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Atos: Digital twin enables decarbonization

At scale, digital twin is a sustainability play

“Digital twin is a decarbonization enabler” and in the next five years “people will generate carbon credits out of digital twin.” Sandeep Bhan, Atos’ global senior expert on digital twin made those assertions at the end of a LinkedIn webinar today in response to TBR’s question about the more-than-marginal business impacts possible through deploying digital twins.

As IT services vendors, consultancies and their clients increasingly talk about sustainability, TBR has kept a skeptical eye on what emerging technologies or consulting trends bring true change to decarbonization and what’s just hype. Bhan and his colleague Murli Mohan Srinivas, Atos’ global leader for Industry 4.0 & digital twin, made a compelling case that digital twin, as part of a greater toolkit, will be part of many companies’ sustainability efforts. Incremental improvements in operational efficiency enabled by digital twin and taken to scale could bring substantial energy and cost savings, potentially converted into tangible decarbonization results. As Srinivas noted, “Every 0.1% increase in asset availability in wind turbine translated to a few hundred thousand units of power generated, which directly translated, in terms of months … into millions of dollars of real energy.”

From TBR’s perspective, digital twin has been an emerging technology more hyped than understood or deployed. The title of the Atos webinar, “Digital Twin Demystified,” reinforces how the intricacies and impacts of digital twin remain largely underappreciated across the broader technology space. This combination of digital twin mystification and increasing hype around sustainability fuels TBR’s uncertainty around the long-term potential of both.

Listening to experts drill down on specific use cases and tie specific technology implementations with real-world business outcomes helps alleviate some of those concerns while uncovering additional questions around applicability beyond asset-heavy industries, demands on change management and talent, and prioritization of digital twin in any sustainability or digital transformation engagement. TBR will continue probing Atos and other IT services vendors and consultancies on their digital twin offerings and capabilities and will consider Bhan’s assertion about digital twin enabling decarbonization in TBR’s inaugural Decarbonization Market Landscape, (scheduled to publish in June).

Atos’ investments in expertise, capabilities and offerings

During the Atos webinar, Bhan and Srinivas made a few other key points about digital twin, including:

  • Digital twin will be increasingly in demand as customers deploy additional automations, look to capture and exploit existing institutional knowledge, and apply the last couple years of supply chain management lessons to their ongoing operations.
  • Customers come to Atos because of the company’s legacy of design engineering across many manufacturing areas, deep understanding of how connected products are more connected, and ability to work across a complex ecosystem. Atos, they noted, has invested for years in not only understanding but also developing expertise, capabilities and offerings around digital twins.
  • Based on those years of investment and development, Atos takes a systematic approach to assessing a customer’s digital twin opportunities and needs: collect structured and unstructured  data coming from the asset in the field; marry that to relevant data coming from the enterprise ecosystem, such as service lifecycle management; and, critically, fold in an understanding of relevant “semantic knowledge … the knowledge of people,” the experience of people. In Atos’s view, digital twin solutions must combine all three to then be able to properly address a business problem.

Over the quick 30-minute primer, the speakers made a compelling case for the company’s expertise, capabilities, and offerings around digital twin. TBR will continue following Atos’ efforts in the digital twin space and include our assessments and analysis in quarterly reports on the vendor, as well as in TBR’s Digital Transformation reports, when applicable.

Atos future-proofs compute ahead of Great Acceleration

As the world awaits the scientific discoveries needed to bring quantum processors to commercial applicability, Atos’ BullSequana XH3000 allows for ecosystem participation within the compute platform itself and future-proofs any early buyer investments. In its Feb. 16 official announcement of the XH3000 supercomputer, for which TBR was provided pre-briefing access, Atos claims the product will have a six-year life cycle and that it is an open architecture capable of housing up to 38 blades. The blades can accommodate a mix of different XPU processors, with more under consideration and development.

The rapid rise in large data sets and evolving AI/machine learning (ML) algorithms have driven this global appetite for greater compute capacity — an appetite that many data scientists believe will only be sated once quantum computers reach commercial viability. Atos’ early lead in quantum simulators and alliances with various quantum systems vendors imply the company will be capable of pivoting its high-performance computing (HPC) offerings quickly to accommodate the addition of commercial-grade quantum processors when they arrive. Atos’ flexible hybrid supercomputing architecture will sell well in Europe for a variety of reasons and may enable Atos to gain share against notable HPC vendors in North America and Asia.

Data and AI require new compute platforms to address intractable problems

Atos correctly asserts the state of compute trails the size of the data sets that are available to run algorithms. Specifically, the world is running out of computational capacity to address the complex problems that can now be simulated and analyzed through increasing digitization.

Proof points offered in the Atos announcement included:

  • Average HPC job durations grow as larger data sets will be applied against systems with as many as 10,000 nodes and 25,000 endpoints.
  • Application refactoring and algorithm refinements can provide as much as a 22x speed improvement.
  • Data centricity and edge processing grow in use case applicability, requiring greater hierarchical depth and more localized compute near the application.
  • Hybrid Sim/AI Workflows for approximate computing are nearing reality. Atos offered the example of Alphafold 2 for protein folding prediction reaching over 90% accuracy, whereas classical methods currently achieve between 30% to 40% accuracy.
  • Yet another industry prediction of reaching the physical limits of Moore’s law now that the industry is at 3nm technology.
  • Extending the performance gains from classical computing while quantum discovery and commercialization advance will require greater innovation around multiple XPU architectures. These hybrid or heterogenous compute architectures need a new compute system structure, which Atos believes the XH3000 system provides.

The Atos Exascale strategy is a hybrid approach that serves many masters

Atos states the future of supercomputing will be hybrid. According to Atos, the future of supercomputing will involve a hybrid approach, consisting in the near term of a blend of classical CPU configurations and specialized processor architectures to address specific workload requirements. Presently, Atos collaborates with AMD (Nasdaq: AMD), Intel (Nasdaq: INTC), Nvidia (Nasdaq: NVDA), SiPearl and Graphcore, among others. Eurocentric chips based on ARM designs are also in the news and have been discussed by Atos.

Atos has addressed the need for future-proof flexibility in its designs by building the standard chassis of the BullSequana XH3000 to accommodate up to 38 compute/switch blades on one rack to be mixed and matched as workflows require from the different blades currently available and available in the future.

This hybrid architectural design approach serves many masters, such as those addressing:

  • Sustainability: Different cooling and processing designs not only generate greater computational capacity but also, when coupled with the hybrid configurations and algorithm innovations, can lead to lower power consumption, and therefore lower carbon footprints.
  • Sovereignty: Technonationalism is not going away, and Atos is a flagship European technology vendor. Former Atos CEO Thierry Breton is now the commissioner for internal market affairs within the European Union (EU) and has been tasked with managing many elements pertinent to digitization and “enhancing Europe’s technical sovereignty.” The EU has clearly stated its intentions to ensure there are European-controlled processors in market. Hybrid computing structures enable companies to select different processors to address the computational requirements amid the increased attention nation states place on compute access as a strategic national interest.
  • Higher performance: The HPC market increasingly takes on the dynamics of emerging ecosystem business models and requires a physical compute stack that can accommodate the many tech stack variations the ecosystem can create to address the world’s compute and AI challenges. Atos claims it also has built the architecture to be resilient and adaptable for six years without forklift upgrades. This flexibility, Atos asserts, can accommodate new discoveries as the unknowns around deep learning, algorithm development and new processor developments in the classical and quantum computing realms come into view.

TCS Will No Longer Be World’s 3rd Biggest IT Firm Because Of This Surprise Reason!

“The Atos-DXC transaction could form the world’s second-largest global IT services vendor, closer to the size of Accenture ($45 billion revenue in 2020) and larger than TCS ($22 billion revenue in 2020), according to Elitsa Bakalova, Senior Analyst at research firm Technology Business Research, Inc. … This is something the company has been pursuing in fits and starts over the last five years, mostly through acquisitions and changes in leadership in North America, Bakalova said.” — Trak.in

An Atos, DXC merger no threat to Indian IT’s appeal

“‘If Atos acquires DXC Technology, three years of failed attempts by DXC Technology to turn around eroding revenues and thinning profitability would be forgiving …”‘ — India Times

More from Elitsa Bakalova

 

Atos’ DXC Technology deal will create second-largest IT services vendor

“Atos will be closer to the size of Accenture which has reported $45 billion revenue in 2020. Atos will be larger than Tata Consultancy Services (TCS) which will have $22 billion estimated revenue in 2020. Atos will also be larger than IBM Services after the Global Technology Services spin-off at the end of 2021. IBM’s Services revenue will be $23 billion after the spin-off, TBR senior analyst Elitsa Bakalova said.” — YouStartups Networks

More from Elitsa Bakalova

TCS may lose spot as world’s third largest IT services firm

“Elitsa Bakalova, Senior Analyst at research firm Technology Business Research, Inc, said in a report that the Atos-DXC transaction could form the world’s second-largest global IT services vendor, closer to the size of Accenture ($45 billion revenue in 2020) and larger than TCS ($22 billion revenue in 2020). IBM Services, after the Global Technology Services spin-off, is estimated to have a revenue of $23 billion in 2021.” The Hindu

Atos will gain scale it seeks in the U.S. with planned DXC Technology acquisition

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.

Atos is pivoting to industry and leading with technology

Atos emphasizes 7 digital breakthroughs to support its expansion in the mid term  

Atos (Nasdaq: ATOS) is an expert at establishing short- and long-term strategies and not only strictly following and executing its plans but also providing checkpoints and information around milestones and financial achievements related to these strategies. During the Atos 2020 Analyst Day, the company announced seven areas of expansion across its six industry segments in the mid term. The areas are organized around three needs that clients expect to fulfill as they continue with their digitalization:

  • Value — deliver outcome-based services around full-stack cloud, business-critical applications and digital platforms
  • Experience — deliver innovative and flexible services around customer experience (CX) and employee experience
  • Safety — deliver services around security and decarbonization

Atos’ goal is to grow revenue between 5% and 7% year-to-year in constant currency in the mid term and to collectively generate 65% of total revenues from digital, cloud, security and decarbonization solutions, up from 40% in 2019. While digital, cloud and security have been among Atos’ revenue growth levers for the past several years, decarbonization is a new lever that Atos will use to support revenue growth by providing it externally and benefiting from a first-mover approach in the segment, and to improve profitability by expanding its carbon footprint internally. 

Atos 2020 Analyst Day: Atos’ ambition is to be the leader in secure and decarbonized digital. The company will achieve its goal by approaching customers with its technology DNA and a new industry-aligned organization and by targeting seven digital breakthrough segments that address three client needs: value, experience and safety. The global COVID-19 pandemic did not stop Atos from organizing its annual industry analyst day. While the event was held online due to country lockdowns, travel bans and social distancing requirements, the virtual event very much resembled the ones Atos organized in physical locations in past years. Over two days and with a rich agenda of plenary and breakout sessions, a client panel, and virtual one-on-one meetings with Atos’ executives, the company connected with the industry analyst community and shared details on its strategic plans and financial performance expectations in the mid term, or during the next four to five years.

IBM, Atos and SAP report cloud growth in 1Q20 despite COVID-19 pandemic

As companies begin releasing 1Q20 earnings, TBR is analyzing the impact of the COVID-19 pandemic on the latter half of the quarter. Our findings from earnings this week show:

  • IBM’s cloud business prospered despite the negative impact of COVID-19 on overall revenue as synergies with Red Hat drove subscription sales, which is a testament to IBM’s hybrid cloud ambitions under new leadership.
  • As cloud-based solutions and other key technologies enable rapid changes in people’s work and personal lives brought about by COIVD-19, Atos’ technology-led value proposition will help the company capture cloud growth opportunities in the dynamic market.
  • Despite a turbulent macroeconomic environment, sustained cloud growth and services and driving SAP’s corporate growth. TBR expects revenue and margins will remain pressured in 2Q20, but will begin to normalize in 2H20.

Additional reports recently published by TBR’s analyst teams

1Q20 Infosys Initial Response

Infosys enters FY21 with a healthy pipeline, but COVID-19 will test the durability of its Navigate Your Next strategy as the company mobilizes its technology heritage to withstand headwinds.

1Q20 Telecom IoT Market Landscape

CSP IoT revenue growth will gradually accelerate through 2024 as more 5G use cases become commercially available. Supporting these next-generation use cases will be contingent on network deployments, including edge compute build-outs and 5G standalone infrastructure.

1Q20 IBM Services Initial Response

Sustaining signings growth will improve IBM Services’ ability to alleviate revenue growth pressures in 2Q20 from macroeconomic uncertainty tied to the COVID-19 pandemic.

1Q20 Atos Initial Response

The COVID-19 pandemic will inevitably challenge Atos’ performance during 2020; however, offerings around digital workplace, cloud, cybersecurity, and unified communication and collaboration will mitigate the negative effect on revenues.

1Q20 AT&T Initial Response

Revenue declines associated with COVID-19, including lower WarnerMedia advertising revenue and decreased wireless equipment sales, will cause AT&T to increase focus on aggressive cost-cutting measures to strengthen its financial position.

1Q20 Ericsson Initial Response

Ericsson sustained revenue growth and high margins in 1Q20 as 5G RAN deployments surged in the U.S., but the company has yet to feel the full impact of the COVID-19 pandemic, which could affect supply chains and demand going forward.

4Q19 Commercial IoT Benchmark

The commercial IoT market continued to show moderate revenue growth in 4Q19, as IoT projects are smaller in scale and IoT is getting baked into other strategic projects. While the COVID-19 outbreak will negatively impact the IoT market in 2020, TBR expects commercial IoT will maintain long-term growth as organizations continue to utilize AI and IoT solutions to lower operating expenses.

The federal IT services market remains highly favorable in growth for technology contractors in 2020

Defense, intelligence and civilian agencies are accelerating modernization efforts in 2020. M&A activity in the market will also remain at a brisk pace.

“Leidos released its 4Q19 and 2019 fiscal results on Feb. 18, posting 4Q19 revenue growth of 11.6% year-to-year to $2.95 billion on the back of strong bookings and backlog growth throughout 2019 as well as several recent large-scale contract wins and successful award rebids that are converting to revenue at a vigorous pace,” said Senior Analyst John Caucis. “Growth with classified customers in the Intelligence Community (IC) also remains strong. Leidos surpassed its guidance for 2019 revenue of between $10.9 billion and $11 billion, with full-year sales of $11.1 billion, an increase of 8.8% over 2018. Leidos’ guidance for 2020 calls for full-year sales between $12.6 billion and $13 billion, implying growth over 2019 of 13.6% to 17.2%, largely driven by recent strategic acquisitions. For example, Leidos spent over $2.5 billion to acquire Dynetics in December and L3Harris Technologies’ Security Detection and Automation division in February, expanding its footprint in defense technologies, airport and critical infrastructure screening products, automated tray return systems, and industrial automation systems.”

According to Research Analyst Brian Baker, “ManTech’s revenue rose 21.6% year-to-year to $604.4 million in 4Q19. Growth was augmented by acquisitions of Kforce Government Solutions, which closed in April, and H2M Group, which closed in August, as both contributed inorganic revenue to ManTech’s top line in 4Q19. Classified customers continue to accelerate spend with ManTech, while spending on behalf of ManTech’s principal Department of Defense and IC clients continues trending upward, in addition to significant wins with federal civilian and health agencies, leading to impressive 15% organic growth in 4Q19 and 9% organic growth for 2019. Robust revenue expansion, strong cash generation and stable margin performance enable ManTech to continue with its aggressive M&A strategy to enhance access to high-growth and high-value markets, similar to tactics of peers CACI, Leidos and SAIC.”

Additional assessments publishing this week from our analyst teams

Forging partnerships with larger-scale technology vendors enables vendors to more quickly enhance portfolios and incorporate emerging technologies while also strengthening scale to pursue opportunities outside their existing markets.

”Quantum computing, the edge, AI and cybersecurity are some of the latest investment areas in which Atos is developing pointed solutions to differentiate between a typical blue-sky consultancy approach and its approach of a technology-enabled organization. Enhancing its cloud capabilities, such as around Google Cloud solutions through the launch of Workplace as a Service Google Edition and the acquisition of Maven Wave, and the launch of the Digital Hybrid Cloud offering jointly with VMware, creates cloud professional services opportunities that will sustain Atos’ cloud revenue growth in the coming quarters.” Senior Analyst Elitsa Bakalova

CGI is pursuing a strategic growth objective to double its revenue base over the next several years with accelerated investments in M&A and homegrown IP. However, the company must continue to execute on its expense management strategy as margins face pressure in the near term with the ramped-up acquisition pace and ongoing organizational restructuring.” Research Analyst John Croll

“Refreshing its business image to position as a digital transformation company and better align with client demand for emerging technologies, such as security, IoT and AI capabilities, will provide growth opportunities for Fujitsu’s services business if the company is able to successfully build out its global presence and talent bench to support new portfolio areas. While the company has expanded its global network, adding new delivery and innovation centers that increase client awareness of the brand and offerings, the company is unable to generate sustainable and consistent growth outside Japan. Bolstering portfolio innovation efforts through solution codevelopment partnerships will help Fujitsu scale its new portfolio and generate new opportunities, but the company needs to maintain differentiation within its portfolio to successfully capitalize on potential opportunities around emerging technologies.”Analyst Kelly Lesiczka

“Amazon Web Services (AWS) continues growing its sales team in an effort to outcompete IaaS and PaaS rivals such as Microsoft and as coopetitive partners such as SAP take AWS head-on. The recent general availability of AWS Outposts increases AWS’ hybrid value proposition and will help the vendor maintain its leadership in the consolidating IaaS market.” Analyst Jack McElwee