COVID-19 will have a relatively limited impact on the TIS market overall as CSPs remain committed to and focused on deploying new technologies

Strong investments by webscales and China-based telcos will carry the telecom infrastructure services (TIS) market through the COVID-19 crisis relatively intact, with a shallow decline of relatively short duration expected in the overall market followed by a robust, sustained recovery as CSPs in other key countries accelerate their infrastructure initiatives to align with the new normal, post-pandemic world.

COVID-19 was a catalyst to accelerate and broaden the scope of digital transformations as well as 5G and edge computing adoption in addition to other trends that were already in motion before the virus entered the picture, such as network transformation via virtualization and cloudification.

The Telecom Infrastructure Services Global Market Forecast tracks spend by communication service providers (CSPs), which includes telecom operators, cable operators and webscales, on infrastructure services. TBR categorizes infrastructure services into four distinct buckets: deployment services, maintenance services, professional services and managed services. This research includes current-year market sizing plus a five-year forecast across services segments and regions as well as examines growth drivers, top trends and leading market players. Vendor market share is also included.

COVID-19 dealt only a glancing blow to federal IT, but market dynamics are still shifting

COVID-19 will accelerate a range of secular trends in federal IT

Despite the inevitable short-term impact of COVID-19 on federal technology outlays, IT infrastructure modernization will eventually return to the top of the list of federal IT spending priorities, as will investments in cybersecurity, analytics, AI, big data, cloud and machine learning. The epidemic will disrupt contract delivery, create resource deployment challenges at federal IT vendors and their agency clients, and may cause nonhealth-related discretionary spending to be redirected to healthcare areas, benefiting vendors such as Leidos, Accenture Federal Services, Maximus and ManTech (Nasdaq: MANT).

As federal agencies transition large portions of their workforces to remote environments IT infrastructure improvements and migrations to cloud and everything “as a Service” will follow, along with projects to improve private networks and broadband connections and engagements to enhance security requirements as the “threat surface” exposed to new security breaches expands. Federal IT decision makers are increasingly seeking methods of combating COVID-19 that have been proved in the commercial sector.

Federal spending levels are expected to increase on preparedness and response activities and other disaster recovery or mitigation work in the fiscal 2021 budget, with a growing volume of IT modernization opportunities around disease surveillance improvement, including the implementation of new IT systems and advanced analytics. Still, the overall landscape for products and services to counter biothreats remains unclear and federal IT vendors will be tapped to provide the vision and road map for the adoption of biothreat surveillance solutions. Spending on electronic warfare, countering drones and unmanned systems and other areas of the National Defense Strategy will remain strong for the next two years and in fact may expand to include bio-monitoring and bio-surveillance technologies.

Most of the results from the 1Q20 earnings season are in, and federal technology contractors have provided initial reactions to the impact of the coronavirus pandemic on their fiscal performance and their outlook for federal fiscal 2020 and beyond. By and large, the fiscal effects of COVID-19 were limited to the final few weeks of the quarter, according to a plurality of federal IT vendors, minimizing the top- and bottom-line impacts for most federal technology contractors. Negative impacts were most concentrated in the global aerospace sector, and as such, companies with a footprint in commercial or government aeronautics encountered severe growth and margin headwinds. However, all federal contractors had to scramble to acclimate resource management, operations, service delivery, business development and supply chain management strategies to the new COVID-19 environment.

Benchmark security revenue continues to increase, driven primarily by acquisitions in 2H19

Key 2H19 benchmark takeaways

Total benchmarked revenue

Double-digit growth among covered vendors was due to steady industry acquisitions and strong performance from many of the vendors, including IBM (NYSE: IBM), F5 Networks (Nasdaq: FFIV), CyberArk (Nasdaq: CYBR), Fortinet (Nasdaq: FTNT) and Splunk (Nasdaq: SPLK). TBR believes security demand continues to rapidly accelerate as companies execute digital transformation projects and cyber threats continue to increase. The COVID-19 pandemic is resulting in an increase in cyberattacks aimed at multiple verticals such as healthcare and financial services, as institutions are forced to operate online in a greater capacity than prior to the outbreak.

Application security and mobile security segments

Higher demand for email- and web-related security as well as application vulnerability scanning led to an increase in application security segment revenue. The mobile security segment is seeing high revenue growth as the number of mobile devices continues to rise and the need to provide endpoint detection to all mobile and IoT connected devices increases.

TBR’s Security Benchmark provides clients a deep dive into the enterprise security market, highlighting the financial performance of public and private, multiline, and pure play vendors within the industry.

With use cases built on public chains in production, attention turns to public and private sector interaction

Near-term market implications: What is next, rather than beyond

TBR believes the intersection of public policy and commerce is the next area where technologists will apply their energies within the blockchain realm. The core platform elements are in place with clearly articulated road maps for ongoing development work. At issue will be the policy regulations and compliance methods needed to ensure blockchain-enabled business activity can be seamlessly imported into legacy systems of record for financial reporting purposes.

Similarly, nation states and native-cloud platforms such as Facebook will vie to become the de facto economic exchange mechanism for blockchain transactions. Notably, Libra Association, the Facebook-created digital currency, recently named former U.S. Department of the Treasury Under Secretary Stuart Levey as its first CEO, indicating Facebook’s strategy for bridging the nation state-commercial entity divide. Taking a conservative posture to minimize security threat vectors to protect the value of the currency in question appears, on its face, to be the most prudent course of action. On the other hand, taking a more aggressive position that allows for deeper embedding into commerce chains and exposes the currency to more programmability — and consequently creates a greater surface area for malicious attacks — is a risk nation states and businesses will undertake to gain greater participation in the digital economy.

In the short term, then, the conservative posture is prudent. In the long term, however, such conservative viewpoints could result in shifting geopolitical power. The U.S. dollar, for example, has been the de facto foreign exchange clearing mechanism for decades. A conservative posture on the part of the U.S. Federal Reserve on digital currency opens the door for other entrants to displace the U.S. dollar as the international clearing mechanism and, in so doing, removes a valuable foreign policy tool from the U.S. diplomatic toolbox at a time when U.S. diplomacy is already severely challenged.

The fourth annual EY Global Blockchain Summit had a vastly different look and feel as the COVID-19 pandemic shifted the engagement to a virtual forum and turned the spotlight on the rapidly coalescing use cases that blockchain technology underpins. The core coterie of blockchain builders does not have to prove technical value through “use case show and tell” of how the technology works, but rather needs to discuss what the technology delivers in terms of business process improvement. However, technology companies do need to outline product road maps to ameliorate persistent concerns. More important, though, is the need for automated interaction, adjustment and compliance with business rules and the ever-evolving public policies designed to mitigate risk. It appears clear that as revolutionary as blockchain can be to business commerce by shifting the tracking of such activity from general ledgers to distributed ledgers, it can be equally transformative to nation states, depending on what form of currency exchange settles out as the de facto clearing mechanism for multi-enterprise blockchain business networks.

IBM Think Digital 2020: Making the case for better together

IBM places hybrid cloud at the center of its digital transformation strategy from both a product and a services perspective

At both the IBM and Red Hat sessions, there was no shortage of content that placed hybrid cloud at the center of digital transformation. Through various keynotes and sessions, IBM’s architectural approach, which places Red Hat as the foundational layer for future innovations, came to the forefront. A key example is the IBM Cloud Paks, which are to IBM Services what Red Hat products are to open-source projects. Cloud Paks provide functionality as a service, making it easy for customers to deploy the middleware functionalities that support solutions and applications. The combination of the advantages of cloud computing with IBM’s trusted ability to manage, update and certify solutions for regulatory compliance enable significant improvements in ability and flexibility. It is an emulation of the Red Hat playbook, albeit with far-reaching implications to the Global Technology Services business.

At the event IBM unveiled the IBM Cloud Pak for Data 3.0, which leverages OpenShift 4.3 to deliver new analytics and data management services. Further, IBM’s Partner Packages is a new incentive program for partners that successfully sell the solutions, underscoring IBM’s desire to facilitate customers’ cloud migrations by combining the expertise of services partners with the flexibility of the Cloud Paks.

However, the hybrid cloud model is anything but confined, and Whitehurst noted that edge devices must essentially operate as little clouds and require the same orchestration and interoperability standards. Edge implications address both the telco and enterprise spaces. Network virtualizations seemingly merge IT and cellular technology (CT) through virtualizing those functions to run on the same common platforms supported by OpenShift. Vodafone Business made the case that it leap-frogged competition in India by building a modern architecture that enabled the company to run IT and CT from the same cloud, delivering better consumer service for voice and extending IBM into the adjacent market of hosting enterprise workloads from the same instance.

IBM Think Digital 2020 made the case that IBM and Red Hat are better together — better together in mixed infrastructure, better together in cloud and AI, and better together in IBM’s and Red Hat’s ways of working. Lastly, IBM and Red Hat are better together with Arvind Krishna as IBM’s CEO and Jim Whitehurst as IBM’s president, as the former can assure customers of the IBM offering road map built on Red Hat’s engine while the latter can instill the operational best practices for managing people, processes and financial metrics for a technology world built increasingly on open platforms and recurring revenue subscription models.

Red Hat enables hybrid cloud with a business model focused on open architectures, processes and cultures

With a foundation in open source, Red Hat is poised to deliver to the hybrid-ready enterprise

The open source proposition has been embedded in Red Hat’s roots since the company’s founding in 1993 and has since remained at the core of its guiding principles, with Linux operating system (OS) at the heart of all its innovations. Vendor loyalty and clearly charted paths were the mantras many companies operated on for years, while “digital transformation” was barely on an enterprise’s short-term road map. Then a decade ago, cloud adoption surged, creating the impetus to embrace more agile and flexible development models, and open source technologies emerged. While business models centered on open source software have proved challenging for many, Red Hat’s pre-established culture and leadership around open source communities solidifies the Red Hat brand, paving the way for rapid scale, as the company has captured over 90% of the Fortune 500 as clients and in 2019 became the first open source-defined company to reach $3 billion in annual revenue.

During opening keynotes, Products and Technologies EVP Matt Hicks discussed how Red Hat is leveraging its foundational strengths in an open hybrid cloud approach, which, by virtue of being open, goes beyond technology and extends to processes, cultures and transformation, to further differentiate. Red Hat is releasing new offerings to capture opportunities around hybrid infrastructures, application development and management while rapidly scaling up the integration of technologies such as AI and edge, bolstered by collaborative engines like its Innovation Labs.

Originally scheduled to be hosted in San Francisco, Red Hat Summit 2020 offered participants numerous opportunities to virtually engage in hands-on labs, converse with industry leads and hear from Red Hat customers, and it did so while maintaining the spirit of openness and collaboration for which Red Hat is known. While the topic of COVID-19 did not overtly dominate the discussions or significantly color the overarching Red Hat messaging, it became clear that the ability to pivot rapidly, embrace change and remain flexible will underscore Red Hat’s efforts to successfully promote transformation amid the pandemic. Red Hat’s reputation has historically been predicated on its open and agile approach to development and deployment, long before such attributes were considered valuable, let alone essential.

Telecom operators felt the effects from COVID-19 in 1Q20; the impact on telecom vendors will be more pronounced in 2Q20

Telecom market impact

COVID-19 impacted the telecom industry during 1Q20 on different levels, with telecom operators feeling the initial effects during the quarter. TBR believes telecom vendors were initially shielded from the early effects, but we anticipate a deeper negative impact on both operators and vendors in 2Q20 as the pandemic plays out.

Though company results and the broader ICT market are expected to be challenged further in the short term (over the next year) due to the crisis, TBR believes the near term (two to three years) and long term (three to five years) will be net positive on the ICT industry as the post-COVID era drives enterprises and governments around the world to double down on digitalization and invest in a broad range of technologies to evolve their businesses and increase safety in the new world.

Telecom edge compute

The COVID-19 virus will significantly impact the ICT infrastructure supply chain, and, more broadly, the global economy. This dynamic and evolving situation prompted TBR to revise its telecom edge compute market size in the recently published Telecom Edge Compute Market Landscape.

Though the virus will delay the ultimate build-out of the edge, the cumulative market size during the forecast period is expected to be larger and grow faster than originally anticipated once the dust settles from the virus.

TBR expects the virus to delay edge spend in 2020 and a portion of 2021. By mid-2021 TBR expects the supply chain to be fully operational again, at which time the industry will attempt to catch up to align with pent-up demand.

TBR expects governments and businesses around the world will reassess their disaster response and risk profiles to mitigate future risks to their societies and operations. This will drive investment in surveillance, drones, industrial automation, blockchain, AR/VR and other use cases that require edge resources to operate. As such, TBR increased the cumulative market size for edge infrastructure as it is expected that many governments, not just the U.S. and China, will justify these investments for national security and business resiliency purposes. It is expected that communication service providers (CSPs) will be key beneficiaries of this addressable market to support government and business initiatives in these areas.

Private cellular networks

Despite short-term issues, COVID-19 will ultimately be a net positive driver of the private cellular networks market over the near to long term.

Accenture and CHROs connect people and work during COVID-19

In the early days of the nationwide shutdowns, members of the Accenture Chief Human Resource Officers (CHRO) Forum saw the storm brewing, compelling them to think creatively. With swift action and support from CEOs, HR leaders from Accenture, Lincoln Financial Group, ServiceNow and Verizon mobilized their efforts and capabilities and developed a solution that facilitates continued employment. Accenture stood up People + Work Connect, an analytics-enabled platform, with the goal of helping enterprises sustain business continuity by allowing human resources to move to meet demand.

What it is and what it is not

TBR had a chance to discuss the nuances of the People + Work Connect platform with two of the architects behind it, Accenture Talent & Organization/Human Potential Lead Eva Sage-Gavin and Work & Workforce Lead Nicholas Whittall, to understand their motivations for and expectations of the platform.

With Accenture acting as the technology provider, rather than the mediator between organizations’ supply and demand workforce needs, the company’s role is largely centered on assembling and managing the collation and design, and building and running the platform. A team from Accenture Liquid Studio built a business-to-business, fit-for-purpose platform to help companies match available workers to open jobs based on select criteria including location, experience and number of openings. The platform is currently available for free, and Accenture leaders have said the company “won’t ever charge.”

While TBR recognizes the noble approach Accenture and its partners have taken to develop, manage and offer the platform free of charge, in the long run we believe the company is gaining value from the effort (discussed below). With design principles including “progress over perfection,” Accenture developed the platform in 14 days from pilot to launch, reaching its goal of a “Minimally Loveable Product,” rather than an all-encompassing solution. TBR sees Accenture’s approach here as another example of COVID-19 accelerating change across IT environments and, more broadly, business policies and practices.

At the same time, both Sage-Gavin and Whittall reinforced that the platform’s simplicity and scale appealed to businesses looking for immediate solutions to massive problems. We see the simplicity of the data request — Accenture stayed away from using personally identifiable information when developing the platform — as critical to the platform’s uptake and success, such as when two call center companies — one laying off workers and one looking for experienced call center staff — can use the platform to ensure a minimal number of jobs are lost in particular locations. Additionally, features such as a depository for ideas, questions and advice, called a “Knowledge Exchange” on the platform, can provide insights into best practices on benefits and evolving HR practices.

We see such insights impacting not only the HR role but also the broader organization. As COVID-19 abates, revised HR policies and the lessons learned through using the platform to address challenges during the pandemic will likely influence future staffing and IT needs, thus affecting organizations’ planning and financial cycles. As Accenture maintains an arm’s length distance from how companies handle the recruiting and onboarding processes once the match is made, the company is able to provide data concierge services, identifying which data is most important to future refinements of existing ERP systems and HR platforms.

Human-based service delivery vendors’ talent management strategies and revenue growth will be tested amid COVID-19

Headcount growth surpassed revenue growth, a trend we expect to continue, albeit at a lower pace as vendors stall hiring due to COVID-19

The 14 vendors in TBR’s Global Delivery Benchmark continued to hire and acquire resources ahead of revenue growth in 4Q19 as they geared up to address buyer demand for scaling digital transformation (DT) initiatives. Developing certified talent supporting Agile-based service delivery helps vendors build and solidify trust with enterprises seeking to optimize and/or modernize IT operations through next-generation technologies. While vendors will continue to act as price-competitive solutions brokers by developing teams at on-site and nearshore locations that can split the work and either execute on delivery or collaborate with offshore teams for support, the global pandemic will likely dampen buyer sentiment around DT spend, impacting vendors’ hiring initiatives in 1H20. Workplace management and security are two bright spots in in-demand skills during the pandemic.

TBR’s Global Delivery Benchmark documents vendor performance; attrition and utilization rates; and market, growth and profit drivers of 14 of the largest systems integrators globally.

COVID-19 earnings impact review: Early warnings

Early earnings indicators reveal ICT vendor ‘new normal’

The reality of COVID-19’s impact potential is clear. You do not have to be an analyst by trade to understand the pandemic will create new normals in our personal and professional lives, disrupting entire business sectors, including ICT, in the process. What remains unclear in many respects, however, is the quantification of that impact.

As of the publication of this report, approximately half of the vendors that TBR authors dedicated quarterly or semiannual reports on have released their 1Q20 earnings results. While earnings announcements and presentations are still rife with uncertainty, these releases, plus TBR’s ongoing vendor-centric financial modeling, provide some indicators of how to quantify the impacts yet to come.

Beginning with this report and continuing through this quarter’s earnings and benchmarking cycle, we will be aggregating some of our financial modeling data across our upcoming reports to assess the current state impact of COVID-19 on vendor performance and to predict next quarter and full-year outcomes.

TBR’s advice to vendors: Get predictive about benchmarking

These early results suggest the industry will be split on how to best set business performance expectations in the current environment but will increasingly err on the side of caution in terms of predicting the future. Stalwarts yet to release, such as Dell Technologies and Hewlett Packard Enterprise (NYSE: HPE), have already announced that they, too, will suspend financial guidance. Now more than ever, understanding the trajectory of the ICT vendor peer ecosystem and aligning on industry best practices to navigate the effects of COVID-19 is critical for ICT players. Building, maintaining and updating line-of-business financial models on competitors enables vendors to better benchmark performance, predict quarterly and annual outcomes, and deploy tactics to optimize performance. Vendors should look at the context of peers’ earnings announcements for clues — while many are “going dark” in terms of providing revenue guidance, rich discussions are occurring in earnings calls regarding resource utilization, portfolio management, sales and go-to-market alignment that can be tapped for vendor insight to infuse into practices

In addition to this report, we are writing and reporting in depth on the COVID-19 impact in a dedicated special report series, webinars and our regular published analysis as vendors release earnings. Our published content is regularly updated on TBR’s website and can also be accessed through our client portals.