COVID-19: Impact on IT organizations

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We asked 205 IT leaders who are decision makers for cloud purchasing about the current impact of COVID-19 on their companies and their expectations for the future. These responses were collected between March 17 and March 24. Initial findings show disruption to ongoing projects and increased importance of cloud capabilities in the future.

The impact of COVID-19 on the technology market is coming in waves. The first wave was the disruption caused by the shuttering of key hardware manufacturers in Wuhan province as China grappled with the initial outbreak of the virus in January. The impact was slightly delayed because of inventory levels within the supply chain, but in February and early March major hardware OEMs experienced shortages of key components for their data center infrastructure offerings. Just as those hardware supply chains are beginning to be replenished, the second wave of impact is occurring. As widespread business disruption occurs in Europe and the United States, it will affect customer demand for IT products and services. There is still much uncertainty about exactly how this disruption will play out, but it has caused vendors like Oracle and Microsoft to decrease or widen the range of their 2020 financial guidance. During the third wave of disruption, we expect long-term changes to spending patterns and business strategies.

TBR asked customers about the impact of the second (short-term spending patterns) and third (long-term spending patterns) waves of COVID-19 disruption.

For second-wave impacts, existing projects are slowing and new spending is frozen, but customers are spending to triage urgent COVID-19-related responses:

  • The majority of IT organizations are being impacted by COVID-19, with only 19% of respondents indicating they have not yet experienced changes to IT operations.
  • While 43% of respondents indicated existing projects are being delayed due to social distancing restrictions, companies are opening their wallets to maintain productivity as many employees shift to remote work. About 34% of organizations surveyed have spent on technology related to productivity as a result of the COVID-19 pandemic.
  • Cloud consumption is also up, with 17% of respondents indicating higher cloud usage due to data center component shortages and 10% indicating higher cloud usage due to labor impacts.

In the third wave, cloud delivery will play an even greater role after the COVID-19 outbreak has abated:

  • Disruption to normal business processes has highlighted the importance of having remote access to data, apps and collaboration tools.
  • While all organizations we surveyed are already using cloud technologies, 48% of respondents believe that the COVID-19 pandemic will lead to an increase in their cloud technology usage as part of long-term IT strategies. A lesser amount, 26%, are not expecting changes to long-term IT strategies at this time. The remaining respondents are unsure about the impacts to long-term strategies.

Today, only one thing is certain: uncertainty:

  • At this point, it is too soon to tell what the final impact on IT organizations will be in terms of technology spend and initiatives.
  • Companies are likely to take a wait-and-see approach to better understand impacts to revenue, profit and ultimately budgets before committing to new IT spend.
  • Cloud adoption, collaboration and employee mobility were already major industry trends prior to the COVID-19 pandemic; however, TBR believes the outbreak will accelerate the development of organizations’ business continuity strategies and remote workforce programs going forward.

Two Back, Three Forward: How will this pandemic change digital transformations? A few early signs

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

Two Back

508,572, Accenture’s global headcount, as of FY2Q20. Investing in a local presence could pay off significantly for Accenture as COVID-19 sweeps across the globe and makes travel nearly impossible. As TBR Senior Analyst Boz Hristov pointed out in TBR’s initial response to Accenture’s earnings last week, 60% of Accenture’s workforce in India and the Philippines is already working remotely, a number expected to rise in coming weeks. For both local and global clients, the company’s massive scale and proven connectivity should lessen the strains on sustained operations through the pandemic.

12%, TBR’s estimate of Dell Technology Services’ contribution to overall company revenues. With Services far outpacing the growth rate of corporate-level Dell Technologies (5.5% year-to-year in 4Q19 in contrast to 0.8%), TBR expects Services to increasingly become both a lead-in for Dell Technology engagements and an area where the company invests, including through acquisitions and headcount growth. As TBR Senior Analyst Kevin Collupy noted last week, “Dell Technologies Services’ profitability remains above the overall company figure, highlighting the importance of repeatable and standardized services to the company’s profitable growth expansion, and their criticality in offsetting commoditizing core product areas.”

Three Forward

55.7%, IBM’s management consulting 2019 revenues, according to TBR estimates, in three industries likely to be hit hard by COVID-19 fallout. As detailed in our upcoming Management Consulting Benchmark Profile: IBM, the company earned nearly 60% of its 2019 revenues from the banking, consumer goods and manufacturing verticals. Defaults and bankruptcies, supply chain chaos, and depressed consumer spending in a global recession will negatively impact those clients. Spending on consulting may stay constant or even grow — confusion breeds consulting opportunities — but more likely these clients will not be contributing such a large percentage of management consulting revenues by the end of 2020.

6, habits of digital transformation leaders, according to EY’s Tech Horizon survey. TBR analysts previewed the survey findings with EY and noted the substantial shift by EY itself from a firm with technology capabilities to a firm deeply rooted in delivery technology solutions to clients. The six habits were not surprising (they echoed findings in our December 2019 Digital Transformation Insights Report: Voice of the Customer), but in an upcoming special report, we will be highlighting specific findings that resonate most with consulting clients and the consultancies themselves.

$3.67B, annual revenue generated by Egyptian ICT sector exports. According to the Egyptian Information Technology Industry Development Agency (ITIDA), the country’s IT sector has become a substantial part of the overall economy, contributing both jobs and export revenues, primarily from software, app development and maintenance, and technical support services. Why is this important? First, because TBR will be meeting with the ITIDA later this week to learn more. And second, because this global pandemic will force companies to rethink their supply chains for everything, including outsourced IT services, potentially creating opportunity for Egypt’s IT sector to continue growing. Much more to come on this.

COVID-19 and IT: Pains, changes, pockets of opportunity

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COVID-19 creates pain, change and even pockets of opportunity for the IT industry

There is still a fog of uncertainty around COVID-19’s impact. What is clear, however, is this outbreak is unlike any event in living history. The long-term health crisis, economic disruption and social disruption are occurring at levels that were unfathomable just months ago. These changes are taking place in a world that is much different from when the last widespread pandemic, the Spanish flu, hit more than 100 years ago. Technology has become such an integral part of our lives since that time and, as such, will be deeply ingrained in many of the short-term and long-term effects of the COVID-19 virus.

While most of the market effects will be painful due to the economic disruption occurring, many will lead to changes in long-held business strategies and create opportunities as technology needs shift for both individuals and organizations. Find out more on this topic in a recent TBR special report, and contact us today to discuss COVID-19’s potential impact on your business.

Excerpts from additional reports recently published by TBR’s analyst teams

4Q19 HP Inc.: Takeover threat remains as revenue falls from soft print market

HP Inc. revenue declined in 4Q19 as a softer printing market offset single-digit growth in Personal Systems. To return to growth, the company is executing an aggressive cost-reduction strategy and a three-year value creation plan, while continuing to combat hostile takeover attempts from Xerox.

1Q20 Oracle Cloud Initial Response

Oracle experienced its highest growth rate in two years as the company gains further momentum around its ERP Cloud and Autonomous Database offerings, suggesting Oracle is shedding its legacy ties and migrating toward a subscription-led revenue model.

4Q19 Salesforce: Leveraging partners and acquisitions to expand TAM

Salesforce drives revenue growth with industry-specific apps, multiproduct deals and inorganic revenue contribution from acquisitions. However, gross margin improvements were offset by Dreamforce-related expenses and costs related to the acquisitions, such as R&D, resulting in an operating margin decline.

4Q19 VMware, Inc.: Container strategy in full swing

With the Pivotal acquisition now complete, VMware enters 2020 prepared to execute on its container strategy and spark growth around Tanzu and other “as a Service” portfolio offerings as the company continues its shift to a SaaS-led revenue model.

4Q19 Dell Technologies: Embracing ‘better together’ at the channel level

Dell Technologies leaned on strong VMware performance and growth in both commercial and consumer PCs to keep corporate revenue growing, as the Infrastructure Solutions Group continued to suffer from a weak server market.

4Q19 Dell Technologies Services: Benefiting from upsale of profitable attached services

Dell Technologies Services is leveraging its simplified and streamlined services portfolio around repeatable and standardized services offerings to improve service attach rates and generate predictable and profitable revenue streams.

1Q20 Accenture Initial Response

While record-breaking bookings in FY2Q20 provide a strong foothold, investing in leadership and security offerings to maintain clients’ trust in the COVID-19 era will test Accenture’s new growth model.

1Q20 Accenture Cloud Initial Response

As Accenture strives to maintain a strong brand for multicloud management opportunities through its certified cloud delivery bench and the launch of myNav, the global coronavirus pandemic will test its ability to succeed.

Two Back, Three Forward: Go-to-market strategies matter now more than ever

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

Two Back

13, questions answered during our recent Digital Transformation Insights webinar: After presenting findings around digital transformation customers’ adoption of AI services and discussing some of the challenges across the market, Principal Analyst and Practice Manager Patrick Heffernan and Senior Analyst Boz Hristov fielded questions from attendees on industry-specific examples, selling software “as a Service,” understanding resource planning by both IT services vendors and their customers, and more. If you missed the webinar, check out the replay here.

4.34, total average TBR score for T-Systems: T-Systems is rated “challenged versus peers” in only Financial Model, one of the three categories on which TBR scores companies it tracks; the company scored essentially average in Go-to-market & Services and Resource Management.The company’s score has steadily crept upward. According to Analyst Kelly Lesiczka, “T-Systems continues down the path of transformation to improve its business operations and management as well as realign its portfolio to support growth areas such as IoT, security and cloud. We expect the overall score will increase behind go-to-market improvements, specifically in revenue and revenue growth.”

Three Forward

60.7%, Dell Technologies Services’ North America revenue, as a percentage of overall global revenue: As detailed in TBR’s upcoming full report, Dell Technologies’ $1.8 billion North Americas revenue in 4Q19 reflects continued success in driving new business and attached services opportunities in the region, benefited by the company’s robust partner ecosystem and traction from its sales and go-to-market strategies. In contrast, Dell Technologies’ revenue flattened in EMEA and declined in APAC for the third consecutive quarter. Macroeconomic conditions in those regions do not bode well for a turnaround in early 2020. 

30K, cloud projects completed by Accenture and curated for the company’s MyNav tool: Hristov’s upcoming event perspective on Accenture’s 2020 Technology Symposium will include his assessment of the MyWizard, MyConcerto and MyNav tools. Additionally, he will explain what it means to Accenture that every company is a technology company and how cloud sits at the heart of innovation.

$5B, the price of DXC Technology’s announced sale of its State & Local Health and Human Services business to Veritas: In January we noted DXC Technology’s intention to sell off parts of its healthcare IT services business and predicted the state and local practice would remain intact at DXC, based on its sustained success and apparent profitability. In a future blog, TBR will re-evaluate its overall position on DXC Technology as well as the vendor’s placement in our Healthcare IT Services Benchmark.

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

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

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

Additional reports recently published by TBR’s analyst teams

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

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

4Q19 Atos: Establishing an industry-led organizational structure

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

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

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

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

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

Two Back, Three Forward: Growth in the Western Hemisphere

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

Two Back

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

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

Three Forward

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

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

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

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

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Webscale drives projected forecast for enterprise edge

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

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

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

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

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

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

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

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

Questions from attendees prompted a deeper dive

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

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

 

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

 

Insights from TBR’s inaugural Enterprise Edge Compute Market Landscape

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

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

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

 

Perspecta prepares to move beyond NGEN loss

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

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

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

Additional reports recently published by TBR’s analyst teams

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

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

4Q19 Hewlett Packard Enterprise Initial Response

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

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

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

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

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

4Q19 Hewlett Packard Enterprise Cloud Initial Response

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

Two Back, Three Forward: All about consecutive quarters

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

Two Back

$1.47B, Cognizant’s 4Q19 earnings from financial services clients: As noted in our full report, Cognizant’s Financial Services (FS) revenue increased last quarter, but at a slower pace than the company overall, partly due to softness from European banking clients, according to Cognizant. We’ve heard this complaint from other India-centric vendors and will be publishing a special report this month on what those companies have been doing to offset those pressures. To keep some context, FS remains Cognizant’s largest vertical, at 34.3%, but this trend bears watching.

3, consecutive quarters IBM’s healthcare IT services revenue has declined: 2019 was unquestionably an off year for IBM’s healthcare IT services (HITS), but our most recent analysis indicates the company will rebound in 2020 through new leadership, partnerships and technologies. Considering IBM’s long history of excelling in all three of those areas, we’re predicting a modest 2.2% expansion this year. See the full IBM HITS report for all the analysis.

Three Forward

71.2%, contribution of DXC Technology’s Cloud Professional Services segment to overall cloud revenue, per TBR estimates: Nothing surprising about cloud professional services earning the greatest share of revenue, but what stands out is the 9.6% growth rate of that service line within DXC’s overall cloud practice. Ahead of the other service lines and far better than the company as a whole (-3% over the same period). As we note in the upcoming full report, “DXC’s established relationships with major public cloud providers such as Microsoft and AWS [Amazon Web Services] enable the company to build out integrated solutions and maintain healthy growth in 2020 providing cloud management and migration services.” Further, the company continues investing in cloud-savvy professionals even as it bolsters its traditional IT services talent. DXC’s long-term strategy, including around cloud, appears solid.

More than 50%, Capgemini’s digital and cloud revenues as a percentage of total revenue: Like most IT services peers, Capgemini has strategically shifted resources and investments toward new opportunities in cloud and digital, in part through expanding capabilities alongside partners, developing solutions with partners like AWS, and acquiring talent and IP. Even if revenue growth slows from 5.3% year-to-year in constant currency in 2019 to something closer to 4% in 2020, as Capgemini expects, we don’t expect digital and cloud revenues will ever again dip below the 50% line, even if Capgemini joins market leaders in moving beyond the term digital.

3, consecutive quarters in which Perspecta elevated its FY20 guidance: Due to accelerated demand and strong bookings of net-new work, Perspecta is now guiding for annual revenue growth of between $4.45 billion and $4.5 billion, or 4.1% and 5.3%, over FY19. Even with healthy revenue growth, TBR projects the company’s full-year gross margin will erode 2020 (declining from 24.9% in 2019 to 23.6% in 2020) due to  accumulating costs from its acquisition of Knight Point Systems, the launch of new delivery facilities, and investment in Perspecta Labs. Perspecta’s 2020 operating margin should increase 10 points over 2019, from 6.2% to 6.3%, as unprofitable contracts are completed and Perspecta converts strong bookings of more lucrative and net-new contracts featuring the company’s expanding store of homegrown IP. In all, TBR sees steady growth as more important than financial guidance adjustments, given our concern for strategy and performance, not stock price.