Logicalis’ local scale and investments in services transformation offerings position it well to withstand the COVID-19 headwinds in LATAM

Following one of the last in-person analyst events held in in Sao Paolo, Brazil, just before COVID-19 took over our personal and business lives, TBR had a chance to reconnect virtually with Logicalis LATAM CEO Rodrigo Parreira and Logicalis LATAM Director of Strategy Eduardo Harada. Expanding on our discussion at the analyst event in February, Parreira confirmed many of the regional market trends are still in place, although some initiatives have been paused, with COVID-19 forcing buyers to reorient their budget priorities toward run-the-business awards.

A spike in demand around supporting remote work, implementation and management of collaboration tools, and security plays to the strengths of Logicalis’ value proposition, particularly within the infrastructure services domain. Parreira is even more optimistic about a resurgence of opportunities in 2021 as regional buyers begin to solicit services in areas such as automation and AI, creating increased opportunities around IoT and connected devices. As Parreira positioned it, “The crisis accelerated automation.” He also highlighted that more than 50% of Logicalis new bookings have been geared toward services, accelerating the company’s efforts to become an IT services leader.

TBR is not surprised to hear there is an uptick in demand for automation considering the technology’s potential to lower the total cost of ownership, which is of particular importance to highly price-sensitive buyers in the LATAM market. We believe vendors that have experience adopting and scaling automation tools to drive down their own costs, improve remote delivery and retain savings will see immediate rewards. However, Logicalis may face an uphill battle educating regional customers on the value of AI beyond cost optimization, as many continue to see AI as a threat to their jobs. The company, however, is well positioned to capitalize on the trust it has built over the past six decades of operating in the region.

TBR previously wrote, “While the company’s business consulting unit spearheads outcome-based pricing initiatives, we believe Logicalis could further accelerate its value proposition transformation if it approaches every opportunity with scale in mind from the beginning. To execute on such a strategy, the company would need to further build out its consulting and application services capabilities, with acquisitions in these domains highly likely.” COVID-19 will likely fuel market consolidation, including in the LATAM market. Both Parreira and Harada believe consolidation in the LATAM market will be even greater as the challenging macroeconomic conditions will drive many smaller vendors out of business. Acquiring for capabilities, not for scale, would deepen Logicalis’ value proposition in both existing and emerging domains, including AI and SaaS. Larger global peers, though, including the Big Four and multinational corporations, are also scouting for price-competitive targets, possibly pushing Logicalis to take more aggressive action sooner.

Telecom operators drill down on IoT opportunity in logistics

Despite the hype to the contrary, in commercial Internet of Things (IoT), not all verticals are created equal in terms of opportunity. There is near-term opportunity in some verticals, while opportunity in other verticals will take a few years to mature. The verticals with the longest and deepest histories of using IoT are oil and gas, utilities, manufacturing (including automotive), and logistics. Because these verticals have a long history of using primitive IoT, mostly in the form of telematics, customers in these areas are more familiar with what IoT can offer, how it can be applied to their businesses and where measurable ROI can be found. Unsurprisingly, segments that have most experience with IoT continue to generate the greatest amount of IoT-related revenue.

Telecom operators were early to advertise that they were leaders in the verticals mentioned above. However, now that the chips are down, TBR believes operators are focusing on real, mature IoT opportunity, leading to them drilling down on logistics. Logistics aligns well with telecom operators’ capabilities due to the mobile and distributed use cases. Verticals such as manufacturing provide less opportunity to telecom operators due to the more static and condensed nature of factories. Here are some examples of commercial logistical moves from leading operators:

  • In March 2017 Verizon announced the combination and rebranding of its Verizon Telematics, Fleetmatics and Telogis acquisitions into Verizon Connect. Verizon notes that the rebranding completes the integration of its connected vehicle division with its acquisitions of fleet and mobile workforce management companies Fleetmatics and Telogis. TBR believes the rebranding of Verizon’s telematics businesses into Verizon Connect was a smart move because focusing its IoT business around connecting mobile workforces differentiates Verizon, letting customers clearly know what they can use Verizon Connect for, highlighting its expertise and also making it more partner-friendly. Verizon Connect is now a module that can enhance a broad IoT platform such as Azure IoT.
  • In May 2018 AT&T entered into a partnership with operational technology (OT) behemoth Honeywell to develop IoT solutions for aircraft and freight deployments worldwide. AT&T delivers Honeywell worldwide connectivity, and Honeywell gives AT&T a larger door into industrial engagements.
  • In February AT&T launched two comprehensive solutions with Geotab’s fleet tracking platform, AT&T Fleet Management for Enterprise and AT&T Fleet Management for Government, to provide customers with a holistic view of their transportation assets to improve costs, productivity and safety.
  • TBR believes Telefonica, Vodafone and Orange are also competing for logistics engagements using well-populated landing pages touting their ability to provide logistics-based IoT solutions. Orange, for example, signed a three-year multimillion-euro agreement with Finland-based Cargotec in 4Q17 to codevelop an IoT-based cargo solution.

While vendors will compete for logistics business opportunities worldwide, TBR believes Verizon will try to consolidate and win share of the field service and trucking industries in North America; AT&T will focus on air and sea shipping or asset tracking worldwide and leverage its advantage in connected car gained through multiple contracts with leading automakers; and Telefonica, Vodafone and Orange will battle it out for EMEA and LATAM share.