Government stimulus will accelerate 5G rollouts

An increasing number of governments worldwide are becoming directly and/or indirectly involved in ensuring new technologies, such as 5G, are widely deployed in their respective countries. This spend is, in many cases, tied to economic recovery packages to counter the impact of the COVID-19 crisis and is being justified based on economic, national security and public health grounds.

TBR’s research indicates governments worldwide will invest in excess of $2 trillion in the ICT sector over the next five years, starting in earnest in 2021. Of that $2 trillion, several hundred billion dollars will flow directly into the 5G market, primarily for the purposes of providing internet access to underserved and unserved people around the world as well as ensuring respective economies are able to transform to be relevant and competitive in the digital era.

China’s CSPs will maintain an accelerated 5G rollout in 2021; domestic vendors will be primary beneficiaries

Following the temporary shutdown associated with China’s initial battle with COVID-19 in 1Q20, China’s CSPs accelerated rollout of 5G RAN, deploying 700,000 5G base stations in 2020, in addition to the 100,000 base stations that were rolled out in 2019. China’s investment in 5G will remain elevated in 2021, with between 600,000 and 1,000,000 base stations set for deployment as the government makes 5G a centerpiece technology of its newest infrastructure development initiative.

These investments will primarily benefit China Communications Services (CCS), Huawei and ZTE, though Ericsson and smaller China-based vendor CICT are also taking part in 5G RAN builds. China’s government heavily influences CSPs’ contract allocation and prioritizes business for domestic firms. Huawei was allocated the bulk of business in the 5G cycle, increasing its share from the LTE cycle.

TBR believes China’s ICT ecosystem has sufficient chipsets to meet the country’s 5G RAN deployment targets in 2021, which suggests the supply chain encumbrances instituted by the U.S. government are not having a significant impact on China’s original deployment timelines.

The 5G Telecom Market Landscape includes key findings, market size, customer adoption, operator positioning and strategies, geographic adoption, vendor positioning and strategies, and acquisition and alliance strategies and opportunities.

In late 2020, KPMG’s blockchain team outlined to TBR the efforts the firm has made to evolve its blockchain practice, expanding into concrete and discrete areas in which the firm can “create an ecosystem around something that already exists, then add a layer of trust, enabled by blockchain,” as made evident by the three focus areas detailed by the KPMG team: cryptoasset custody and analytics, climate accounting infrastructure, and energy trading reconciliation. KPMG explained that the firm’s digital transformation initiatives, which underpin the entire blockchain practice, remain anchored by data, identity and ecosystem — conveniently core elements of blockchain. 

Americas Blockchain and Digital Assets Leader Arun Ghosh went one step further, saying KPMG had intentionally moved away from “leading with blockchain” to building a message around digitalization and trust: “Blockchain is digitizing the infrastructure. Fundamentally what blockchain does is digitize trust.” In TBR’s view, this business-problem-first, technology-second approach mirrors what consulting clients say they want and plays to KPMG’s strengths.

Measuring environmental commitments: Climate Accounting Infrastructure

Businesses face challenges in proving to clients, stakeholders and regulators that their efforts to address climate change have a measurable impact on the environment and meet enterprisewide goals. Stepping up to address that challenge, KPMG saw an opportunity to deploy blockchain solutions as part of a Climate Accounting Infrastructure (CAI) offering. In essence, verifiable emissions data depends on trust, which can best be built and sustained through a combination of tools, including blockchain solutions, AI, enhanced IoT sensors and cloud.

For KPMG, the journey to a blockchain-enabled climate accountability offering started with a client in the financial services sector that was seeking help to meet its sustainability goals. Operating across multiple regions, with overlapping and sometimes conflicting standards and regulations, the client wanted to invest smartly, prove value to its shareholders, and build trust with customers and regulators, all while fully understanding the costs and potential impacts, both positive and negative. Once KPMG devised a blockchain-enabled approach — which KPMG says provides “near real-time climate accounting and reporting to help clients meet their climate goals” — the firm narrowed its focus down to two core industries: real estate and oil & gas.

As Ghosh explained to TBR, these industries face increasing compliance pressures, as well as structural challenges to meeting environmental standards, making them excellent initial target clients. The specific blockchain component, according to KPMG, comes through securing the massive amounts of structured and unstructured data in a way that can be verified but not altered, leading to greater trust and transparency for all parties.

In a Dec. 29, 2020, article, The New York Times detailed the pressures facing the real estate industry in New York City, starting with the sheer volume of carbon emissions coming from the city’s buildings (close to 70% of the city’s total emissions). According to the article, a 2019 law “requires owners of structures 25,000 square feet or larger to make often sizable cuts in carbon emissions starting in 2024 or pay substantial fines” and “affects 50,000 of the city’s roughly one million buildings, including a substantial number of residential buildings.” The city’s role as a global financial hub and KPMG’s heritage in accounting and financial services present a strong opportunity for the firm to begin building a use case for its CAI offering, particularly if the firm leverages its existing NYC-based client relationships to gain introductions to commercial real estate owners.

Last fall, TBR met with KPMG’s blockchain leadership team, including Americas Blockchain and Digital Assets Leader Arun Ghosh, and discussed changes the company’s blockchain practice has undergone since the October 2019 Blockchain Analyst Day. As TBR prepares in 2021 to add a blockchain-specific component to our Digital Transformation portfolio, examining in detail how IT services vendors and consultancies have been building blockchain practices, we will publish special reports describing specific vendor offerings and how those offerings and supporting capabilities fit within the larger blockchain ecosystem.

Pandemic-related cloud adoption continues, with more multiproduct, mission-critical SaaS implementations planned for 2021

The outbreak of COVID-19 led to constraints around enterprise IT budgets, but the emergence of a digital workforce resulted in accelerated adoption of cloud applications, particularly those related to productivity and customer-facing suites in the front office. Enterprises needed to rapidly shift operations to the cloud to support remote workforces, increasing the value of service arms and IT services partners to mitigate client risk in the form of cloud road-mapping, migration and implementation services.

In the long term, internal service capabilities and IT services partners will become critical to enabling enterprises’ digital transformations, particularly as front-office cloud deployments mature and as clients explore migrating more customized environments like ERP to cloud or pursue industry-based solution deployments in highly regulated industries like healthcare and the public sector.

The bulk of enterprises are employing a best-of-breed approach to the development of their cloud IT architectures, evidenced by 42% of respondents stating that they currently use three or more SaaS vendors. As a result, application vendors have been driving alliance activity with infrastructure providers to give clients more flexibility around how they consume cloud, evidenced by SAP’s decision to offer SAP Business Suite 4 HANA with leading infrastructure players like Microsoft Azure and Amazon Web Services. While best-of-breed IT will remain prevalent, cloud players have increasingly driven investments to tighten the integrations of complementary suites to expand share of client wallet by enabling multiproduct deals, a tactic that has been effectively employed by Salesforce and Microsoft in 2020.

Cloud players aim to accelerate the proliferation of their IP by employing industry-based go-to-market capabilities to provide clients with prebuilt data models that alleviate concerns around data compliance and governance. This tactic aligns with clients’ needs, as 51% of respondents who deployed industry solutions cited compliance and regulatory standards as a key benefit. To strengthen the value of industry clouds to clients, vendors are offering prebuilt integrations with leading data providers, such as Microsoft’s integrations with electronic health record providers through Cloud for Healthcare. These types of integrations will be critical to accelerating client time to value, while ensuring the integrity of data by meeting industry-specific regulations.

TBR’s Cloud Applications Customer Research tracks how customers are modernizing application environments and choosing between different cloud delivery methods. Leveraging in-depth conversations between TBR and enterprise customers, the Cloud Infrastructure & Platforms Customer Research provides subscribers with actionable insight that they can use to better understand their customers’ behavior and win cloud infrastructure deals. Topics covered for both reports include public, private and hybrid delivery options; decision-making involvement and criteria; leading vendor perception; field positioning and competition guides; and the impact of emerging trends (e.g., containers, security, platforms).

On Jan. 13 news broke that Intel CEO Bob Swan will retire and be replaced by Intel alum and current VMware CEO Pat Gelsinger, effective Feb. 15. Although Intel is facing challenges and has suffered setbacks in the last few years, it would be an exaggeration to say the company is in trouble. It dominates PC and server CPUs market share and extracts much greater profits from those devices than do their manufacturers.

Despite share gains by AMD, Intel’s hegemony over the x86 instruction set and its related silicon will assure continued profits for many years, as any transition in such critical components is slow and careful. Swan came to the corner office when Intel was struggling with issues that have persisted, and, in some cases, intensified. Some of these challenges have been self-inflicted from an inside-out perspective, while others have been outside-in threats that internal deficiencies have compounded. Notwithstanding, a growing number of activist investors have been pressuring Intel’s board for leadership change.

The inside-out challenge is to marry manufacturing scale and agility

Intel has enforced the rule of Moore’s Law on the industry for years. Faster, better, cheaper form factors have almost single handedly underpinned the digitization of business and the consumerization of IT throughout much of our daily lives. The inexorable march has seen the rapid rise and fall of business entities as proprietary minicomputer architectures gave way to the Microsoft Windows/Intel CPU, or Wintel, juggernaut that enjoyed a near virtual lock on the market. Intel built its share dominance on two core best practices: chip design and manufacturing.

Each new generation of CPUs requires both a thorough redesign and a massive technically challenging improvement in the chip manufacturing process. For decades, Intel has relied not only on its technical skills but also on its massive revenue to stay ahead of competitors. Other chip vendors rely on third-party chip factories, called foundries. Over the past three years, the main independent foundry, Taiwan Semiconductor Manufacturing Company (TMSC), has outperformed Intel, as has Samsung. The technology race in chip manufacturing is closely related to the thinness of the substrate. Intel has not yet produced its promised 7nm chip, and its current road map states it will not produce 5nm chips until 2023; whereas TMSC and Samsung produced 5nm chips in sample quantities in 2019.

Because of the delay in manufacturing technology, Intel has not been able to meet demand, resulting in PC vendor backlogs. These backlogs have been beneficial for PC vendors, reducing price competition and increasing margins. Intel margins are down, but not severely. The constrained supply made it easier for Intel’s main competitor in PC CPUs, AMD, to gain market share, but because of buyer conservatism and the long lead time necessary to design new PCs, the erosion has been small.

On the server side, Intel has to embrace a more agile manufacturing philosophy and a willingness to essentially become a contract manufacturer of third-party designs as the consolidated Wintel form factor gives way to multiple designs in what is commonly called accelerated computing. At the same time, market uniformity and scale are also giving way. Powerful, small, low-cost form factors are going to proliferate as digitization continues. Edge compute and various smart things will contribute to this shift, and the ability to run smaller manufacturing runs will become paramount.

Revamping Intel’s development process and pivoting to more agile manufacturing will be two core internal challenges confronting Gelsinger, but not the only ones. The outside-in pressures will mount as well.

France-based IT services giant Atos confirmed on Jan. 7 rumors regarding a “friendly transaction” with DXC Technology (NYSE: DXC), which could result in the second-largest global IT services vendor, closer to the size of Accenture (NYSE: ACN) ($45 billion revenue in 2020) and larger than Tata Consultancy Services ($22 billion revenue estimated in 2020) and IBM Services (NYSE: IBM) after the Global Technology Services spin-off at the end of 2021 ($23 billion annual revenue after the spin-off).

What is in it for Atos? Scale, and more scale

Atos has not been shy about making larger-scale acquisitions over the last decade, acquiring Siemens IT Solutions and Services, and its roughly 26,300 employees, in 2011; Xerox’s ITO business, with 9,600 employees, in 2015; and Syntel, and its 23,500 employees, in 2018, proving its capabilities at absorbing companies of different sizes. With DXC Technology, Atos would gain scale in the U.S., something the company has been pursuing in fits and starts over the last five years, often through acquisitions as well as changes in leadership in North America.

From a portfolio diversification perspective, though, acquiring DXC Technology is not the best choice, in TBR’s opinion, as Atos’ scale would increase in managed infrastructure services, an area in which it is already well-established. However, Atos would gain DXC Technology’s security services and solutions capabilities and add approximately 3,000 people to its more than 5,000 security professionals. Additionally, Atos would gain scale in digital security, an area of strategic expansion as Atos aims to increase its revenues in this segment from €0.7 billion (or $0.9 billion) in 2019 to €2.1 billion (or $2.6 billion) over the midterm.

Despite the recent challenging market environment, Atos has been on an acquisition spree, using its remaining free cash flow after dividend payments to make bolt-on transactions. Since the beginning of 2020, Atos has announced nine acquisitions in four expansion segments: cloud, digital, security and decarbonization. With DXC Technology, Atos’ global service delivery capabilities would also expand and the company would reach a combined low-cost resource leverage of approximately 53%, compared to 46% for Atos alone.

DXC Technology gains opportunity for payout and stability

If Atos acquires DXC Technology, three years of failed attempts by DXC Technology to turn around eroding revenues and thinning profitability would be forgiven. DXC Technology leadership would see a cash-out payday, while remaining assets (people and capabilities) would move to a more stable corporate environment with a long-term view and objective, something Atos is strong at setting up and following through on.