Annex Bulletin 2007-12 March 19, 2007
Excerpts from CONFIDENTIAL edition (Annex clients click here for FULL version)
The Value of pi (π) - System p and System i market and IBM product strategies
Updated 3/19/07, 7:30AM PDT, adds Tables and charts...
Annex Research's 2007 Global IT Services Octathlon
HPS, Capgemini Tie for Overall "Gold"
EDS Wins "Bronze" after Delivering Real Turnaround
BEIJING, China, Mar 19 - It seems only appropriate that this year's annual Octathlon results should come to you from the city that will be hosting the next Olympic Games - Beijing, China. The 2008 Olympic signs were already everywhere even during my last visit here, including near the Great Wall (see right photo). The winners of our annual Global IT Services Octathlon may not rate as much pomp and ceremony as the Olympic sports stars, but their Octathlon medals are certainly worth a lot more money.
The two companies whose stars shone the most brightly in the 2006 global IT services arena were Hewlett Packard Services (HPS) and Capgemini. By the time all the scores were in, they ended up in a tie for Octathlon "gold" with 11 points each (see the chart and table). HPS won three gold medals in individual competitions, along with one silver. Capgemini, on the other hand, earned its 11 points with two gold, two silver and one bronze medal (click on the right chart).
A much-improved EDS won the "bronze" with nine points. It was the first time since 2003 that the second largest company in the IT services business earned an Octathlon medal.
Just to recap quickly for our new readers the IT Services Octathlon scoring… The overall medal standings are determined by awarding three points for a “gold,” two points for a “silver,” and one point for a “bronze” in each of the eight competitions of the top global IT services vendors.
The eight categories are:
All these figures are for the prior calendar
year results, 2006 in this report. We also wish to remind our readers that the
only competitors among the Top 7 that don’t publish their new contract
sales are HPS and Fujitsu. As
a result, we treated them as “no
shows” in this Octathlon category.
And now, here’s a “play-by-play” report from this year’s competition.
1.-2. Revenue Growth (2 Medals)
The “gold” medal for revenue growth in 2006 went to Capgemini (with a 21% surge; up 10% in constant currency - right chart). Just like last year, Accenture won the “silver” with a 5.2% increase, while EDS earned the “bronze” with a 4% rise.
Slow Growth: A Chronic Problem
It should be noted that most revenue growth medal winners grew by acquisitions (except for Accenture). Among some major deals, CSC acquired DynCorp (2003), HP acquired Compaq (2002), while IBM acquired PwCC (2002). Lacking any major acquisitions in 2006, revenue growth of the Top 7 contenders slowed down to 4%. So once one of the fastest growing industry segments, the top of the global IT services market is now showing sub-par performance.
3. Market Share (1 Medal)
Capgemini, EDS and Accenture were the market share gainers among the Top 7 in a year that did not see much movement in this Octathlon category. None of the competitors won or lost more than a point of market share in 2006.
Profitability (2 Medals)
Just like in the last two years, Accenture again won easily the gross margin “gold,” followed by IGS and Capgemini, which claimed the “silver” and the “bronze” respectively.
6. Frugality (1 Medal)
Just as Accenture seems to be pre-subscribed to profitability medals, EDS has been a perennial winner of frugality competitions. One of the most beleaguered competitors in the 2002-2005 time frame, EDS still continued its unfettered grip on the “gold” for the lowest operating expenses. At 8.7% of revenues (down from 9.2% the year before), EDS’ 2006 operating expenses were by far the lowest among the Top 7 competitors.
7. Sales Productivity (1 Medal)
edged out Fujitsu and IBM by a nose in 2006 to win the “gold”
in the sales productivity category (revenue per capita). The
“silver” and the “bronze" medal winners were virtually in a
It was the same lineup of medal winners as in last year's Octathlon.
It was the same lineup of medal winners as in last year's Octathlon.
New Contract Sales (1 Medal)
EDS won the "gold" in new contract sales in 2005 with a 38% improvement (to $20.5 billion) over the dismal 2004 results. And in repeated that feat last year with a 29% surge to $26.5 billion despite, what Wall Street calls, a "difficult comparison." Capgemini got the "silver" with a 21% jump, while CSC earned a "bronze" with an 18% increase.
As you have seen, the largest global IT services companies suffer from the same ailment. It's called the growth problem. And it's a chronic condition. The five-year annual growth rates have dropped from 17% to 4%.
If this sounds like a deja vu conclusion, it is. It is pretty much the same thing we said a year ago about the Octathlon 2006 results. So what's to be done?
Break Up and Diversify
Our next piece of advice to the IT services industry leaders (especially the biggest, IBM Global Services), will again sound like a broken record: Break up and diversify. We have been recommending these two things for over 11 years now.
Break up in order to growth faster (see "amoeba syndrome" in "Break Up, IBM!", Mar 1996). Diversify, so as to open up new markets (SMB, emerging countries).
"That's all she wrote," we're afraid, for those of you who are NOT Annex Research clients, who are now reading the complete Annex Bulletin, along with tables and charts charts that back up our analysis.
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Happy bargain hunting!
The (T)ides of March Sink Markets Again - Analysis of global economic & investment trends
Capgemini Caps Great Year, Saves Best for Last (Analysis of Capgemini's fourth quarter business results)
EDS: On Sunny Side of Street (Analysis of EDS' fourth quarter business results)
CSC: Where Less Seems More (Analysis of CSC's third quarter fiscal 2007 business results)
Fujitsu: Sales Up, Profit Down (Analysis of Fujitsu's third quarter fiscal 2007 business results)
IBM Shatters Records (Analysis of IBM's fourth quarter business results)
IBM Stock Passes Century Mark (Analysis of Big Blue's Stock Performance)
Happy Days Are Here Again (Analysis of Top 20 IT leaders' latest stock market and business performances)
Globalization Accelerates (Analysis of United Nation's annual survey of global investments)
IBM: A $125-Stock? (An update to "From Small Acorns Mighty Oaks Grow")
Capgemini: Longest Sustained Stock Price Rise (An update to "By Leaps and Bounds")
HP: New King of the Hill (Analysis of HP's fourth quarter business results)
IBM: From Little Acorns Mighty Oaks Grow (Analysis of IBM's "State of the Union")
Capgemini: By Leaps and Bounds (Analysis of Capgemini's preliminary third quarter business results)
Fujitsu: Good Performance Gets Better, More Global (Analysis of Fujitsu's first half FY2007 business results)
IBM: A Slam Dunk Quarter (Analysis of IBM third quarter business results)
IBM: Services in a Box (Analysis of IBM Global Services' Ground-shifting Announcements)
Strong Comeback by IT Stocks in Third Quarter (Analysis of top 20 IT companies' market and business trends)
Stock Buybacks: A Fading Fad (Dell, erstwhile "King of Fluff," suspends its stock buybacks)
Capgemini: Growth Continues (Revenues, net profit up in double digits, margins also improve)
Power of Manpower (While others move to India, Russia... AMD invests in New York, hailing "phenomenal" quality of its labor force)
Ebb Tide Lowers Most Boats (Analysis of EDS' and CSC's latest quarterly results)
IBM vs. HP: A Tale of Two Blues (Both companies are doing well in business, but only HP is favored by Wall Street; Big Blue trying to change that now with its new "India Opus") [Annex clients click here]