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Proven capabilities in the U.S. enable Infosys to become a trusted partner one client at a time

North America client scale and longevity provides Infosys with a robust foundation for enabling trusted delivery transformation

North America is Infosys’ (Nasdaq: INFY) largest region, composing 61.9% of total revenue and growing 23.1% year-to-year in 3Q21. Accelerated growth momentum in the region — regional sales have rebounded from -0.5% on an annual basis in the peak of the pandemic in 2Q20 — is largely due to the company’s ability to balance innovation with securing foundational revenues enabled by cloud, which for Infosys means Infosys Cobalt.

Infosys’ ongoing expansion efforts in talent and capabilities in areas such as Adobe, Salesforce and product design continue to serve as a catalyst for transformation. Efforts are enabling the company to drive conversations in new areas as well as attract talent with multidisciplinary skills, evidenced by its network of innovation and design hubs in the U.S. Additionally, ongoing recruitment efforts provide a glimpse into Infosys’ culture of learning and development; hiring began in late 2020 with the goal of 25,000 additions over five years, and Infosys aims to hire 12,000 U.S.-based employees and 3,000 U.S.-based college graduates by 2022. Despite the ongoing war for talent, we expect Infosys to meet and likely exceed these targets. In 2017 the company announced its goal to hire 10,000 U.S.-based employees by 2019, then exceeded this goal by 3,000.

Retaining talent will be equally as important, especially as attrition continues to climb. Infosys reported voluntary attrition in the last 12 months for IT services was 20.1% in 3Q21 up from 13.9% a year ago. Examples of Infosys’ investments in expanding its addressable market and building trust with a new generation of workers include: a recently announced training facility in Indianapolis; virtual training platform Infosys Wingspan; recruitment outreach for nontraditional talent including high school and community college graduates and midcareer transition professionals; a dozen partnerships with U.S.-based universities; a Reskill and Restart program; and Infosys Foundation that supports K-12 teachers. Infosys is already seeing some of these investments pay off. For example, the attrition of its Community College Pathway program is about one-third lower than overall turnover. Creating personal connections with such recruits while providing a clear upward career progression sustains Infosys’ growth.

Financial Services acts as the cornerstone of Infosys’ U.S. go-to-market strategy

While Infosys’ North America client footprint is diversified, the financial services (FS) industry presents the largest opportunity. Global FS revenue was $1.3 billion growing at 21.8% year-to-year in 3Q21, and Infosys’ North America FS revenue was $802 million, increasing at 30.8% on an annual basis in 3Q21.

We attribute the impressive FS North America growth to two factors. First, Infosys is ramping up cash inflows from its mega deal with Vanguard, signed in 2020. Second, Infosys capitalizes on its established footprint and trust with nine of the 10 top U.S. banks and its ability to grow its regional banks’ roster.

Following Infosys Leadership Forum in Europe, the company hosted over 120 clients and two dozen analysts and partners for in-person and virtual sessions for the one-day Infosys Americas Leadership Forum, held at Madison Square Garden and culminating with the New York Knicks versus Orlando Magic game. While many of the themes and messages of the Americas event were consistent with the London event held in October, nuances, particularly around client stickiness and trust, stood out as the fundamental pillars of Infosys’ regional success and pivot toward becoming a platform-enabled solutions broker known for its strong execution capabilities.

Atos firing on all cylinders as it overcomes COVID-19 headwinds and expands in North America

Building industry-specialized expertise increases Atos’ value proposition around delivering business outcomes to clients

While Atos’ (Nasdaq: ATOS) revenue growth and profitability in 2020 were negatively affected by the pandemic, the crisis pushed the company to strengthen its focus on clients and industries. Atos is working with clients to enable business continuity, such as by facilitating work-from-home environments, providing agile infrastructures and tackling cybersecurity challenges, and to address client priorities, such as cost optimization, deployment of digital workplaces, and acceleration of digital transformation. The company’s pivot to an industry-aligned go-to-market approach to better address clients’ specific business challenges and its consistent acquisition strategy over the past year to gain niche capabilities in segments such as digital security, cloud and applications consulting, systems integration, AI and big data consulting, and decarbonization services improve the company’s ability to alleviate external revenue growth pressures due to tight spending.

Atos reached its financial targets during 2020 despite the challenging pandemic environment

Market uncertainty and volatility brought on by the COVID-19 pandemic forced multiple IT services vendors to forgo setting financial objectives for 2020. However, Atos was confident about its performance and, in April, established its 2020 revenue, operating margin and free cash flow objectives, which the company achieved by the end of the year. Atos estimated that revenue would decline between 2% and 4% organically for 2020 due to the negative effects of COVID-19 and reported a 2.3% year-to-year organic revenue decline, in line with the company’s projection. Operating margin before other expenses decreased to 9% of revenue in 2020 from 10.3% in 2019, an anticipated contraction due to pandemic-driven revenue declines; however, the metric was within the targeted range between 9% and 9.5% of revenue for the year.

The company’s efforts to reshape its portfolio, including by expanding its offerings around digital, cloud, security and decarbonization, and align its go-to-market approach to six industry groups positively affected commercial activity. Atos’ highest quarterly bookings level since 1Q19, continual emphasis on digitally certifying its employees, and investment in 12 bolt-on acquisitions since February 2020 will support revenue growth improvement in 2021. Atos’ goal is to grow revenue between 3.5% and 4% year-to-year in constant currency in 2021, and TBR expects Atos to meet its revenue growth goal as the company expands its portfolio, such as through the OneCloud initiative; continues it active acquisition pace; and maintains a strong deal pipeline.

2021 Atos North America Analyst and Sourcing Advisor Event: Social distancing, country lockdowns and travel bans due to the pandemic pushed Atos to continue hosting the virtual analyst event series the company initiated in June 2020 with its first global Atos Analyst Days event. Focusing on Atos’ North America regional business, the March 2021 event provided analysts with rich content through prerecorded executive presentations on topics such as strategic priorities, sales and business development, talent advancement, and Atos|Syntel business updates as well as deep dives on six regional industries: the media, the public sector and defense, retail, manufacturing, healthcare and life sciences, and financial services. The sessions were augmented by live one-on-one meetings with Atos’ executives, which enabled TBR to gain a deeper understanding of the topics and valuable insights from Atos’ executives as well as provide our own view and assessment on the covered topics. Having access to prerecorded presentations several days prior to the one-on-one meetings allowed TBR analysts to watch the videos at our own pace.

Centricity of technology and talent: Atos keeps growing in North America

New Artificial Intelligence Lab in Texas will facilitate Atos’ collaborative innovation work with clients

On Oct. 3 Atos held a ceremony for the launch of its new Artificial Intelligence (AI) Lab in partnership with Google Cloud (Nasdaq: GOOGL). The Atos AI Lab, so far the largest of Atos’ labs, is located on the first floor of Atos’ office building in Irving, Texas, and joins a global network of labs, the rest of which are located in London, Paris, Frankfurt and Munich. The lab will work with clients in North America to build clients’ understanding around AI and define use cases for data analytics and machine learning with the goal of improving their business performance. Collaborating with Atos and Google, clients will be able to jointly develop solutions that are specific to their business and industry needs. TBR noted that the lab is a very bright, flexible and laid-back environment that enables ideation and creative thinking by combining digital experience and design thinking methodology. Another thing that stood out during our discussions with Atos’ North America leadership team is that North America is becoming a region for the company’s innovation. Atos is instilling a culture of innovation, entrepreneurship and creative thinking in North America and creating intellectual property that is brought back to Europe to be utilized with clients in Atos’ main geography. Because these kinds of collaborative centers play an important role in vendors’, including Atos’, ability to groom talent and leadership, the proper messaging about specific technology capabilities, such as around Google, will help Atos stay abreast of the next wave of partnership models. According to TBR’s Digital Transformation Insights Report: Cross Vendor, published in September 2019, partnerships will also evolve in the long term, as in their current form, the technology diminishes differentiation among all parties. This evolution could create siloed, federated-like model enterprises, which bring a different set of challenges. However, with the expectations coming from the advent of open data standards amplified through blockchain, TBR anticipates such hurdles will be easy to overcome.

Establishing a talent base will improve Atos’ ability to generate IP in North America

Early in the event, Walsh spoke of the “centricity of technology and talent” summarizing Atos’ view of itself, its clients and its ecosystem — a sentiment echoed repeatedly by Atos executives throughout the day. In TBR’s view, Atos recognizes that its strength lies not in strategy consulting but instead in staying centered on technology while trying to help clients solve business problems. Atos also recognizes that talent, not technology, will differentiate consultancies and IT services vendors from each other as everyone pursues digital transformation. On multiple occasions during the event, as both part of the formal presentations and in side-bar discussions, Atos executives stressed the company’s commitment to training, reskilling, developing and retaining top talent across all of its lines of business (and geographies, although most of the event centered on North America). Wagner’s description of purpose-built, SAP-centric teams around consulting, Google Cloud Platform and the CTO was as much about the talent Atos needed to recruit and develop as it was about the organizational changes Atos needed to make and the SAP capabilities it needed to acquire.

In all, the Texas event confirmed to TBR that Atos’ strategy and execution in North America have shifted into a substantially higher gear, as the company accelerates its push to bring U.S.-led initiatives to the front of this very European company. One small indication: According to Walsh, Atos North America now generates more IP to share with Atos Europe than Europe develops to send to the U.S. TBR does not expect Atos’ U.S. headquarters in Irving to replace Atos’ global headquarters near Paris any time soon, but the gravitational pull of success will make the next few years interesting for Atos. 

Supporting its strategy to expand in North America, France-based digital transformation company Atos held its second annual North America industry analyst event at its North America headquarters in Irving, Texas. The event took place in Atos’ Business Technology Innovation Center (BTIC), which is part of a network of nine BTICs that Atos uses as a platform for hands-on innovation with customers and partners. Using a balanced mix of presentations, innovation showcases set up at the BTIC, one-on-one sessions, and North America client examples — one of which, a public sector organization, was presented live on stage — Atos showed the industry analyst community that its expansion in the region is accelerating. Atos is using acquisitions, such as that of Syntel, to expand its portfolio and resources, improve its service delivery model, and drive profitable growth in North America.

Atos expands reach in North America through the acquisition of Syntel

On Oct. 9, Atos completed the acquisition of Syntel, adding close to $1 billion in revenues, 89% of which were generated in North America in 2017, as well as over 23,000 employees. This month, TBR analysts will travel to Dallas to hear further details on Atos’ plans with Syntel and further assess what this will mean for Atos and its competitors.

Syntel expands Atos’ transformational capabilities in North America

Syntel provides critical scale for Atos’ Business and Platform Solutions (B&PS) division in North America and enables Atos to expand its digital transformation activities in the region. As Syntel’s revenue is fully driven by B&PS activities, such as in digital, automation and robotics, the acquisition will enable Atos to diversify its revenue in North America, which has been largely reliant on Atos’ Infrastructure and Data Management (IDM) division. Selling Atos’ offerings in cybersecurity, big data and IDM to Syntel’s acquired client base as well as offering Syntel solutions to Atos’ global clients and pursuing large-scale holistic digital transformation projects will drive revenue growth for Atos through 2021.

Syntel’s intelligent automation tools enable Atos to deliver cost-effective solutions to clients

Atos expects to generate $120 million in cost synergies through the acquisition, which, together with the addition of Syntel’s efficient business model, will boost Atos’ profitability. While G&A rationalization, real estate management and procurement will drive cost synergies, the main lever will be the rollout of Syntel’s delivery model for Atos’ large B&PS accounts, which make up $1.3 billion in annual revenues and 36% of B&PS revenue. Notably, Atos plans to adopt Syntel’s delivery model and integrate its processes; tools, such as intelligent automation tools called SyntBots; metrics; and 18,000 employees in India to improve Atos’ cost base and augment B&PS operating margin, which was 7.4% in 1H18.

Atos increases cloud services opportunities

Reinforcing its cloud capabilities through the acquisition of Syntel enables Atos to expand client reach in North America and increase hybrid cloud orchestration activities. Atos has already rebranded Syntel to Atos Syntel, which is now a separate Atos brand, and Syntel’s Cloud Services offerings are being marketed to clients as Atos Syntel Cloud Services. Syntel provides Atos with added expertise from more than 50 cloud projects and cloud services offerings that better enable Atos’ enterprise IT solutions to deliver a “digital backbone” to clients. The Atos Syntel Cloud Services offerings are supported by Syntel’s IP-based accelerators and automation tools such as the SyntBots. TBR expects Atos will work toward a unified cloud services portfolio by integrating Atos Syntel Cloud Services with Atos’ existing cloud capabilities, such as Atos Canopy Orchestrated Hybrid Cloud.

Atos is an expert in integrating acquisitions, such as that of Syntel

Let’s look at Atos’ track record on acquisitions: Following its strategy to add digital technology capabilities and intellectual capital, and augment its position in e-payments, the company acquired seven companies during 2017 and announced three acquisitions in 2018, two of which — Syntel and Air-Lynx have closed — while SIX Payment Services is pending approval. The company has a history of successfully integrating acquisitions, some small and others large, such as Siemens IT Solutions and Services (SIS), which added approximately 28,000 people to Atos in 2011. SIS had experienced lingering revenue declines and low profitability levels; however, during the integration process, Atos was able to restructure SIS so that Atos’ profitability was not negatively affected and improved in the following years. TBR expects Syntel will have an overall positive affect for Atos in terms of client reach; expanded solutions capabilities, especially around digital, cloud and automation; and profitability. Syntel, which had an operating margin of 25% in 2017, driven by efficient and automated processes, will boost Atos’ profitability as Atos adopts Syntel’s model of operations in B&PS.

Signals of consolidation appear in the cloud IoT platform space

Infographic discussing signals of consolidation appearing in the IoT cloud platform space

The cloud IoT platform landscape consolidates around largest vendors as customers seek continuity, consistency and the best tools

Cloud services revenue grew 48.2% year-to-year and increased as a percentage of total benchmarked Internet of Things (IoT) revenue from 12.4% to 15.8% year-to-year in 2Q18. Growth is driven by customers, especially those without deep legacy ties, moving their workloads to the cloud. The public cloud ecosystem is beginning to consolidate, with the top vendors competing on best-in-class tools, partnerships and business-problem-solving messaging.

Software, while still a sizable portion of benchmarked revenue, is experiencing slowing revenue growth, from 19% year-to-year in 2Q17 to 4.2% year-to-year in 2Q18. Software, along with ICT infrastructure, will continue to play a role in IoT solutions with the advent of edge computing, but as providers’ cloud platforms mature and tie-in deals with application partners are cemented, demand increases.

ICT infrastructure revenue grew 14.1% year-to-year in 2Q18 due to increased IoT deployments as well as hybrid IoT becoming an increasingly common IoT framework. ICT infrastructure gross margin rose 80 basis points year-to-year. TBR believes the increase stems from the need for more specialized or powerful hardware to handle the more advanced needs of IoT and its components, such as artificial intelligence (AI) and machine vision. Despite the increased utilization of ICT hardware due to hybrid IoT and the need for specialization, the long view for ICT infrastructure will be complicated by commoditization. TBR expects most ICT infrastructure companies to deeply invest in software and service components to buttress the profitability of customer engagements as the threat of commoditization looms.

Vendors across the technology spectrum are all fervently trying to crack the code for the “killer app” within specific verticals that can solve common business problems and be widely adopted by customers. The vendors that win with building the first widely accepted solutions will be set up for success, while others in the oversaturated market will at best become acquisition targets and at worst become history.

For more information, contact Analyst Daniel Callahan at [email protected].

Increased market clarity drives 16.1% year-to-year growth in commercial IoT revenue

Technology Business Research, Inc.’s (TBR) 2Q18 Commercial IoT Benchmark recorded revenue growth of 16.1% year-to-year, to $10.3 billion, in 2Q18, among the 28 IT and operational technology (OT) vendors we benchmark. The revenue growth is largely a result of continued implementation of Internet of Thing (IoT) and growth of installed IoT solutions.

The dousing of rampant IoT hype, which only served to confuse and overwhelm customers and vendors, is helping drive the growth of installed IoT solutions. As the hype dies out, a wave of increased clarity and maturation is forming with vendors rationalizing their go-to-market strategies and messaging, leading to customers better understanding how to apply IoT and vendors learning how to assemble solutions. Packaged solutions are emerging as vendors cooperate, focusing on their strengths, and assemble components sets that solve verticalwide challenges. TBR believes these factors are driving tactical business-focused IoT projects to supersede overambitious projects stuck in proof-of-concept limbo.

However, while easier than in the past, IoT design and implementation are still a challenge. TBR does not expect a huge explosion of revenue beyond midteen growth going forward.

Total 2Q18 commercial IoT benchmarked gross profit increased 16.6% year-to-year to $5.1 billion. Reduced complexity in IoT due to increased knowledge around building and applying IoT as well as the streamlining of portfolios as a result of increased partnering is improving vendor profitability. Also, vendors are leveraging specialized tools, such as artificial intelligence (AI), to justify higher pricing.

 

TBR’s Commercial IoT Benchmark highlights current commercial IoT revenue and gross profit for vendors. TBR leverages financial models and projections across a diverse set of IT and OT components. Additionally, the benchmark outlines the major vendor drivers and trends shaping the market.

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.

 

1Q18 device revenue results were boosted by market shifts and increasing ASPs in PCs and smartphones compared to a weaker 1Q17

HAMPTON, N.H. (July 13, 2018) — Technology Business Research, Inc.’s (TBR) 1Q18 Devices and Platforms Benchmark finds that there is ongoing revenue opportunity in both the PC and smartphone markets. Total benchmarked revenue increased 15.9% year-to-year to $112 billion despite indications of saturation in the high end of the PC market.

Total PC benchmarked revenue increased 12% year-to-year to $32 billion. Total PC benchmarked gross profit increased 10.4% year-to-year to $5 billion despite increasing component costs. “Despite speculation that the PC market is dead, major device OEMs have been able to successfully navigate the shifting market and generate healthy profits,” said TBR Analyst Dan Callahan. “Renewed appetite for premium PCs in enterprise — and PC OEMs shifting their go-to-market strategies to respond — has been the primary driver.”

Total benchmarked smartphone revenue increased 11% year-to-year to $72 billion. Total smartphone benchmarked gross profit increased 14.8% year-to-year to $23 billion. Smartphone OEMs are combating worldwide saturation by increasing average selling prices (ASPs). Apple’s gamble with a $1,000 smartphone paid off, as customers responded with demand, and Android peers are following suit.

Device as Service (DaaS), an expansion of the former PC as a Service market, is transforming into an offering aimed at supplanting traditional PC financing. The benchmark explores how HP Inc. was the first of the big three PC OEMs to capitalize on the emerging opportunity and has been the first with concrete outbound messaging to partners and customers. This has afforded the company a lead, but it is not cemented. Dell Technologies and Lenovo will use the path HP Inc. paved to introduce DaaS to the market and quickly solidify their own unique solutions. Lenovo and HP Inc. see opportunity beyond the PC in PC as a Service, thus the introduction of DaaS.

The DaaS opportunity remains mostly untapped. Customers and partners are still trying to understand how this service differs from traditional financing and are still kicking the tires on the analytics often attached by OEMs as the main selling point of DaaS.

TBR’s Devices and Platforms Benchmark provides insight on interrelated ecosystems, including device vendors, platform providers, supplier relations, and technology partners across the consumer and commercial spaces. TBR’s vendor-centric analysis speaks to industry trends, while market sizing illustrates opportunity. Our Devices and Platforms research includes PC, tablet and smartphone vendors; platform providers; and technology partners.

For additional information about this research or to arrange a one-on-one analyst briefing, please contact Dan Demers at +1 603.929.1166 or [email protected].

 

 

ABOUT TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, and telecom vendors and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to address client-specific issues further or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.