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Growing partnerships with key cloud vendors help sustain Capgemini’s success

As Senior Analyst Elitsa Bakalova notes this week, “Partners are key contributors to Capgemini’s technology-enabled transformations around next-generation technologies, such as digital and cloud. The expanded partnership with Amazon Web Services enhances Capgemini’s AWS business in North America and improves its ability to advance cloud adoption in a strategic region for Capgemini’s global expansion. Additionally, the integration of Altran continues, and as of Jan. 27, Capgemini holds 53.57% of Altran’s share capital and at least 53.41% of Altran’s voting rights. Altran will improve Capgemini’s ability to deliver digital transformation to the industrial sector and position as an intelligent industry vendor that can provide solutions around Engineering 4.0 and Industry 4.0.” Across the IT services spectrum, TBR has seen substantial changes in the way vendors partner with cloud and software companies, an area we will examine in greater detail throughout 2020.

Additional assessments publishing this week from our analyst teams

Tata Consultancy Services closed 2019 with continued revenue growth, which TBR attributes to ongoing investments in its solution suite and talent pool, alongside aggressive pricing. Strengthening its digital capabilities that enable technology-based transformation, at scale, for the company’s global clientele will drive further growth in 2020.”  — Kevin Collupy, Analyst

 “TBR expects T-Systems’ revenue growth will slightly accelerate in 4Q19 as the company benefits from an improved delivery network and a realigned portfolio that offers clients cloud, IoT and security capabilities that support growth initiatives. T-Systems leverages partnerships that enhance scale and help to embed emerging technologies within its core portfolio offerings and equip the company to drive revenue growth around these capabilities. As T-Systems infuses growth areas throughout its portfolio and realigns business segments to focus on these profitable avenues, including the establishment of an integrated telecommunications business that will house telecommunication services and classified ICT business, the company will be able to leverage more flexible delivery and innovation models to position as more customer-led and customer-centric.” — Kelly Lesiczka, Analyst

 “AsCisco integrates acquired assets to provide advanced security and intent-based networking solutions, we expect Cisco Customer Experience will benefit from pull-through support and maintenance opportunities, allowing it to sustain revenue growth in 4Q19. Additionally, portfolio growth to include hybrid IT and multicloud will also provide migration and management engagements, creating new areas of growth. Similarly, expanding its software and subscription portfolio provides consistent revenue streams, contributing to Cisco Customer Experience revenue growth through support and maintenance engagements. Leveraging its core strength areas, such as security, networking and SD-WAN, will help Cisco to maintain its existing engagements while also effectively combating competitive pressures from vendors pursuing opportunities in similar growth areas. Cisco’s technical expertise improves its ability to differentiate its professional services portfolio from that of its peers.”
Kelly Lesiczka

“The cloud solutions agreement with the National Association of State Procurement Officials through September 2026 is a milestone for Capgemini’s cloud services business in the U.S. as the simple contractual process will expand the company’s activities in the public sector, which TBR does not believe to be a leading industry in the country for Capgemini, unlike its business in financial services and manufacturing. Capgemini will provide joint offerings with Amazon Web Services, Microsoft, BMC, ServiceNow and Virtustream.” — Elitsa Bakalova

“TBR estimates HCL Technologies (HCLT) will sustain revenue growth of between 15% and 16.5% year-to-year through 2021, and will operate within its guided range of 16.5% to 17% in constant currency for FY20. Acquisitions provide HCLT with expanded market share and enhance portfolio offerings to appeal to dynamic client demand and propel revenue. Developing HCL Software and incorporating partner assets to support integration and management opportunities will create recurring and higher-profit revenue streams. We expect HCLT will leverage its software business to capture higher-value services engagements, but the company must be mindful of cannibalization within its traditional services streams, which comprise the majority of revenue. Additionally, deal size remains smaller than in previous years, with most clients in the $1-plus million category as HCLT benefits from an increase in software license and deployment deals. TBR believes most deals during the quarter were generated with new logos, as HCLT looks to drive recurring revenue streams tied to the HCL Software business unit, which will generate additional growth in the $1-plus million category from cross-selling and upselling other product and software offerings.” — Kelly Lesiczka  

IBM faced healthcare IT services (HITS) headwinds throughout 2019, plagued by media reports and customer dissatisfaction with emergent solutions leveraging AI, mainly Watson for Oncology. The newly appointed general manager of Watson Health, Paul Roma, will work to improve employee satisfaction in addition to building confidence among IBM investors and partners within the wider healthcare market. A more succinct portfolio and go-to-market strategy supported by recent internal restructuring efforts will be critical to returning IBM to growth in 2020, when TBR estimates the company’s annual HITS revenue growth will reach 2.2%. Further, IBM’s addition of Red Hat and background in emerging technology areas such as blockchain for insurance industries and AI — despite missteps in these areas in 2018 — will enhance the value of the company’s existing HITS suite and offer it differentiation in the market compared to peers.” — Kelly Lesiczka

Plus, this Wednesday, join TBR’s Chris Antlitz for his insights from TBR’s 2020 Telecom Predictions: “TBR’s research suggests 2020 will be a springboard year for the telecom industry’s development of the new architecture, with spend in the key markets of 5G, network virtualization and edge computing poised to ramp up significantly through the middle of the next decade. TBR also anticipates that systems integrators will play a much broader and key role in helping CSPs transform their businesses and networks and that webscales will increasingly encroach on CSP turf as they concurrently pursue new value created from the aforementioned technologies.”

Booz Allen Hamilton keeps winning, even when the government shuts down

TBR’s initial response to Booz Allen Hamilton’s (BAH’s) 1Q19 earnings published on Tuesday, and we expect another strong quarter from BAH to close out its FY19. BAH boasts a soundly differentiated market position and multilayered alignment of its technology and advisory portfolio with the primary objectives of its federal customers. Consulting-led offerings are increasingly interwoven with an innovative technical capacity designed to enable federal clients to meet operational challenges and security threats ever-increasing in sophistication and volume. BAH even emerged from the recent 35-day temporary government shutdown with minimal fiscal damage, further illustrating the resiliency of its solutions model and fueling its confidence about 2020. We further expect the company will issue strong guidance for its upcoming fiscal 2020, with revenue growth in the high single digits and margin performance sustained at current levels.

Read more of Senior Analyst John Caucis’ assessment of federal IT services vendors through the quarter and the upcoming quarterly benchmark.

Additional assessments publishing this week from our analyst teams

Tuesday

  • In our 1Q19 Hewlett Packard Enterprise Cloud Initial Response, we discuss how the company’s margin improvements resulted from a more software-defined portfolio and improved operating efficiency as the HPE Next initiative enters its final year. — Cassandra Mooshian, Senior Analyst

Wednesday

  • Cost-cutting initiatives including headcount reduction and deeper integration of digital sales and customer service channels enabled Sprint to reduce $1.2 billion in gross operating costs in FY18, but this was largely offset by reinvestments in network and other operational initiatives. Sprint’s financial position will remain challenged long term due to its high debt load and struggle to generate positive net income and free cash flow, highlighting why the T-Mobile merger is in the best interest of the company. — Steve Vachon, Analyst

Thursday

  • Now with its third CEO in two years, Rackspace rebrands Fanatical Support to Fanatical Experience as it commits to providing ‘unbiased expertise’ and a more total support system.      — Cassandra Mooshian, Senior Analyst

Friday

  • We expect VMware to report another quarter of strong, above-average growth in comparison to its software peers. Ongoing portfolio investments, partnerships and tuck-in acquisitions position the company for continued customer attraction and retention. — Cassandra Mooshian, Senior Analyst
  • Portfolio and talent developments equip HCL Technologies (HCLT) to sustain revenue growth through 2021. HCLT needs to quickly scale its investments and market presence to solidify growth. Kelly Lesiczka, Analyst
  • Despite enhanced efficiencies in traditional IT operations, T-Systems could not offset pressures on profitability from reorganization and adoption of IFRS 16. Expanding its portfolio in growth segments will enable T-Systems to benefit from a more flexible business model to adapt to and address client demands. Kelly Lesiczka, Analyst

And if you missed the May 22 webinar, Bringing the best: Talent and technology in management consulting, check out the replay here.

TBR Weekly Preview: March 11-15

We’re going all over the technology space this week, with reports spanning U.S. federal government IT services to long-established hardware and data center providers, plus a couple of European-centric companies.

Wednesday:

  • Talent continues to be the constraining factor on ManTech’s bright revenue growth outlook. Focus in defense and intelligence segments of the U.S. federal market on innovation creates healthy demand for ManTech’s labor-based technical services offerings, such as R&D, testing and evaluation of emerging technology. As a smaller competitor compared to many of its large prime peers in the federal sector, ManTech acutely feels the resource impacts of the security clearance backlog and overall tight labor market. TBR’s 4Q18 ManTech report, written by Senior Analyst Joey Cresta, will explore how ManTech uses adaptive learning, continuous monitoring software and new leadership hires to address the human capital challenges associated with scaling up its labor base to meet robust client demand.

Thursday:

  • As detailed in our initial response, Lenovo achieved its sixth consecutive quarter of year-to-year revenue gains, reporting $14 billion in revenue in 4Q18, up 8.5% from the year-ago compare, even as consolidation opportunities cool in the PC market. Despite these high notes for Lenovo exiting 2018, the company will still face hurdles over the next two years. Its PC and Smart Devices businesses will have to deal with challenging and shifting PC environments. Data Center Group continues to deliver on its promises, but it remains in the red despite improvements to its bottom line. Lenovo’s Mobile business is still teetering in profitability. Read our full report by Analyst Dan Callahan to find how Lenovo will navigate these challenges and tee up for a seventh consecutive quarter of revenue growth in 1Q19. 
  • Our detailed assessment of Atos will note that the company’s Digital Transformation Factory portfolio accounted for 30% of revenue in 2018, up from 23% of revenue in 2017, positively affected by increased activities with clients in areas such as orchestrated hybrid cloud, Digital Workplace and cybersecurity. As Senior Analyst Elitsa Bakalova will report, Atos’ efforts to position as a trusted partner for clients’ digital journeys are starting to pay off, and the new digital services strategy will shape the company’s activities over the next three years.
  • As reported in our initial response, Hewlett Packard Enterprise’s (HPE) revenue fell 1.6% year-to-year to $7.6 billion. While revenue growth is always a goal, TBR believes HPE is more focused on improving profitability in the near term before it shifts to boosting revenue growth. In our full report Analyst Stephanie Long will dive into the long-term strategy of CEO Antonio Neri and how it will impact 2019. Key cost-cutting initiatives and strategic investments, such as in high-performance computing and the edge, will be likely highlights in 2019.
  • Analyst Kelly Lesiczka will be reporting that T-Systems’ portfolio and organizational investments continue to improve its ability to gain wallet share in newer areas and stabilize revenue growth in 2018. Building out its emerging technology portfolio offerings, such as for IoT using DT’s product offerings, enables T-Systems to provide more comprehensive and personalized solutions to clients and generate larger-scale engagements to accelerate growth.

As promised, we published a new report last week by Senior Analyst Boz Hristov on Accenture Technology, and today published a report on TELUS International from Boz as well as a report on Mobile World Congress Barcelona 2019 by Principal Analyst Chris Antlitz.

While we do not have a webinar scheduled for this Wednesday, the next one will be on March 20 featuring Senior Analyst John Caucis talking about healthcare IT services.

Services Weekly Preview: November 26-30, 2018

In this magical time between Thanksgiving and Christmas, despite racing to get as much analysis and as many predictions published before the new year, we’re able to enjoy a slight pause in the usual news cycle and company activity to reflect on 2018 and predict what will be coming in 2019. In two upcoming webinars, we will be looking at many marketwide trends, starting with an assessment of management consulting in the digital transformation age.

 

Here’s what’s coming this week:

Thursday: Last quarter when we looked at DXC Technology, we noted the company’s spike in revenue growth following its formation last year normalized to single-digit growth in 2Q18. The underlying businesses of both legacy CSC and Hewlett Packard Enterprise’s (HPE) Enterprise Services are still experiencing pressures around commoditized legacy services. This quarter TBR will highlight and discuss DXC’s recent M&A activity and its resource management strategy, anticipating similar growth results and performance.

Monday: In our full report on T-Systems for this quarter, we will note that strict execution of efforts to become an efficient organization will sustain the company’s slightly improved performance. New offerings in cloud shift T-Systems’ portfolio away from traditional IT services and increase its opportunities in a segment with growth potential.

Coming in the next few weeks: the Management Consulting Benchmark and 2019 IT Services Predictions.