7.66 billion. In 4Q24 the company forecasted $8.45 billion in revenue at the low end of its projected FY25 sales range, implying growth of 10.3% at the bottom of the range.
 
CACI also raised the low end of its guidance for FY25 adjusted net income* in 1Q25 and now expects at least $543 million in FY25, up from $537 million forecasted in 4Q24.
 
CACI elevated its outlook for non-GAAP adjusted diluted earnings per share (ADEPS) in 1Q25, and as of 1Q25 is projecting a range of between $24.24 and $24.87 per share for FY25, up from a previous ADEPS range of between $23.24 and $24.13 per share. Free cash flow guidance was also elevated from $450 million tendered in 4Q24 to $465 million in 1Q25.
 
TBR notes that CACI has twice raised guidance for FY25 sales, adjusted net income, ADEPS and free cash flow since initially tendering its FY25 outlook in 2Q24. CACI is still guiding for a FY25 EBITDA margin in the low 11% range, implying a potential improvement of 100 basis points over FY24’s EBITDA margin of 10.4%, but also suggesting CACI does not expect any DOGE-related margin headwinds through the remainder of FY25.

CACI will remain vigilant and maintain a constant dialogue with customers

During CACI’s 1Q25 earnings call, CEO John Mengucci described DOGE’s objectives as “peace through strength, secure borders, increased efficiency and technology modernization.” Mengucci and his executive team remain confident that CACI’s strategy and portfolio are and will remain in sync with DOGE’s goals and with the IT strategy of the Trump administration, a contention supported by the company’s 1Q25 fiscal results and its more optimistic FY25 outlook.
 
Irrespective, CACI recognizes that federal executives are under pressure to accelerate IT modernization, quickly achieve IT-driven operational efficiencies and curb spending according to DOGE directives. Procurement teams at federal agencies are struggling to keep bid review processes and proposal adjudications on schedule as the Trump administration executes large-scale furloughs across the federal workforce. As such, CACI will keep its executives, business line leaders and business development teams as close as possible to IT decision makers and procurement counterparts in federal agencies for as long as DOGE’s efficiency agenda is in effect.
 
*Adjusted net income: GAAP-compliant net income excluding intangible amortization expense and the related tax impact

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to download a preview of our federal IT research and receive upcoming series blogs in your inbox as soon as they’ve published.

 

Trade Wars and the Professional Services Fallout: Talent, Growth and Operational Models in Flux

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Significant market disruption likely in near and long term

Trade wars and tariff uncertainties conjure up visions of cargo ships, ports, factories and stacks of goods stranded by economic chaos, not consultants and IT services professionals. Fear, uncertainty and doubt are usually good for the consulting business, while the higher costs of running a business fuel demand for more outsourcing. This time, things might be different. This trade war, even if partially suspended for now, may significantly disrupt professional services, especially if tariffs continue creeping into new areas and the trust deficit continues to grow. Steel now, services later.
 
TBR believes three areas will likely experience added near-term stress if the trade war continues: acquisitions, sales cycles and staffing. Longer-term, more seismic changes may come to the H-1B visa program, regionalization efforts among the Big Four firms, and onshore/offshore talent models. Looming over all of these disruptions, at least at the moment, is the potential for a grand decoupling of the U.S. and China economies, with incomprehensible knock-on effects. Those near-term disruptions share a common denominator: macroeconomic uncertainty.
 
Making the business case for a significant acquisition becomes harder in a recession-fearing market. When clients extend sales cycles because they’re afraid to commit suddenly more precious resources to upgrades, modernizations or transformations, growth slows for consultancies and IT services companies. And when growth slows, so does hiring.
 
At its core, professional services is all about people. And when recruiting, rewarding and retaining people are pressured, everything is pressured. To understand how tariffs and trade wars could hurt consultancies and IT services companies, even in the short run, it is critical to step back and realize these professional services providers serve every industry. They may be in and of one industry themselves — professional services — but their clients span every industry that exists. When the steel, computer chip, automobile, bourbon and lumber industries get upended by tariffs, so do the consultancies and IT services companies serving them.
 

In 2025 IT services companies and consultancies will refine their alliances, articulate a clear joint value proposition, and align at both the leadership and salesforce levels. The most successful IT services companies and consultancies will be the ones that partner best. Learn more in TBR’s 2025 Ecosystems & Alliances Predictions special report.

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Local and regional talent may be key to revenue growth

Powering through the near-term challenges, IT services companies and consultancies may then face structural changes to their operating environment, many centered on talent, starting with a reevaluation of the onshore/offshore mix. India-centric companies, which have historically relied on H-1B visas (at least to some degree; TBR appreciates that their reliance has varied widely), may find a less accommodating atmosphere in the U.S. and possibly even an unwillingness by potential candidates to relocate to the U.S.
 
At the same time, the Big Four firms may slow down their regionalization efforts, as having highly country-specific capabilities and dedicated staff may become a greater asset than more explicitly globalized organizations. TBR believes the more extreme outcomes around H-1B visas remain unlikely, while staying cognizant that the current trade war and tariff uncertainty also seemed unlikely a year ago. TBR does believe one highly likely outcome of the current trade crisis is a reassessment — by all IT services companies and global consultancies — of the overall onshore/offshore model. The recent uptick in global captive centers in India may be indicative of an enterprise trend toward more tightly owned and controlled offshore resources, but that was already the norm among IT services companies and consultancies prior to the trade war threat.
 
If trade wars persist, local and regional talent may become the key to sustained revenue growth, tied to local and regional economic growth overall. In other words, whichever company has the most and the best people on the ground in the fastest-growing places will continue to grow the most rapidly. It seems like a good time for the Big Four to have every country member firm run its own show as the on-the-ground market conditions start becoming even more disparate.
 

Watch now: TBR Principal Analyst & Practice Manager Patrick M. Heffernan discusses trend expectations for GenAI in the Professional Services market in 2025

Tariffs on services could further complicate market landscape

Returning to the starting image, trade wars evoke cargo ships, not consultants, and so far the Trump administration has not included services on the various tariff schedules. The U.S. currently runs a services trade surplus, and tariffs on services (as well as software) for various countries would be insanely difficult to assess. Artificial intelligence and the application of generative AI (GenAI) to procurement could make tariffs on services more manageable, but any efficiencies gained through those efforts would potentially erode the low-cost arbitrage advantage enjoyed by IT services companies and technology providers, damaging the overall U.S. trade balance.
 
Further complicating this picture, advances in AI and automation could mean any manufacturing jobs created in the U.S. as a direct result of tariffs would be digital FTEs, benefiting technology companies but undermining the Trump administration’s stated goals. In all, a mess, even if services remain off the tariff schedule.

Companies pursue multiple strategies around U.S.-China decoupling

Another potential scenario: Some economic and consulting leaders have been advocating for a U.S.-China decoupling for a few years, a possibility that is more likely now as every day brings another parry in the U.S.-China trade war. Some global consultancies have been kicked out of China. Others have downgraded their offices or quietly left on their own. And some are maintaining an arm’s-length relationship, and some are doing business as usual. Fools would predict which strategies will win out. TBR simply notes that companies may pursue multiple strategies.
 
For example, in August 2024 IBM closed its China Development Lab and China Systems Lab, laying off more than 1,000 employees across Beijing, Shanghai and Dalian. The closure was part of IBM’s initiative to relocate R&D functions to India and other countries due to competition and geopolitical tensions. However, IBM remains committed to working with clients in the Greater China region. In March IBM launched an initiative to expand in enterprise AI, hybrid cloud and industry-specific consulting services to drive digital transformation and implement AI and cloud solutions in China. As part of this initiative, IBM is working with China-based Great Wall Motor Co. Ltd. on digital transformation and global expansion. A complete decoupling may be unlikely, but consultancies and IT services companies that have financial flexibility and leaders who are prepared to take risks and withstand uncertainty will likely continue to thrive.

Infosys, Cognizant, TCS and Wipro ITS Double Down on Competitive Pricing Strategy While Trying to Enhance Client Engagement 

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TBR FourCast is a quarterly blog series examining and comparing the performance, strategies and industry standing of four IT services companies. The series also highlights standouts and laggards, according to TBR’s quarterly revenue projections. This quarter, we look at four India-centric vendors — Infosys, Cognizant, Wipro IT Services (ITS) and Tata Consultancy Services (TCS) — and analyze how investments in portfolios, training and innovation are positioning them for growth.

 
Although vendors experienced a small rise in discretionary spending among financial services clients in 4Q24, smaller deal wins, particularly those in consulting, remain infrequent, leading IT service vendors to reprioritize resources to align with market demand and invest in innovative and emerging technologies. India-centric vendors are leveraging competitive pricing enabled by largely offshore delivery, capitalizing on clients’ demand for cost optimization and operational efficiency.
 
According to TBR’s 4Q24 Cognizant report, “Amid an unfavorable sales environment, in which the procurement process is prolonged as IT buyers grapple with smaller budgets and additional layers of executive approval, Cognizant has increasingly relied on its legacy DNA as a low-cost IT services provider to compete on price. This approach is far from exclusive to Cognizant, as other India-centric peers such as Wipro ITS also compete on price. As part of this strategy, Cognizant has been increasingly engaging on a fixed-price basis, relying on automation to maintain margins on net-new accounts.” At the same time, many vendors outside India are executing on localization strategies to enhance client engagement and build signings.
 

TBR Fourcast: Insights into Accenture, Deloitte, IBM Consulting and Infosys, including Accenture’s extensive investment in GenAI and IBM Consulting’s and Infosys’ risk of falling into a downward trajectory

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A well-balanced portfolio with industry-specific solutions is key to enhancing client engagement

In addition to leveraging their low-cost pricing models, India-centric vendors will need to focus on deepening relations with clients to grow revenue. Applying emerging technology, such as AI and generative AI, to industry-specific solutions is allowing vendors to remain competitive by demonstrating competency as well as an in-depth understanding of clients’ needs. As localization strategies become more common, leveraging industry-specific solutions will be important for the India-centric vendors’ revenue growth.
 
All India-centric vendors are forming and expanding partnerships to accelerate the adoption of AI technology and expand client reach within and across verticals. For example, Infosys and NVIDIA released small language models (SLMs) for Infosys Topaz BankingSLM and Infosys Topaz ITOpsSLM, enabling enterprise data to be used over prebuilt SLMs, which help to facilitate the development of industry-specific use cases.
 
Similarly, TCS established the AI.Cloud business unit, highlighting the importance of integrated solutions that combine AI and cloud capabilities to maximize client value. This is further demonstrated by the creation of a dedicated NVIDIA unit within AI.Cloud to accelerate AI adoption across industries through tailored solutions leveraging NVIDIA’s technology.
 

IT Services Revenue and Headcount for Cognizant, Infosys, TCS and Wipro, 2024 (Source: TBR)


 
Although partners are key to a strong go-to-market strategy, especially when introducing emerging technologies and deepening client reach, it is important for the India-centric vendors to differentiate their offerings. Partnering with leaders in AI and cloud, such as NVIDIA and ServiceNow, is vital to remaining relevant; however, developing proprietary solutions internally will be important to distinguish the India-centric vendors from each other. Infosys’ recent portfolio additions will support the company’s revenue growth.
 
For example, the company launched the Finacle Data and AI Suite for banking clients to use AI to improve the customer experience and IT systems. Since July, Cognizant has been diligently building out its Neuro suite, which supports the adoption of automation and AI. Cognizant launched Neuro edge, which is an update to Neuro AI and includes Cognizant Neuro Cybersecurity and a multi-orchestration agent; Neuro Stores 360; and a Neuro AI Multi-Agent Accelerator and Multi-Agent Service Suite.
 
Similarly, TCS is focusing on internal development alongside strategic partnerships, notably establishing the TCS GoZero Hub, a center researching net-zero carbon emissions solutions for Australian clients, and the TCS Responsible AI Framework. Proprietary portfolio offerings around in-demand technology, namely AI, cloud and security, provide vendors with credibility among buyers seeking a third party that can solve their current and future problems.

Investments around innovation and training development build credibility and attract more clients

Cognizant, Infosys and TCS have been investing in building portfolios that balance partner-enabled and proprietary solutions. Meanwhile, Wipro ITS has relied heavily on partnerships to build its portfolio. Despite ongoing restructuring efforts, Wipro ITS continues to lag behind its India-centric peers in delivering in-demand and innovative solutions, especially those related to IoT and digital. Ensuring strong proprietary solutions requires vendors to continually invest in training development and innovation. Wipro ITS is investing in talent development to enhance its AI and digital skills and is increasingly hiring staff with skills in emerging technology. TBR believes these investments will boost Wipro ITS’ revenue performance but does not expect Wipro ITS’ performance to exceed that of Infosys and TCS.
 
Of the four vendors, Infosys provides perhaps the best example of how to invest in talent and innovation. The company is establishing a center in Kolkata, India, and will staff it with employees who have skills in cloud, AI and digital across industries. Beyond training, Infosys has expanded its innovative efforts by establishing an incubator and encouraging employees to bring forward ideas. Infosys’ training and incubator efforts will help propel the company’s growth. Likewise, TCS added freshers to the company in 2024 and will continue to do so in 2025, while remaining vigilant about the company’s cloud and AI training.
 
Given Infosys’ and TCS’ linear revenue growth models, their future performance continues to rely heavily on how well hiring, training and reskilling initiatives are executed, particularly around cloud and AI. The companies that remain more focused on employees and innovative capabilities can ensure that quality services are delivered to clients, allowing them to stay competitive and expand revenue share. In contrast to Infosys and TCS, Cognizant is ramping up its efforts to retain employees more reactively through rehiring former employees and increasing wages. Cognizant’s less pervasive training and innovation efforts could hurt long-term revenue growth, thereby aiding Infosys in its efforts to surpass Cognizant in revenue size, even with Cognizant’s recent acquisition of Belcan.

Improving revenue performance will depend on proactive go-to-market and resource management strategies

Ongoing and proactive investments in innovation, training around in-demand technology, and a balanced portfolio are key to competing for market share. Further, providing clients with industry-specific solutions from internal developments and having an in-depth understanding of partner-enabled and emerging technologies are vital to fueling revenue growth. In 4Q24 Infosys had the highest revenue per employee of the India-centric vendors, at $59,856, followed by Cognizant at $57,867, TCS at $49,600 and Wipro ITS at $45,812.
 
Wipro ITS could elevate its standing with investments in innovation and AI, enabling the company to develop more offerings internally and potentially secure more large deal wins. Cognizant and Wipro ITS could continue to trail behind Infosys and TCS in performance if they let service quality slip or do not continue to train employees on relevant skills. In addition to investing in innovation, training and portfolios, in the long term the four vendors would benefit from leveraging heavy India-based resources to help diversify revenue opportunities with local clients.
 

IT Services Revenue Forecast for Cognizant, Infosys, TCS and Wipro, 2020-2029 (Source: TBR)

 

5 Key Questions on Big Four Evolution and Strategy

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Amid ongoing organizational shifts at the Big Four, 5 key questions are consistently heard among their employees, clients and ecosystem partners

The Big Four professional services firms — Deloitte, EY, KPMG and PwC — have all been undergoing organizational changes in the last couple years. TBR regularly hears five questions about how these firms manage themselves, grow and change. Taking a longitudinal view allows TBR to see that recent restructurings, layoffs and offerings all reflect how these firms are trying to address the following: who gets the best talent, who decides what’s next, who sells, how everyone in a firm knows what everyone else does, and what role will managed services play.
 
At any given moment, one or more of these firms may have solid answers, a consistent strategy and a fit-for-purpose organizational structure. Eventually, all that changes. TBR keeps these five questions in mind as we cover the Big Four, and in this blog we’re unpacking each question and why it matters.
 

Find out what’s in store for IT services vendors and consultancies in 2025 in terms of strategy consulting, generative AI (GenAI) and ecosystem intelligence.
 
Download TBR’s 2025 Digital Transformation Predictions special report today!

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Question 1: Who gets the best talent?

The Big Four firms have some intellectual property, well-established brands and continually evolving alliances with technology providers, but their core asset is simply people. The firms bring clients talented people to solve business problems, provide assurance and/or implement a technology, leveraging a people arbitrage business model: I’ll supply the talent when you need it and for as long as you need it, then I’ll take that talent back. The catch? Within the firm, who decides which clients get the best talent? When capabilities around a particular technology or offering are in short supply, who decides how to allocate limited resources? Local office leaders, country leaders, regional leaders, global leaders, industry leaders, lead client service partners, technology alliance leaders?
 
Managing these competing demands for resources requires exceptional leadership and, as we’ve seen through the years, sometimes means upending the organizational structure to better suit a new way of deciding who gets the best talent.

Question 2: Who decides what’s next?

Over the last decade, the Big Four firms have launched practices in areas such as blockchain, cloud, AI, people advisory, a collection of SaaS offerings, and cybersecurity, to name a handful. Some of those practices have grown, some have disappeared and some just continue to be. In every case, a collection of partners made a business case to the partnership as a whole, getting enough consensus to invest people and money into building something new. At the same time, every Big Four firm has tweaked how it makes those decisions: which partners lead on new offerings, how consensus is built and how new offerings are evaluated over time — essentially, what’s next. If this seems like an inside-the-firm small consideration, look back at the list of practices — at least three generate significant revenue streams for each firm. With hindsight, maybe those new practices and offerings appear to be no-brainers, but some group of partners in each firm still had to make the case, pull together resources and convince the firm to bet on something new. Being late to market changes the way this question gets answered. So does the fear of being too entrenched in selling today to see what’s going to sell tomorrow.

Question 3: Who sells?

Speaking of selling, the Big Four have traditionally eschewed traditional sales teams, relying on every partner (and wannabe partner) to be responsible for landing new clients and expanding footprints within existing client bases. For generations, that worked well enough; however, as all of the Big Four firms’ offerings have become increasingly infused with technology, two developments have forced some changes.
 
First, highly skilled technology-focused talent didn’t always have the skills needed to sell and so couldn’t be evaluated, promoted and compensated in the traditional partner model. The Big Four all adjusted, creating new career paths for the valuable but not-partner-track professionals. Second, the technology-dependent offerings themselves became too complex for most partners to understand and sell on their own, creating an opening for professionals who combined tech skills and sales savvy. The ongoing challenges? Who decides which partners sell to clients? Software is fundamentally different from services, so if a firm experiments with selling software, is a dedicated software sales team necessary? How can partners in one service line sell clients on tech-heavy, specialized offerings from another service line? The Big Four firms continue bending the traditional selling model, and nearly every organizational change includes some element of tackling these “Who sells?” questions.

Question 4: How does everyone in a firm knows what everyone else does?

No one has conquered knowledge management — in any company, anywhere. The Big Four firms have repeatedly launched initiatives, platforms, and evaluation and compensation metrics trying to ensure that tax partners understand all the consulting offerings and that audit partners know when and how to bring in transaction partners. TBR believes the digital transformation and innovation centers that all four firms launched in the mid-2010s (e.g., PwC’s Experience Centers) were intended, as a side benefit, to enhance internal knowledge sharing. Big Four leaders have told TBR that their fellow partners across all service lines learned something new about their own firm every time they attended a client session at one of the centers.
 
Today, all four firms are leveraging AI-enabled platforms to enhance internal knowledge management and will likely see significant improvements. But the challenge will persist, as new offerings, capabilities, use cases, learnings and people constantly refresh the pool of knowledge, which needs to be shared for the Big Four to bring their entire selves to clients. Further, forming regional super-partnerships and reducing 100-plus member firms to a few dozen reflect the need for operational efficiencies, better service for international clients, and, yes, enhanced knowledge management so that everyone in the U.K. knows what everyone in Singapore is doing.

Question 5: What role will managed services play?

If the previous four questions have been perennial challenges for the Big Four firms, shaping organizational structure and leadership priorities, this last one has been a slow-building, nearly existential question. How will professional services firms built on a prestigious reputation and elevated fees staff, price, manage and even grow managed services practices that are, by nature, more transactional than the traditional client relationship model? Each of the Big Four firms has taken a different path (which is one reason TBR sees these firms as concurrently so similar and so different), and each firm has adjusted its vision for managed services at least once in the last four years.
 
And, once again, one common element among all the reorganizations and restructurings has been competing views — within the firms themselves as well as among the partners — about what happens next with managed services. In TBR’s view, the role of managed services may prove to be the biggest differentiator among these four firms over the next five years, even as managing talent in a generative AI (GenAI) world and keeping pace with technology partners’ shifting demands challenge Big Four leadership.
 

Watch Now: 2025 Predictions for Ecosystems & Alliances

Conclusion: What it all means for clients, partners and the ecosystem as a whole

If you’re reading news on the Big Four, keeping these five questions in mind can be useful to understand the “why” behind the “what.”
 
If you’re a client, other questions matter more. (Are they solving your problem or not? Do you trust them? Do they bring you people you like? Nothing else matters.)
 
If you’re a technology partner in the Big Four ecosystem, these five questions are critical to understanding where your alliance is headed. Does your Big Four partner have the right talent to dedicate to your shared clients? Are they innovating with you, and who is leading that effort? Can they capably sell your technology? Do you understand what they bring to the table and what differentiates them from the other Big Four firms and the sea of IT services companies? Are they investing for the long haul or for a quick consulting gig?
 
Circling back, if you’re running a Big Four firm, how you’re addressing these questions helps determine your internal organizational structure and your strategy for the next five years. And how you explain it all to your ecosystem partners may determine how fast you grow alongside them.

DOGE Federal IT Vendor Impact Series: Accenture Federal Services

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The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of March 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

AFS navigates DOGE disruptions: Strong 1Q25 growth amid federal IT spending cuts

Accenture Federal Services’ parent company, Accenture, released its 1Q25 (FY2Q25) earnings March 20, which included some details, albeit limited, about the impact DOGE’s cuts have had on the company’s $5-plus billion federal subsidiary. Although TBR estimates AFS’ quarterly sales in 1Q25 were $1.44 billion, up 18.3% year-to-year on a statutory basis and 7.6% on an organic basis (excluding the impact of the 2Q24 Cognosante acquisition), Accenture CEO Julie Sweet was careful to note during the company’s 1Q25 earnings call that AFS experienced delayed procurement cycles, particularly on net-new programs, during the quarter. That said, AFS’ estimated 1Q25 sales remained in line with TBR expectations.
 
TBR had projected AFS’ 1Q25 quarterly revenue would fall between $1.40 billion and $1.55 billion, implying statutory year-to-year growth of between 14.7% and 27.0% and organic year-to-year growth of between 4.0% and 16.3%. By TBR estimates, AFS achieved double-digit top-line organic growth in four of the six quarters between 4Q23 and 1Q25, and organic growth of at least 9% in the other two quarters. We anticipated the slowdown in AFS’ organic growth in 1Q25 but did not factor any DOGE-related impacts into our calculations.
 
All indications from the cohort of federal systems integrators (FSIs) tracked by TBR, as well as anecdotes from our secondary research, suggested that federal IT spending would begin to naturally cool down in federal fiscal year 2025 (FFY25) after a four-year bull market featuring unprecedented expansion of federal IT budgets and growth on behalf of the FSIs. After all, what goes up must eventually come down, but we could not have fully predicted or quantified the early impact of DOGE on AFS or the broader federal market.

TBR believes DOGE canceled nearly $93 million in potential AFS revenue across 10 DOE task orders

Sweet did not mention any specific programs culled from AFS’ book of business by DOGE’s cost-cutting actions. However, TBR is aware that in 1Q25, DOGE canceled 10 task orders on the U.S. Department of Energy’s (DOE) Chief Information Officer Business Operations Support Services 2.0 (CBOSS 2.0) blanket purchase agreement (BPA) for IT modernization and business process services. AFS was the incumbent on the first iteration of the program, CBOSS 1.0, winning the contract with the DOE in 2018.
 
AFS also secured the $3.5 billion, seven-plus-year recompete on CBOSS 2.0 in January 2025 to continue providing IT support solutions and technology and advisory services around security strategy, operations and environmental management. After AFS won this recompete, Booz Allen Hamilton (BAH) and Leidos protested, prompting the DOE to reconsider the award and review AFS’ winning bid and subsequently leaving a major deal win on AFS’ books in protest limbo. However, we do not believe the challenge by BAH and Leidos was related in any way to the 10 canceled task orders or to DOGE.
 
The full impact of the 10 canceled task orders on AFS remains unclear, but TBR’s secondary research indicates the terminated work has a total contract value (TCV) of nearly $93 million, including a $35 million order from DOE’s CIO office and a $2 million order for geospatial services. If we assume all $93 million worth of orders was booked by AFS as the prime awardee, that sum would represent just under 2% of AFS’ estimated FY24 revenue of $5.4 billion.
 
According to TBR’s 1H25 Accenture Federal Services Vendor Profile, “We estimate Cognosante will add up to $400 million in annualized, acquired revenue to AFS’ top line after the acquisition is fully integrated in 1Q25.” Cognosante vastly enhanced AFS’ cloud migration, program management and platforms for federal IT health agencies. Acquiring Cognosante also expanded AFS’ footprint within the Centers for Medicare and Medicaid Services (CMS) and the Department of Veterans Affairs (VA). With Cognosante fully integrated as of 2Q25, and with no additional acquisitions assumed or expected in the company’s FY25 (though we believe M&A is under consideration by AFS and the other leading FSIs to offset near-term DOGE-related growth headwinds), TBR had projected AFS’ FY25 revenue would be between $5.76 billion and $5.87 billion, up between 6% and 8% on both a statutory and organic basis, at least prior to any DOGE-related impact.
 
If all $93 million in TCV for the 10 canceled CBOSS 2.0 task orders were erased from AFS’ order book, it would reduce AFS’ projected growth to between 4% and 5.5% in FY25 (assuming no other exogenous DOGE-related impacts or unexpected internal impediments to FY25 top-line growth). For context, we estimate that AFS realized double-digit year-to-year organic growth in nine of the 17 quarters between 1Q21 and 1Q25, with estimated organic growth of at least 5% in the other eight quarters.

AFS faces $75 million in additional cuts outside CBOSS 2.0

The General Service Administration (GSA) will continue to review the contracts held by AFS and nine other companies* the Trump administration instructed DOGE to initially target in an effort to cut $65 billion in consulting fees the federal government is set to pay in FFY25 and future years. According to the “DOGE-Terminated Contracts Tracker” on the GX2 website, which tracks developments in federal contracting, AFS has had a total of $75 million in contracts terminated by DOGE as of the publishing of this blog (the CBOSS 2.0 program was not among the listed cancellations).
 
Cancelled awards were with the Department of Agriculture, Department of the Interior, Social Security Administration (SSA), Department of the Treasury, Department of Homeland Security (DHS), Department of Education, and Department of Health & Human Services (HHS, which houses CMS).
 
Of the more than $16.2 billion in TCV (8,373 contracts) listed as canceled on GX2’s DOGE-Terminated Contracts Tracker, over $2.8 billion (624 individual contracts) was awarded by HHS and $1.75 billion (420 individual contracts) was awarded by the VA. If DOGE’s contract terminations continue to fall disproportionately on federal healthcare agencies, AFS may not realize the full expected value of the Cognosante acquisition and top-line growth at one of the perennial growth leaders in TBR’s Federal IT Services Benchmark since the COVID-19 pandemic will be stunted in FY25.
 
Sweet reemphasized in the company’s 1Q25 earnings call that Accenture believes its “work for federal clients is mission-critical,” but TBR is unsure if this will be sufficient to protect AFS’ revenue base from a major disruption in FY25 and FY26. Conversely, Sweet also mentioned, “We see major opportunities over time for us to help consolidate, modernize and reinvent the federal government to drive a whole new level of efficiency.”

AFS pivots to emphasize mission-critical offerings and efficiencies

We believe AFS will pursue new, longer-term opportunities in this shifting federal IT environment by emphasizing its ability to scale cloud, data and generative AI (GenAI)-based solutions agencywide to generate efficiencies, as demanded by DOGE and the Trump administration. AFS will focus on maximizing speed to solution and clearly demonstrating program ROI to prove its offerings are, in fact, mission-critical.
 
We also expect AFS to double down on advisory services related to resource management, cultural and operational change management, and risk management — critical precursors to federal digital transformations. AFS’ previous investments in AI-enhanced service delivery will be a significant advantage compared to its peers with less mature internal AI capabilities, enabling AFS to showcase how its internal application of AI technologies has optimized operations. AFS’ AI-enhanced service delivery will also enable the company to generate more cost-competitive bids and meet increasingly aggressive IT project timelines for federal digital IT modernization programs.

*BAH, CGI Federal, Deloitte Consulting, General Dynamics IT (GDIT), Guidehouse, HII Mission Technologies, IBM, Leidos and SAIC

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to download a preview of our federal IT research and receive upcoming series blogs in your inbox as soon as they’ve published.

 

DOGE Federal IT Vendor Impact Series: SAIC

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The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of March 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

Content Updated: June 11, 2025

DOGE notwithstanding, SAIC’s 1Q25 fiscal performance was on target with expectations and historical patterns

SAIC reported its CY1Q25 (FY1Q26) fiscal results on June 2, and as in CY4Q24, the impact of DOGE was minimal on the company’s P&L, backlog or other fiscal markers. During SAIC’s 1Q25 earnings call, CEO Toni Townes-Whitley indicated that the annualized impact of DOGE on SAIC’s top-line revenue remained less than 1%, which TBR assumes refers to the proportion of total company annual revenue, or less than $75 million (based on FY25 sales of $7.59 billion).

 

SAIC posted quarterly revenue of $1.88 billion in 1Q25, up 1.6% year-to-year. Quarterly sales and year-to-year growth in 1Q25 were below TBR’s projections for revenue of $2 billion, or 8.3% year-to-year growth, but still in line with overall company guidance for FY26. SAIC’s 1Q25 gross margin of 11.1% was slightly weaker than TBR had expected, but operating margin of 6.4% came in stronger than TBR projections.

 

Company backlog of $22.3 billion was up 1.8% sequentially from $21.9 billion in 4Q24, with the sequential increase consistent with historical patterns. Bookings of $2.4 billion in 1Q25 were on par with the year-ago quarter ($2.6 billion in 1Q24) and were up sequentially from $1.3 billion in 4Q24, consistent with seasonal bookings patterns. SAIC’s quarterly book-to-bill ratio of 1.3 in 1Q25 was on par with its year-ago book-to-bill ratio of 1.4, though on a trailing 12-month (TTM) basis, book-to-bill of 0.8 in 1Q25 was down from 1.0 a year ago in 1Q24.

SAIC remains on track to reach its FY26 fiscal targets, at least as of 1Q25

SAIC does not expect erosion to its top-line growth, margins, earnings, adjusted EBITDA or cash flow from DOGE in the company’s FY26. SAIC also maintained its outlook for downward adjusted EBITDA guidance later in FY26. The federal procurement environment remains unstable, the federal fiscal 2026 (FFY26) budget negotiations must still take place, and the full scope of the Trump administration’s IT spending and other budget priorities is still in development.

 

For example, SAIC’s business development teams have experienced delays in procurement patterns with increasingly elongated decision cycles that could delay awards expected during FY26 until FY27. SAIC also reported high, post-inauguration turnover of procurement personnel at federal agencies in 1Q25 that has impeded business development and program funding, particularly on larger strategic awards, while procurement processes at some agencies are currently being revamped.

After the near-term disruption subsides in federal IT, the Trump administration’s IT investment plans will generate long-term opportunities

SAIC believes its portfolio of mission-centric solutions, its emphasis on speed-to-market in deploying its offerings, and its focus on embedding commercially developed digital technologies into its solutions align well with the Trump administration’s technology priorities and DOGE’s efficiency optimization goals.

 

In the Department of Defense (DOD) and Intelligence Community (IC), where SAIC generates 75% of its revenue, overall budget growth is expected in FFY26 prioritizing national security and force readiness, particularly in the U.S. Navy, U.S. Air Force and U.S. Space Force. Conversely, SAIC anticipates some funding challenges in its U.S. Army account during the remainder of FFY25 and into FFY26. Since FY24, SAIC has aggressively expanded its bidding activity across the federal space.

 

In 1Q25 alone, the company tendered proposals with a total contract value (TCV) of more than $7 billion with a FY26 goal to submit between $28 billion and $30 billion in bids. The company has nearly $20 billion in awards awaiting client adjudication as of 1Q25.

 

TBR expects the competition for net-new work and recompetes will intensify during the latter half of FFY25 (2Q25 and 3Q25), particularly in the civilian market. More than half of the $2.4 billion in new bookings SAIC landed in 1Q25 were for net-new programs, which the company hopes is an early sign of accelerating IT procurement activity across the space.

 

On-contract growth will also remain one of the chief objectives of SAIC’s business development strategy for the remainder of FY26, particularly with new programs being delayed by staffing shortages within agency-based procurement teams. Standing by its FY26 guidance also implies to TBR that SAIC expects the pace of on-contract growth will remain strong enough to sustain momentum toward its FY26 fiscal objectives, and sufficient to offset any deceleration in net-new award activity.

SAIC’s Civil business posted strong results in 1Q25; the company appears better positioned than some peers to ride out the DOGE-based disruption

By market, growth was led by SAIC’s Federal Civilian business group with 8% year-to-year sales growth in 1Q25 up from a year-to-year revenue contraction of 0.2% in the DOD & IC unit. In comparison, Leidos’ Health & Civil group expanded sales 7.7% in 1Q25 while CACI’s Federal Civilian Agencies unit grew revenue 13.2%.

 

In stark contrast, Booz Allen Hamilton (BAH) suffered a very sudden stoppage in growth in its Civil group in 1Q25. Year-to-year top-line expansion in BAH’s Civil unit decelerated after the segment posted 13 straight quarters of double-digit growth from 3Q21 through 3Q24. Civil growth was 7.8% in 4Q24 and -0.1% in 1Q25.

 

According to TBR’s 1Q25 Booz Allen Hamilton Earnings Response, “The volume of disclosed deal activity plummeted in 4Q24 and 1Q25, a harbinger of tough times ahead for federal IT’s most venerable advisory-led firm.” BAH also expects a low-double-digit decline in Civil revenue in FY26, with the bulk of the contraction transpiring in FY1H26 (2Q25 and 3Q25). BAH’s Civil unit posted FY25 sales of $4.17 billion, up 5.7% year-to-year from $3.83 billion in FY24. A year-to-year decline between 10% and 12% in FY26 implies Civil sales of between $3.57 billion and $3.67 billion, or down between $400 million and $500 million.

 

Conversely, SAIC expects favorable IT spending patterns in FFY26 in the company’s five largest civilian accounts, which account for over 70% of the company’s Civil revenue (or about $1.23 billion based on FY25 civilian sales of $1.75 billion). The Department of Transportation is expected to receive $1 billion in the federal budget to support modernization at the Federal Aviation Administration, while the Department of Homeland Security (DHS) will be allocated over $40 billion to develop and install new border security technologies.

 

IT spending at the U.S. Department of State is expected to remain stable, and SAIC recently won a two-year extension on the department’s strategic Vanguard program. SAIC also anticipates higher IT budget outlays for modernization initiatives at the Department of Treasury and the Department of Veterans Affairs (VA). In the past, SAIC has struggled to win some big-ticket recompetes and typically factored renewal risk into its guidance, but as of 1Q25, the only recompete headwinds on its books are the loss of a NASA program in FY25 and the company’s decision to forgo bidding on lower-margin portions of the recent Cloud One recompete.

 

SAIC is instead focusing on the higher-value aspects of Cloud One where the company can showcase its expanding cloud capabilities (another area of SAIC’s portfolio that lines up well with the IT spending priorities of Trump 2.0).

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

Google Recognizes Critical Role of Security, and Its Standing in the Cloud Market, in Acquisition of Wiz

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Wiz may be getting more expensive, but so is its strategic relevance

Back in August, Google was in talks to buy cloud security company Wiz for $23 billion, but the deal quickly fell through due to Google’s antitrust baggage and Wiz’s goal to remain independent ahead of an IPO. But a lot has changed in the last seven months, including a new U.S. government administration that broadly supports Big Tech when it comes to AI investments and the ability to push M&A through regulatory hurdles.
 
With the business environment changing and cybersecurity perhaps more relevant than ever, Google saw an opportunity to repursue the Wiz acquisition, and a $32 billion offer, marking a major uptick in valuation, was simply too good for Wiz to ignore. Should the deal close in 2026 as expected, Wiz — with roughly 1,800 employees and ties to half the Fortune 500 — will join the Google Cloud division, offering synergies with Mandiant, an added layer of protection for the Google Security Operations platform, and the potential to help Google Cloud formalize cybersecurity as an agentic AI use case.

Wiz’s play in hybrid-multicloud and cloud-native security makes it a good fit for Google Cloud

In our view, there are two overarching attributes of Wiz that make it a natural fit for Google Cloud: multicloud and born in the cloud. Supporting hybrid and, to an extent, multicloud environments with services like BigQuery Omni has always been one of Google Cloud’s strengths, given the company’s unique ties to Kubernetes and broader support for open-source communities.
 
Recent data-sharing alliances and integrations with ISVs like Oracle and Salesforce (a Wiz investor) are another reaffirmation that Google Cloud accepts the multicloud reality and the fact that cloud ecosystems are becoming more influenced by two of Google Cloud’s biggest competitors, Amazon Web Services (AWS) and Microsoft. But as customers continue to employ multiple clouds — with TBR’s 2H24 Cloud Infrastructure & Platforms Customer Research suggesting that 68% of customers are leveraging two or more clouds — and data integrations become tighter, security concerns are mounting, particularly when it comes to utilizing this data to build generative AI (GenAI) applications.
 

“A lot of Microsoft’s core solutions, they’re born out of a legacy product, and you’re going to get some issues with security and the code versus something that’s built completely from the ground up, which is the case of Google. So, I think with Microsoft, you have to take a more active approach to managing your security.”
— CIO, Manufacturing

Google Cloud’s ability to integrate Wiz, which can connect to not only AWS, Microsoft Azure and Oracle Cloud Infrastructure (OCI) but also legacy VMware environments, as well as data and AI platforms like Snowflake and OpenAI, will be important as the cloud market continues to evolve around open data ecosystems and GenAI. The other big attribute of Wiz is not just that it supports multiple environments, but that it was born in the cloud and can thus support security in a modern way with capabilities like IaC (Infrastructure as Code) scanning for modern parts of the cloud stack, such as containers, serverless and PaaS environments.
 
The ability to support security in a modern way directly aligns with Google Cloud’s “ground-up” approach to security, which is one of the ways Google Cloud differentiates from its peers. Should the deal close, we expect the Wiz brand to greatly complement Google Cloud’s when it comes to security. But to be clear, this is not just a point of messaging Google Cloud uses with clients; it is a sentiment often shared by C-Suite decision makers we speak with, as highlighted in the quote to the right.

Wiz would bring IP and talent at the crucial modern app dev layer

There are a couple of obvious synergies that will take shape between Wiz and Google Cloud. First, Google Cloud plans to integrate Wiz into the Google Security Operations platform (formerly Chronicle) to add another piece of protection at the application development layer. Unlike some other security ISVs, Wiz is concerned with selling to not only security operations teams but also DevOps teams.
 
Wiz’s platform is designed to secure every stage of the software development life cycle, supporting the underlying infrastructure and runtimes, as well as everything from the CI/CD (continuous integration/continuous deployment) pipelines up to the actual code. With the company’s scanning tools, security attacks are identified preemptively, so developers have an opportunity to understand and fix the threat before deploying their applications.
 
Google has already taken some big steps to support clients’ security operations teams by integrating SOAR (Security Orchestration, Automation and Response) and SIEM (Security Information and Event Management) capabilities as part of Google Security Operations, so Wiz’s prowess at the development layer should help round out a key piece of the platform. It will also align with the company’s goal to boost developer mindshare and win more applications. According to TBR’s research, most new applications will be hosted disproportionately in the cloud and have an AI component, so having a tool that can help embed security natively into the developer workflow would likely be well received.
 
Second, through Mandiant, Google Cloud already has a team of security experts, including roughly 600 Mandiant consultants, which should be a nice complement to Wiz’s platform, supporting tasks like incident response, technical assurance, strategic readiness and managed defense. With Wiz and Mandiant, we see Google Cloud increasingly addressing customers’ preference for “one hand to shake” when it comes to security. But Google Cloud services partners should still be assured of their critical role in helping Google Cloud establish trust with clients and selling more business-led outcomes centered on GRC (governance, risk and compliance).

Solidifying security as a GenAI use case

As is the case in multiple facets of IT such as data management, security and GenAI are two sides of the same coin: Enterprises need effective security practices to run GenAI, but GenAI can also help improve security. From the evolution of the Sec-PaLM model to the rollout of Gemini in Google Security Operations, Google has already taken some big steps to establish security as a top GenAI use case. Google Cloud was also pretty early in its shift around agentic AI, particularly in letting customers build their own agents, so we expect the Wiz acquisition to drive new uses for cybersecurity support AI agents that could act as extensions for cybersecurity teams, closing the massive skills gap that continues to exist in the field.

Conclusion

A lot has changed since Google first eyed Wiz as an acquisition prospect, but Google’s strategy of using cloud-native security as a differentiator to grow within the large enterprise base is unwavering. And one could argue that over the past seven months, security concerns have only increased as new GenAI applications come into play and the data ecosystems supporting those apps have become more integrated.
 
Wiz’s ability to identify and support security threats at every layer of the stack and do so in a hybrid multicloud fashion is certainly in step with the market. Meanwhile, if Google Cloud can use Wiz to ease concerns when it comes to developing new AI-based applications, supported by new security AI agents, this deal could handily elevate Google Cloud’s competitive standing in the market.

Hardware-centric Vendors Continue to Make Their Move Into Software

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Hardware vendors are diversifying their portfolios to drive higher software attach rates, while software-centric vendors like Microsoft and Oracle greatly prioritize cloud-native software

Over the past several years, the cloud software components market has shifted. Microsoft and Oracle are no longer dominating the market as they prioritize their native tool sets and encourage customers to migrate to public cloud infrastructure. Driven largely by weaker-than-expected purchasing around Microsoft Windows Server 2025, aggregate revenue growth for these two software-centric vendors was down 3% year-to-year in 3Q24.
 
Over the same compare, total software components revenue for vendors covered in TBR’s Cloud Components Benchmark was up 14% in 3Q24 and total cloud components revenue was up 8%. In some ways, this dynamic has made room for hardware-centric vendors such as Cisco and Hewlett Packard Enterprise (HPE) to move deeper into the software space, particularly as they buy IP associated with better managing orchestration infrastructure in a private and/or hybrid environment.
 
Though revenue mixes are increasingly shifting in favor of software, driven in part by acquisitions (e.g., Cisco’s purchase of Splunk), hardware continues to dominate the market, accounting for 80% of benchmarked vendor revenue in 3Q24. Industry-standard servers being sold to cloud and GPU “as a Service” providers are overwhelmingly fueling market growth, more than offsetting unfavorable cyclical demand weakness in the storage and networking markets.
 
This growth is largely driven by the translation of backlog into revenue, but vendors are still bringing new orders into the pipeline, which speaks to ample demand from both AI model builders and cloud providers. However, large enterprises are increasingly adopting AI infrastructure as part of a private cloud environment to control costs and make use of their existing data.
 

Graph: 3Q24 Hardware vs Software Cloud Components Revenue by Vendor

Figure 1: 3Q24 Hardware vs Software Cloud Components Revenue by Vendor


 

Key takeaways

Average cloud components revenue growth among benchmarked vendors accelerated to 26.2% year-to-year in 3Q24. Hardware leaders like Dell Technologies and Lenovo continued to benefit from strong hardware demand.
 
Cisco’s acquisition of Splunk is greatly bolstering the company’s top line, though it is not enough to offset challenges the company continues to face in its networking business.

Ongoing strength in AI demand from services providers continues to offset relatively weak demand from enterprises; however, enterprise AI demand is expected to grow materially in 2025

Despite ongoing cyclical weakness in the data center networking market, strong demand for cloud services, including those supporting AI and generative AI (GenAI) workloads, drove 28.1% year-to-year growth in benchmarked cloud components hardware revenue during 3Q24. Many organizations have been hesitant to deploy AI infrastructure on premises as they continue to evaluate the optimal methods and architectures to handle workloads tied to the rapidly developing technology.
 
As such, many organizations have been leveraging cloud services for their AI and GenAI workloads, but as the technology matures and new applications are developed, TBR expects organizations will increasingly embrace hybrid AI, leveraging public cloud services and AI deployments on premises both in the core data center and at the edge, which will continue to drive robust demand for cloud components hardware.

Cloud hardware components segment vendor spotlights

Dell Technologies

Dell Technologies continued to lead all benchmarked vendors in terms of cloud hardware revenue scale in 3Q24. While TBR estimates Dell’s cloud revenue expanded across all three hardware segments in 3Q24, Dell’s growth was most robust in the cloud server segment, where the company remains a leader among its OEM peers due to its brand legacy and its strong relationship with key suppliers, such as NVIDIA, and large-scale buyers, including enterprises and services providers.

Lenovo

With manufacturing facilities around the world and ODM-like capabilities unmatched by its infrastructure OEM peers, Lenovo is uniquely positioned to take advantage of demand from cloud services providers. These types of deals often require custom design and engineering components and are high volume but low margin by nature, driving Lenovo’s near triple-digit year-to-year aggregate cloud hardware growth. It is worth noting these deals with cloud services providers center on Lenovo storage and compute servers.

IBM

While IBM’s proprietary servers, such as the Power lineup, continue to be favored by certain industries for specific mission-critical and data-intensive workloads, such as SAP HANA and S/4HANA, organizations are increasingly prioritizing spend on industry standard infrastructure for both accelerated and traditional computing to support next-generation AI workloads. As such, IBM’s benchmarked aggregate infrastructure and cloud hardware revenues have both suffered due to falling sales.

TBR’s cloud research

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Vendor and market coverage in TBR’s cloud research stream includes, but is not limited to, Accenture, Amazon Web Services, Google, Microsoft, Oracle and SAP as well as cloud and software applications, cloud infrastructure and platforms, cloud data and analytics, and the cloud ecosystem.
 
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PwC Middle East Experts Weigh In on Economic Trends and Transaction Activity

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Resilient growth amid economic uncertainty

On March 18, PwC Middle East hosted its monthly “Transforming Our Region” webcast, featuring company leaders Richard Boxshall, chief economist; Rand Shuqair, director of Corporate Finance; and Zubin Chiba, head of Corporate Finance.
 
Boxshall once again provided a positive economic outlook for the region, albeit after a long cautionary excursion through the tempests created by the recent on-off-on-maybe tariffs introduced by the Trump administration. In Boxshall’s view, even with the irregularities around announcements and uncertainties around enforcement (or sustained applicability), the tariffs imposed by the U.S. and by other countries in response have gained enough momentum to significantly alter the global trade landscape. Inflation rate rises and supply chain disruptions, both caused or exacerbated by tariffs, have dampened global economic outlooks. Saudi Arabia’s economy grew in 2024 relative to 2023, even as the oil sector contracted, reinforcing the fundamental regional shift that TBR explored recently.
 
In the second half of the webcast, Shuqair and Chiba reviewed transaction activity in the region, comparing 2024 to the previous two years and noting an overall slowdown in volume concurrent with an increase in value from 2023 to 2024, with most of the transactions executed by corporate actors, not private equity (PE). As Chiba noted, both the sovereign wealth funds and the region’s corporate giants have been using transactions to “support the transformation agenda at home.”
 
Chiba also highlighted the importance of technology and artificial intelligence in driving deals, the sustained appeal of green energy and climate tech, and the growing interest among global private equity firms in the size and scale of opportunities in the region. In Chiba’s view, global PE firms are “deploying, not just raising” capital in the region. As an aside, Boxshall noted that PE activity is yet another non-oil contributor to the region’s economies, helping with diversification.

Big Four firms expand regional footprint with innovation hubs and green initiatives

PwC Middle East’s webcast provides excellent monthly insights into the region’s economies, but it is not the only active Big Four firm. As TBR reported in our Fall 2024 Management Consulting Benchmark, KPMG “announced the opening of Risk Hub in the United Arab Emirates (UAE) in collaboration with Microsoft and IBM, paving the way for more in-person, tech-enabled GRC [governance, risk and compliance] discussions with regional clients embarking on their digital transformation programs.” TBR also learned in February that KPMG intends to open a new Ignition Center in Riyadh, Saudi Arabia, in 2025, building on the firm’s global network of innovation and transformation centers.
 
Echoing Chiba’s comment that green energy remains an attractive area, Deloitte announced a green skills and green economy training program in January, in coordination with UAE universities. As TBR noted in our Fall 2024 Management Consulting Benchmark: “Deloitte announced the opening of a Deloitte Innovation Hub in Egypt, which will include a $30 million investment over the next three years in the country. Deloitte is looking to staff the hub with 5,000 employees supporting Europe and regional clients by providing services including AI, marketing and commerce, cloud, and cybersecurity, among others.”
 
In a 2020 blog, we wrote, “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, turning the country into a favorable destination for firms to invest in. Just like in other emerging markets, Deloitte will face competition staffing the centers as IT services peers like IBM and Capgemini, among others, have well-established operations in the country.”
 
Notably, PwC did not address this issue during the webcast.

Deployment Services in Telecom Face Post-5G Slowdown, Shifting Market Dynamics and Growth in Fiber Expansion

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Current state of deployment services in the telecom industry

With deployment services growth tied to 5G rollouts in large markets — notably India, China and the U.S. — most vendors in TBR’s Telecom Infrastructure Services Benchmark saw segment revenue decline in 3Q24 as these markets are in post-peak 5G spend territory. The pace of India’s aggressive 5G build has decelerated since 4Q23. Ericsson outperformed its closest peers due to its Cloud RAN deployment for AT&T.
 
The deployment services market faces growing headwinds, including communication service provider (CSP) consolidation, open vRAN’s lower installation costs, and reduced demand for site location and construction (SL&C), offset somewhat by hyperscaler spend and 5G rollouts in select developing markets. Hyperscaler investments provide incremental volume to the market, and TBR notes these companies are increasing their investments in access technologies (e.g., Google Fiber).
 
Over the past few years, Ericsson, Nokia and Tech Mahindra have deemphasized deployment services to improve telecom infrastructure services (TIS) margins, and other vendors have similarly reduced their own exposure to labor-intensive deployment, especially as wage inflation accelerates. Ericsson outsourced field services in the U.S. to Authorized Service Providers effective Oct. 1, 2023. This could drive more field installation work to third-party construction firms, such as Dycom and MasTec.
 
5G RAN projects drive investment in optical transport for fronthaul, midhaul and backhaul, as well as the core network. Ciena, most notably, has capitalized on this trend. Part of the rationale for Nokia’s acquisition of Infinera is to gain greater exposure to this domain.
 
CSPs have deferred 5G core investment in general because they do not see a clear path to ROI and standards that would enable new features for the network, especially those that pertain to B2B, have been delayed. The ability to deploy 5G-Advanced services will spur only incremental growth in this area of the market.
 
TBR expects fiber deployment will increase in 2025 and 2026 as broadband services are extended to unserved and underserved areas globally, with government funds supporting CSP efforts in this area, especially in the U.S.
 

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China-based leaders’ TIS revenue declined as domestic 5G RAN rollouts slowed; Nokia’s revenue decreased due to reduced activity in India and lower market share in the U.S.

Deployment services leaders

Revenue leader: China Communications Services (CCS)

CCS derives most of its deployment services revenue from the network infrastructure domain but is increasing its exposure to data center deployments to diversify. The supplier is taking market share from smaller competitors in China as well as Huawei and ZTE. CCS is aligned with and has benefited from the Chinese government’s Belt and Road Initiative, which supports international revenue.
 
Revenue declined year-to-year in 3Q24 as 5G deployment activity in China lessened, partially offset by CCS increasing its account share from its largest customer, China Telecom. TBR believes CCS’ installation work as part of 5G RAN builds is transitioning to maintenance. CCS is increasingly deploying gear in international markets such as MEA, particularly Saudi Arabia and CALA, though volumes in this region pale in comparison to the company’s presence in China.
 

Deployment services revenue

Figure 1: Ten Largest Telecom Infrastructure Suppliers: Deployment Services Revenue for 3Q24


 

Growth leader: Hewlett Packard Enterprise (HPE)

Deployment is a noncore area of HPE’s TIS business as the company is much more concerned with monetizing maintenance services. HPE largely leaves deployment to its partner base.
 
TBR believes HPE participates in some server installs for CSP clients adopting its hardware as part of open and/or virtualized RAN deployment, such as for Telus in Canada.

Telecom infrastructure services market overview

TIS revenue continued to shrink outside North America in 3Q24 while operating margins sustained recovery

Aggregate TIS revenue among benchmarked vendors declined 2.8% year-to-year in 3Q24, falling across all segments and regions, with the exception of North America, which grew 1.9% year-to-year. North America growth was largely due to favorable comparisons to 3Q23, when aggregate revenue declined 12.9% year-to-year, but also because of AT&T’s open RAN deployment and hyperscaler investments in optical projects.
 
Conversely, several vendors, including Nokia, Ericsson, Samsung and Ciena, are seeing sharply lower revenue in APAC as India’s CSPs reduced investment following 5G RAN rollouts by Reliance Jio and Bharti Airtel. Huawei and ZTE are also seeing revenue in APAC decline due to loss of share in India as their installed bases of LTE and optical equipment are replaced by equipment from trusted vendors, as well as lower spend on 5G RAN deployments in China, which peaked in 2022.
 
As CSPs wind down 5G coverage rollouts in China, the U.S. and India in favor of densification, TIS operating margins are growing. Declining deployment activity, which tends to carry the lowest margins among TIS segments, in these markets — especially India — is the main driver of improving TIS operating margins. In 3Q24 deployment services constituted 18.2% of aggregate revenue, down 120 basis points year-to-year. Meanwhile, maintenance services, which tend to carry the highest margins among the TIS segments, grew to 34.2% of aggregate revenue, up 80 basis points year-to-year.
 
Benchmarked vendors’ aggregate TIS operating margin increased year-to-year for the fourth consecutive quarter, following six consecutive quarters of declines. Aggregate operating margin grew from 11.1% in 3Q23 to 12.4% in 3Q24. TBR expects aggregate TIS operating margin gains to continue into 2025 despite an anticipated rebound in TIS revenue in India (where margins are typically low) as new RAN agreements that Ericsson, Nokia and Samsung have with Vodafone Idea and Bharti Airtel come online, due to the relatively smaller scale of these contracts compared with initial coverage rollouts by Bharti Airtel and Reliance Jio. In addition, TBR believes the digital transformation market will recover as CSPs receive clarity on M&A, driving high-margin professional services revenue for several IT services vendors. Further, AT&T’s open RAN rollout will peak in 2025, though it will continue through at least 2026, and margins in the U.S. tend to be higher than in other countries.

TBR’s Telecom Infrastructure Services Benchmark

Telecom infrastructure services includes all external spend (capex and opex) on services by communication service providers (CSPs), including telcos, cablecos and hyperscalers, on or related to communications and IT infrastructure. For our Telecom Infrastructure Services Benchmark, TBR categorizes TIS revenue into four main segments: deployment services, professional services, maintenance services and managed services.
 
Vendor coverage for this research includes, but is not limited to, Amdocs, CGI, Ciena, Ericsson, Fujitsu, Infosys, Juniper, Nokia, Oracle, Samsung, Tech Mahindra and ZTE.
 
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