• IBM Quantum Volume creates a new way to assess a quantum computer’s capabilities as a whole system, rather than just based on its number of qubits.
• IBM unveils research into the intersection between quantum computing and machine learning.

IBM, ever present in the development of cutting-edge technology, is a leader in the quantum computing space and brought its IBM Q System One to market in January. This came after the company provided access to three of its quantum systems through the cloud. TBR notes that providing access to actual quantum systems, and not simply quantum simulators via the cloud, differentiates IBM’s capabilities from those of peers. Currently, a key purpose of providing access to these quantum systems through the cloud is education. IBM is learning from past challenges by getting out ahead of innovation and making internal and external learning and development a priority. This will ensure that trained internal personnel are in place once IBM Q achieves commercial application and research viability as well as help accelerate the rise of IBM Q by educating those outside IBM who might be involved in developing technological advancements, at least at the algorithmic level.

Quantum Volume assesses quantum capability of a whole quantum system

IBM unveiled Quantum Volume, which is a way to measure the capabilities of an entire quantum system, including qubits, software and overall functionality. IBM aptly demonstrated the value in measuring the functionality of a quantum system by more than just the number of qubits. Qubits are very complex, and factors including the quality of the qubit and the impact of unwelcome external stimuli need to be assessed as qubits are highly sensitive to environmental influences.

Aspects such as gates, connectivity, algorithm errors and compilers are all assessed by Quantum Volume. The capability of the computer is then determined, and it is categorized with a number, which serves as a rating of sorts. This rating is a key to the entire quantum computing market, TBR believes, because it provides a relatively unbiased way to measure the capability of a quantum computer. The current process, in which the number of qubits is used to measure capability, omits essential factors.

More significantly, IBM contends it has discovered a metric for quantum advancements comparable to Moore’s Law for classical computing advancements. Given quantum computing will be adopted essentially algorithm by algorithm, this new metric could help guide the broader user community about when a given algorithm will be ready to move to quantum computing based on the advancements in the technology and the complexities of the algorithm in question. This information can then be used to optimize the deployment layer based on mapping the algorithm to the known performance of the different qubits within the systems.

IBM evaluates the parallels between quantum computing and machine learning

IBM published some of its research, in which it evaluated the applications of quantum computing in conjunction with AI and machine learning to address additional emerging demands. Further details regarding this research can be found in an article published in Nature titled, Supervised learning with quantum—enhanced feature spaces. At its core, AI is simply the evaluation and analysis of massive data volumes that help train a system. In classical computing this process can be time-consuming, but when digital transformation is added to market offerings such as connected cars, time is of the essence and cannot be squandered performing these types of tasks. Quantum computing would not only reduce time to insight but also improve the accuracy of the insights gathered.

Quantum computers can analyze and evaluate data much faster than a classical computer and can also process more complex data sets. These increased levels of speed and complexity will enable machine learning to be more insightful and, therefore, more applicable to more complicated use cases. Key use cases that IBM highlighted for these capabilities initially are model training, pattern recognition and fraud detection. These use cases are fundamental to a connected world, where bad actors would have the potential to cause great harm if they tamper with systems, as would machine malfunctions. If data can be evaluated and extrapolated into real-time applications faster, the potential dangers of an increasingly connected world can be mitigated more quickly.

The market implications of quantum developments are vast and will be rapid

Although individually these announcements may seem small in the scheme of quantum computing, when combined with IBM’s existing breakthroughs in the technology, they demonstrate the breadth of the market IBM’s quantum capabilities will be able to impact once quantum advantage is achieved. Quantum Volume enables IBM to determine use-case efficiencies for quantum computers once commercial availability is attainable. The ability to combine the capabilities of quantum computing with AI will accelerate digital transformation dramatically and launch society into the next technological revolution much faster, as more rapid time to insight will open new avenues of exploration.

Three years ago, almost to the day, we went to Miami and saw something truly new, an “Experience Center” that PwC built to physically embody its emerging idea of coalescing consulting engagements around business, experience and technology. Saying we were impressed would be an understatement. Here’s what we said in our March 2016 special report on PwC Digital Analyst Day: “In addition to obtaining the right people and managing them well … the firm built an innovative office for the Experience Center team. PwC leadership explained the office design fosters collaboration, sparks creativity, celebrates success yet encourages failures along the way and upholds the firm’s values all in a comfortable environment — so comfortable that leadership hopes employees are more comfortable at work than they are at their own homes.”

Since that March 2016 visit, we’ve been to PwC Experience Centers in Frankfurt, Singapore, Shanghai, Tokyo and Toronto. And with every visit, we have chronicled the way PwC’s BXT framework has evolved, leading to our assessment that PwC has stopped playing “consulting roulette” as “BXT evolves from grand idea to engaged approach.”

We haven’t just visited PwC’s digital transformation immersion innovation centers over the last few years; we’ve visited centers with SAP, Accenture, EY, Capgemini, Atos, NTT and IBM. We’ve noted similarities and huge differences, as well as shared unknowns, like how to best determine the value these centers bring the consultancies and their clients. We continue working to understand the three pillars of these centers — clients, talent and partners — plus all the small-but-critical elements that make the differences between success and average vanilla “blah.” We’ve spent a tremendous amount of time discussing leadership, for example, and the impact on talent, culture and clients.

One more quote from three years ago, because this one jumped off the page, knowing what we know now: “By operating on a more global level, evidenced by its employees being encouraged to connect with their colleagues to bring alternative perspectives to address clients’ specific business needs, the firm works smarter. PwC shares success stories across its Experience Centers, slightly varies the talent mix at each center, and encourages mobility between the centers to further diversify the teams.” 

We’ve met PwC folks who’ve migrated from Miami to other Experience Centers, bringing that special sauce with them, and suspect this approach will be replicated by PwC’s peers as they continue building out their own cadre of experience-innovation-immersion-digital transformation center professionals.

As we start winding down beginning-of-the-year earnings calls, here’s what you can expect from the TBR team this week:

Tuesday:

• In 3Q18 TBR noted Salesforce built on its industry-specific strategies by releasing Financial Services Cloud for retail banking and by expanding its target audience for Education Cloud. Salesforce’s ongoing innovation to address vertical use cases and ability to understand customers’ business needs enabled the vendor to execute multiproduct deals in 4Q18. TBR expects Salesforce will close 4Q18 with $12.2 billion in annual revenue, keeping the vendor on track to attain its $21 billion to $23 billion annual revenue goal in 2021. (See Jack McElwee for more analysis.)

• Google Cloud’s hiring of Thomas Kurian as CEO (replacing Diane Greene) is meant to attract enterprise customers and facilitate stronger competition at scale with Amazon Web Services and Microsoft; Kurian, former Oracle president of Product Development, brings deep understanding and detailed messaging on the technical and business impacts of cloud. TBR’s 4Q18 report will detail Google Cloud’s continued innovation among its core AI and ML portfolios while partnering and leveraging Kurian’s clout to gain enterprise mindshare, which will be increasingly critical to long-term success. (For everything Google and cloud, see Cassandra Mooshian.)

Thursday:

• Cisco continues to grow revenue as it transforms itself through acquisitions, divestments and new product releases that enable the company to reduce its reliance on hardware — a commoditizing market — and embrace software. TBR’s 4Q18 Cisco report will include deep dives on Cisco’s most recent acquisitions, including Luxtera, which will help Cisco attract more webscale spend and improve the performance of its proprietary-based solutions, as well as Ensoft and Singularity Networks, which will broaden Cisco’s software capabilities in the service provider space. (Mike Soper leads TBR’s analysis on Cisco.)
• TBR will also report on Cisco Services and the company’s expansion around software and next-generation solutions, which has created advisory and implementation opportunities that enabled Cisco Services to accelerate growth in 2018. An increase in software-related services as well as adoption of next-generation secure and intelligent platforms and products that support clients’ digital business will create attached services opportunities for Cisco Services, driving revenue expansion throughout 2019. (For more on Cisco Services, see Kelly Lesiczka.)
• TBR’s latest report on Perspecta will provide an update on how the fledgling company is managing the task of integrating three legacy organizations into a unified whole. In past reports, we have talked about how the company’s innovation incubator, Perspecta Labs, underpins its long-term position in the federal services landscape. Our 4Q18 Perspecta report will dive more deeply into how the company introduces Perspecta Labs to its biggest client, the U.S. Navy, in advance of the recompete of Perspecta’s largest contract, which entails managing the Navy Next Generation Enterprise Network. (Joey Cresta heads up TBR’s Public Sector practice.)
• As reported in our initial response, NetApp earned $1.6 billion in revenue in 4Q18, representing a 1.6% year-to-year increase. Strong 1H18 revenue momentum enabled the vendor to achieve solid year-to-year revenue growth for 2018, demonstrating the success of some of NetApp’s strategic moves during the year. Our full report will dive into the 2018 establishment of a cloud infrastructure business unit that will enable NetApp to pivot its portfolio further in 2019, as the company, one of the few major pure play storage vendors left in the market, transforms itself to establish its brand as one that enables customers’ digital transformations. (See Stephanie Long for more analysis.)

Friday:

• Utilizing its technology expertise and ability to address clients’ business challenges, Capgemini reached its 2018 revenue growth and profitability goals and is confidently moving into 2019. Capgemini’s bookings reached their highest level since 1Q17 in 4Q18. In the latest full report, TBR will note how the increase in bookings, combined with Capgemini’s unified go-to-market approach; enhanced offerings around digital, cloud and industry-specific solutions; and reinforced expertise via training and reskilling, will enable the company to sustain revenue growth. (Elitsa Bakalova covers Capgemini for TBR.)

Be on the lookout for additional analysis from TBR, including assessments of Accenture Technology and TELUS International. TBR’s next webinar will be held March 20 and feature Senior Analyst John Caucis talking about healthcare IT services.

In February Lenovo’s Data Center Group (DCG) unveiled TruScale Infrastructure Services. A Hardware as a Service (HaaS) solution with subscription-based pricing, TruScale makes DCG’s entire ThinkSystem and ThinkAgile portfolio available to customers “as a Service” through both Lenovo sales associates and channel partners. For a monthly fee, customers will gain access to data center infrastructure, which can be installed at the customer’s location of choice. Cost will be based on power consumption, as power consumption is a relatively accurate way to measure usage without compromising infrastructure security. The hardware remains Lenovo-owned, -maintained and -supported, and with no minimum usage requirement, customers gain the financial flexibility available through public cloud offerings without the risks associated with taking data off premises. Further, the monthly pricing structure includes installation, deployment, management, maintenance, remote monitoring, system health checks and removal of the hardware once the subscription expires. Pricing details of the solution have not yet been disclosed and are likely to be determined case-by-case. The solution is currently available only in English and priced in USD and Euros.

DCG’s late-to-market status will be advantageous in the consumption-based pricing realm

DCG is a fast-follower in consumption-based pricing, as Hewlett Packard Enterprise (HPE) and Dell Technologies have offered consumption-based pricing for over a year. While these offerings have greater market longevity, as they are typically multiyear agreements, customer adoption remains relatively nascent for consumption-based pricing models. These deals are more complex than traditional hardware sales, and therefore require a mindset shift in some ways to promote adoption, just as cloud did initially. DCG’s entrance into the market times well with customer interest, and the vendor’s later arrival to the space will not prove to be a major inhibitor to growth.

The total inclusion of DCG’s channel partners, in addition to its direct sales force, in providing TruScale, is an asset and distinction for the group. Because Lenovo’s services portfolio is not as mature as that of vendors such as Dell EMC, providing channel partners with this opportunity will prove to be a win-win as it enables channel partners to sell attached services while affording Lenovo a more passive revenue stream. Involving the channel has been an initial challenge for some vendors offering consumption-based pricing as the partners need to be incentivized to pursue it over a traditional hardware sale, in which they would get a lump sum payout versus a subscription-like payout. TBR believes that because Lenovo has arrived to market later than peers with its consumption-based pricing offerings, it was able to work out channel partner challenges before going live with the solution.

As the first quarter of the new year gets rolling, TBR’s Services team will be reporting on IT services vendors’ 4Q18 earnings, evaluating their performance and strategies, and pulling through trends across the entire IT services space.

A recap of TBR’s 3Q18 findings can be found in the IT Services Vendor Benchmark, now available for download in TBR’s Client Portal.

Here’s what’s you can expect this week:

Wednesday: 

• In 3Q18 we estimated Accenture’s revenue would expand 9.6% year-to-year in 4Q18 due to Accenture’s ability to convert bookings to cash and established delivery frameworks. Seasonal softness and headwinds among Financial Services clients in Europe and U.S. Federal caused bookings to decelerate and consulting book-to-bill ratio to drop under 1, at 0.99, for the first time since 3Q15. Accenture reported revenue growth of 7.3% year-to-year in 4Q18 due to some of these headwinds. However, we expect Accenture’s ability to execute on its consulting-to-operations approach will help it gain traction and expand wallet share among its 182 Diamond clients, including the 13 clients it gained in FY18.
• In our Accenture Healthcare IT Services report, we note Accenture’s M&A ambitions in the healthcare sector seem to have cooled. Accenture finished 2018 without making a major healthcare-related acquisition, despite large companies, both inside and outside the technology services sector, leveraging M&A to enter the digital healthcare space and accelerate investment in healthcare IT innovation. While a continued robust volume of M&A activity in healthcare IT is expected in 2019 and will only serve to further inflate the valuation of healthcare IT acquisition targets, Accenture’s fiscal health surpasses most competitors’ and it could compete vigorously for these acquisitions. Because Accenture is focused on using M&A to enhance nonhealthcare-related growth initiatives, high-quality healthcare IT and consulting assets are falling into the hands of competitors with aggressive M&A strategies. TBR expects Accenture will stop allowing peers (especially smaller peers) to snatch up high-quality assets, IP and capabilities and will narrow the healthcare IT capabilities gap, as it has done in the digital market space.

Friday: In 3Q18 we estimated Wipro IT Services’ (ITS) revenue would remain flat from the year-ago quarter as weaknesses in core services and solutions offset expansions in the company’s digital business. Wipro ITS’ ability to upsell its clients helped extract additional wallet share from its top five clients; however, the company faces pressure in client retention, as its total number of active clients dropped during 3Q18. We expect these challenges combined with the elimination of Wipro ITS’ data center hosting business will have negatively impacted revenue performance during 4Q18.

Last week TBR rolled out its initial assessment of Tata Consultancy Services (TCS). In 3Q18, based on TCS’ historical conservatism regarding acquisitions, TBR predicted TCS would likely remain quiet on the M&A front in 4Q18: The company “has demonstrated a strong preference for expanding its portfolio and global delivery resources organically rather than through M&A.” Over the last two years (driven by the digital wave), we have observed TCS earmarking free cash flow and investment capital to internal R&D and co-innovation with clients at regional innovation hubs rather than making acquisitions (unlike more acquisitive peers, such as Accenture and Cognizant). However, TCS surprised us with not one but two acquisitions in November: BridgePoint Group (financial services consulting) and W12 Studios (digital and creative design). Given TCS’ four-year hiatus from M&A and that these acquisitions are small-scale and will not impact TCS’ revenue substantially (TBR estimates they will contribute only $10 million to $20 million in new organic revenue annually, compared to TCS’ $20 billion in sales expected in FY19), we do not expect TCS to acquire again until these new assets are fully and successfully integrated. Given TCS’ four-year hiatus from M&A, and even though these acquisitions are small-scale and will not substantially move the revenue needle for TCS (we estimate both companies will only contribute between $10 million and $12 million in new inorganic revenue on an annual basis – TCS will generate over $20 billion in sales in its fiscal 2019), we expect TCS will not make further acquisitions until the newly acquired assets are fully and successfully integrated.  We believe this quiet period could end, however, by 2H19, as TCS is compelled to shed its traditional aversion to inorganic growth to keep from losing more addressable market to peers such as Accenture, which has acquired its way to the top of the digital marketing space. For additional information on TCS, contact Senior Analyst John Caucis at [email protected].

 

In the next few weeks we will issue our initial 4Q18 reports on each vendor in TBR’s Services portfolio.