Posts Tagged ‘IBM’

Can BlackBerry Ltd. Become the Next IBM?

October 30th, 2014

On Monday, BlackBerry Ltd. (TSX: BB)(Nasdaq: BBRY) CEO John Chen outlined “The Keys to Executing a Turnaround the Right Way.”Outsourcing54

Nowadays, no one seems more adept at turning around companies than Mr. Chen. After taking over struggling Sybase, he steered the company back into profitability, eventually selling the company to SAP for $5.8 billion (USD). And less than a year into his role at BlackBerry, his turnaround plan is off to a great start. This is reflected by the company’s stock price, which has more than doubled since December of last year.

So Mr. Chen deserves plenty of credit. But his turnaround plan is far from complete. If he is successful, the stock price will likely see dramatic gains. So is this a bet worth making? Or is this the best we’ll see from Mr. Chen?

The case for BlackBerry

This kind of story is not unprecedented. Back in 1992, IBM was failing in a similar manner, before Louis Gerstner took over. The company was bleeding cash, operating units weren’t working together, and analysts were insisting that he break up the company. Instead, Mr. Gerstner slashed billions in costs – mainly through layoffs – and sold assets. He also dramatically improved the culture, all while focusing the company more on enterprise services.

This is exactly what has happened at BlackBerry as well. Much of the layoffs occurred before Mr. Chen arrived, and he has sold off assets — such as most of the company’s real estate – to generate extra cash. Costs have further been reduced by outsourcing manufacturing to Taiwanese handset maker Foxconn.

Meanwhile, Mr. Chen has also diverted the company’s attention toward enterprise services, again taking a page out of IBM’s book. This is an area, unlike consumer handsets, where BlackBerry still has a competitive offering.

At this point, it’s practically impossible to know how far the company can go. But history has shown there’s plenty of potential.

The case against BlackBerry

Mr. Chen’s job is much harder than Mr. Gerstner’s was, for a couple of reasons. For one, BlackBerry is like a minnow in a shark tank. Rivals such as Google, Apple, and IBM itself all have far deeper pockets than BlackBerry, and are not accustomed to losing. Mr. Chen talked about innovation being a key in this industry, and the giants all have the upper hand in this department.

Secondly, IBM still had a viable mainframe business as it turned itself around. In other words, it is able to offer clients both hardware and software. And the ability to offer a complete solution is certainly an advantage. BlackBerry’s handsets are not nearly as popular. Worse yet, there is a growing trend of employees brining their own devices to work (known as BYOD), meaning that if BlackBerry can’t appeal to the consumer market, its handset business is further threatened.

So at this point, BlackBerry’s future is still very much up in the air, and it shouldn’t account for more than a small slice of your portfolio.

There are much better options than BlackBerry. One of them is featured in the free report below.

A stock to buy instead of BlackBerry

Constructing a portfolio is like building a house, chief analyst Iain Butler says. You want to build it on a foundation of “rock solid, proven, long-term moneymakers.


IT workers better off with IT service provider, says Lufthansa CFO

October 29th, 2014

IT professionals transferred as part of outsourcing deals could find more opportunities to develop their careers, says Simone Menne, CFO of Lufthansa.
Lufthansa is in final negotiations with IBM Global Services to outsource its IT infrastructure services in a seven-year deal. This will see the German airline’s IT services division broken with the infrastructure element sold to IBM. Besides providing IT services to the airline, Lufthansa Systems has 450 external customers.

With 1,400 employees from the Lufthansa System’s infrastructure division set to move to IBM, Menne said employees moving to IBM will have better job prospects.

“This will also give employees of the Infrastructure division clear job prospects and enable them to participate in future technological developments,” she said when announcing the IBM deal.

The division will continue to supply Lufthansa with IT infrastructure services and there will be opportunities for these staff to move on to other IBM projects.

Large global businesses are already heavy outsourcers with thousands of previously internal IT roles being carried out by third-party suppliers. Today’s trend appears to be mid-sized multinationals moving to outsourcing models, to reduce costs and keep pace with rapidly changing IT demands.

The number of recent transformative IT infrastructure outsourcing agreements in the mid-sized multinational sector is further evidence of this.

Recent deals saw South African diamond-mining and jewellery company De Beers announce plans to transform its global IT infrastructure through a deal with outsourced IT services company HCL. Last month also saw German company Vorwerk outsource its IT infrastructure and application development operations to Cognizant in a six-year deal to centralise and standardise IT.

Despite some examples of big companies, such as General Motors, bringing IT back in-house, it appears that the balance of IT professionals working at suppliers will continue to increase as in-house IT staff numbers decrease.

Modern IT infrastructures today, with developments around automation and cloud computing, will inevitably mean less manual work. Staff carrying out support functions might not be required in as high a volume. But people with IT skills and a good understanding of how IT works in business could play an important role in getting the most out of these new technologies.

There is also opportunities to work in different sectors with a service provider, where existing industry knowledge can be transferred to other sectors of new sector knowledge learned.

Sean Finnan, former head of Europe at IBM Global Services, said suppliers can be a good option and IBM rewards good staff well.

“If  you like a bit of variety in your job suppliers are good and IBM is a real meritocracy that rewards staff that work hard and know there stuff,” he said.

He said one day you can be working on a project for an airline and the next day for a bank.

This IT services sector can offer career development or IT professionals. It can broaden their technology and business skills.

In 2010, Computer Weekly spoke to one IT industry executive who flourished under a transfer to a supplier when his job was outsourced. Bob Scott, who got a mine manager certificate in 1987 and became a fully qualified mine engineer, joined the supply side when his role as part of a mathematical modelling team at British Coal was outsourced to Hoskyns in 1992, which was later acquired by Capgemini.

He has since been the head of Capgemini’s global testing business.

While working at Capgemini, Scott completed a masters at the London School of economics, which was supported and funded by Capgemini. By 1996, Scott was given the task of heading up business development for Capgemini in the UK. He relocated to Paris from 1997 to 2001 to take control of the new e-commerce and internet business at Capgemini. He has since held several senior roles at Capgemini including head of UK public sector business as well as taking charge of market strategy for services related to the police.


Lufthansa close to deal with IBM for IT infrastructure unit

October 24th, 2014

German airline Lufthansa is close to a deal to sell its IT infrastructure unit to IBM (IBM.N), including an outsourcing agreement for the services, as part of a shake-up of its technology activities, it said on Wednesday.Outsourcing38

Europe’s largest airline by revenue is undergoing restructuring and cost-cutting efforts to better position itself to compete with low-cost carriers and Gulf rivals.

It earlier this year said it was seeking a buyer for the unit, which provides data centers, networks and telephony, because it requires a high level of investment and economies of scale, which the airline could not provide.

Under the planned deal, Lufthansa will outsource all of its IT infrastructure services to IBM under a seven-year deal and the U.S. firm will take over the airline’s IT infrastructure division, currently part of Lufthansa Systems.

The partnership announcement comes two days after IBM, a company undergoing a stark transition of its own, shocked the markets with lower quarterly results and by suspending its full-year forecasts.

IBM, now largely a computer services supplier, said it suffered a marked slowdown in September as many customers stopped buying new services due in part to macroeconomic concerns but also the rapid pace of changing client demand for the latest technologies delivered as Internet-based services.

Lufthansa shares rose 2.6 percent in early trading, the top gainer among German blue-chips .GDAXI, as analysts welcomed the progress in the restructuring of the division,

The deal will result in a one-off pre-tax charge of 240 million euros for Lufthansa, which will not impact its operating result for 2014. It will allow Lufthansa to reduce its annual IT costs by around 70 million euros a year.

A final price for the sale is still being negotiated, a spokeswoman told Reuters.

The sale is part of plans to reorganize the Lufthansa Systems business into three parts – Infrastructure, Airline Solutions and Industry Solutions, with the latter two to be kept within the Lufthansa group as independent companies.

The infrastructure business, which employs 1,400 people, accounted for 40 percent of Systems’ total turnover of 640 million euros ($883.45 million) in 2013 but it made up only 25 percent of the unit’s profit.

The Lufthansa Systems restructuring is expected to be complete in the first quarter of 2015, with the deal to sell the IT infrastructure unit due to complete by March 31, 2015.


IBM Earnings Preview: What We Are Watching

October 17th, 2014

International Business Machines is set to announce its Q3 earnings Thursday, October 16th. In the second quarter of 2014, the company reported a marginal decline in revenues due to currency headwinds and divestment of the customer care outsourcing business. This decline was further accentuated by weak performance of the server and storage division, which is facing decreasing sales, product transitions, market disruptions, as well as the pending divestment of a major product line (x86 servers).Outsourcing31

During Q2, IBM’s total revenue declined by 2% year on year to $24.4 billion. However, the company reported 28% rise in net income to $4.1 billion, largely due to base effect of lower earnings a year ago arising from workforce rebalancing that impacted the bottom-line by $1 billion. While its core software business witnessed low-single-digit growth, due to 3% year-over-year growth in middleware revenues, its Global Technology Services revenues declined by 1%, primarily due to the negative impact of the sale of the customer care Business Process Outsourcing services business in Q4 2013. However, cloud computing and analytics initiatives buoyed Global Business Services division revenues, which grew by 2% year over year to $4.5 billion in Q2.

We expect that IBM will continue to report growth in revenues for both the software segment and the GBS division in Q3. Trends in IT spending indicate that it will continue to grow, albeit at a slower pace. According to Gartner, Worldwide IT spending is on pace to total $3.7 trillion in 2014, a 2.1 percent increase from last year. While most of the growth is expected to come from developed countries such as the U.S., we expect the company to report growth in revenues from emerging economies, which reported a lackluster performance in the previous quarters. Furthermore, we expect order backlog to improve, which will boost revenues in the future. However, we are closely watching the GTS revenues, which have declined due to contract restructuring and pricing pressure. We also expect its server and storage division to report another quarter of disappointing results as the company is refreshing its product offering, and demand for its product remains low.

Middleware and OS Revenues

The Middleware and the Operating Systems divisions are the biggest contributors to IBM’s stock value, together making up nearly 47% of our estimate. This division continues to report good growth on the back of strong brand recognition of its suite of software such as Tivoli, Rational and Websphere, etc. Additionally, demand for enterprise software remains healthy, which should boost demand for middleware software. Furthermore, these solutions cater to the growing markets that include mobile, social and security tools. Therefore, we expect software division to post growth in Q3 as well as in the near future. However, in this earnings announcement, we are closely monitoring the growth in new licenses for the different middleware products as it will help us to ascertain software demand in today’s market in greater detail.

Revenues From GTS To Remain Tepid

According to our estimates, the global technology service division makes up 21% of IBM’s stock value. Revenues from this division have declined over the past few quarter as a result of contract restructuring and a decline in outsourcing backlog. Furthermore, discretionary IT spending from clients remains weak, which is negatively impacting outsourcing revenues. We expect this trend to have continued in the third quarter, which likely produced a decline in revenues. However, contract restructuring will help the division to post higher profit margins in Q3

GBS Revenues To Post Another Quarter Of Growth

The global business services division contributes over 11% to IBM’s stock value according to our estimates. In Q2 2014, GBS reported a 2% year-over-year growth in revenue to $4.5 billion, buoyed by growth in Business Analytics (7% growth) and Cloud (50% growth). We expect this trend to power GBS revenues in Q3 and contribute more to the top line performance going ahead.

Server Revenues To Decline

Server and storage division, which was once the cash cow of the company, is witnessing a continuing decline in revenues. The company announced the sale of its x86 server business to Lenovo in Q1, in a transaction that is to close in increments over the remainder of the year. The x86 division caters to the blade and rack server market, which is facing intense competition from white box (i.e., unbranded) and better positioned server manufacturers. We expect to get a better understanding of the divestiture process on the earnings call. The remaining server businesses – z-Systems mainframes, the Power line, and its range of high performance computing platforms – each face specific issues. Mainframes are at the trailing end of product cycle and Power systems are confronting severe disruptions in the Unix server market, albeit with the new and open Power 8 architecture. High end platforms retain a strong market position and are benefiting as well from the new Watson initiatives. In short, this challenged division is experiencing a range of issues, though the trends may well be on the cusp of more meaningful improvement.

We currently have a $227 Trefis price estimate for IBM which is about 20% higher than the current market price.


IBM, SAP Team Up to Deliver Software as a Service Over Internet

October 15th, 2014

Companies in some countries are getting particular about where their data is stored, a trend that SAP SE SAP +0.53%  and International Business Machines Corp. IBM +0.15%  hope to turn to their advantage.Outsourcing20

The longtime partners on Tuesday said SAP will use IBM-operated facilities in addition to its own to deliver SAP software as a service over the Internet. IBM became a bigger player in such operations, known as cloud computing, when it acquired SoftLayer Corp. last year. It expects to deploy 40 data centers to supplement 20 facilities operated by SAP.

IBM’s data centers include sites in Germany, France, England and the Netherlands. Customers in such countries have become increasingly adamant that the cloud services they use store data in their own countries.

Such concerns as well as laws passed by some European governments have come to the fore since disclosures began in mid-2013 about data-collection practices by the U.S. National Security Agency and other intelligence services.

“We found that nearly every jurisdiction has some location or compliance requirements,” said Erich Clementi, an IBM senior vice president in charge of global technology services.

Kevin Ichpurani, an SAP senior vice president, said the IBM deal “allows us to address the data sovereignty issues.”

But moves to require local computing facilities conflict with the longtime concept of a borderless Internet, which stresses speed and efficiency rather than geographic preferences. Companies like Google Inc. GOOGL +0.72%  have argued against a trend they say creates unnecessary costs and complexity.

Eric Schmidt, Google’s executive chairman, warned recently of ”huge” costs of what he characterized as online Balkanization. “We’re going to end up breaking the Internet,” he said.

But corporate demands in the wake of the NSA revelations appear to be changing the business landscape. About 9% of U.S. companies selling cloud products to corporations now have clusters of computer servers in the European Union, compared with 2% before disclosures about the NSA surveillance programs, according to information compiled by Skyhigh Networks Inc., which advises companies on potential security threats of their tech services.

Robert Reid, CEO of Intacct Corp., recently estimated that 10% to 20% of potential European customers for cloud-based accounting software refuse to buy unless the vendor has a data center on the continent.

Such geographic concerns are yet another twist in a cloud craze that is forcing many companies to shift their strategies.

Others jumping on the bandwagon include old-line software vendors like Oracle Corp. ORCL +0.60%  and Microsoft Corp. MSFT +0.18%  , hardware makers such as Cisco Systems Inc., and younger companies, such as Google and Inc., AMZN +0.61%  which grew up in the Web era. In some cases, companies are rivals and partners at the same time.

SAP sells software that manages corporate operations like manufacturing, inventory and finance. Its programs often are used along with a database, typically supplied by IBM, Microsoft or Oracle.

But SAP, which competes most fiercely with Oracle in business application software, lately has emphasized an internally developed database called HANA. That software exploits memory chips to gain speed advantages over conventional databases that run on disk drives. HANA has become the core of SAP’s cloud offerings.

SAP had previously established a relationship with Amazon Web Services, whose cloud services have a broad following among startups and Web companies. But Mr. Clementi said SAP’s pact with IBM will have greater appeal to established companies that have shied away from outsourcing operations or want use a combination of their own data centers and those in the cloud.

One reason, he said, is that SoftLayer specialized in features that appeal to many mainstream businesses. One is offering customers dedicated servers rather than commingling application software and data from multiple companies on each server, an approach that backers say has performance and security advantages.

“What we are signaling with this agreement is that you can run full-fledged core enterprise applications in the cloud,” Mr. Clementi said.

Holger Mueller, an analyst at Constellation Research, said the deal is important not only to improve SAP’s geographic reach but also to help IBM boost utilization of its newly acquired data centers. It also is important for SAP, with is German heritage, to take a lead on addressing concerns about the location of customer data.

“It’s harder for SAP to say to customers, ’don’t worry about it,’” he said.

AmerisourceBergen Selects IBM to Manage IT Infrastructure

October 1st, 2014

IBM today announced that it has extended, by three years, its multiyear services agreement with AmerisourceBergen, one of the largest global pharmaceutical sourcing and distribution services companies in the world. IBM will manage the IT infrastructure that supports the company’s 13,000 employees and operations across 25 of its distribution centers in North America.Outsourcing44

Offering services ranging from drug distribution and niche premium logistics to reimbursement and pharmaceutical consulting services, AmerisourceBergen helps healthcare providers and pharmaceutical and biotech manufacturers improve patient access to their products. Its critical business applications and global processes – such as the timely movement of products across the supply chain – must run seamlessly and without interruption. The company turned to IBM because of its highest standards in availability, performance, reliability and security.

“Working with IBM provides us the capabilities we need to drive innovation in our business and to do so quickly and in the most cost effective way,” said Dale Danilewitz, Senior Vice President and Chief Information Officer, AmerisourceBergen. “This new agreement is an extension of our partnership with IBM, which will enable us to quickly deploy and capitalize on new technologies and IT services models.”

Among the benefits of the relationship, AmerisourceBergen will have the ability to access IBM’s industry-leading capabilities in areas such as cloud for new workloads and advanced analytics to address opportunities across its business.

“Looking forward, we plan to further expand our relationship by bringing together IBM’s deep expertise in the healthcare industry, our global reach and innovative technologies to provide AmerisourceBergen with additional skills and capabilities that enhance its ability to run and grow its business,” said Philip Guido, General Manager, Global Technology Services, IBM North America.

Gartner, Inc., a leading global IT research firm, has recognized IBM as a leader in the “Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, North America” report(1). IBM was positioned the highest for ability to execute.

“We believe IBM’s ability to execute is based on our cloud leadership, as well as our focused strategy on mobile, social and security – which are further fueled by extensive R&D and technology investments in analytics and automation,” added Guido. “These are key differentiators that enable IBM to seamlessly integrate and orchestrate infrastructure services across hybrid IT environments spanning both traditional and cloud models.”

(1) Gartner, Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, North America, William Maurer, David Edward Ackerman, Bryan Britz, July 31, 2014

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.


India to become Capgemini’s default offshoring location soon

September 29th, 2014

Cap Gemini SA, the Paris-based consulting and software services firm, is trying to save costs by farming out more work to its centres in India and hiring freshers from colleges. Outsourcing30

Capgemini, which has software development centres in more than 10locations outside France, including smaller ones in Poland, Morocco and Vietnam, wants to make India the default offshore location, said Aruna Jayanthi, chief executive of Capgemini India Pvt. Ltd, in an interview last week.

Most of Capgemini’s key clients, who operate out of France, Germany, New Zealand and the Nordic regions, have begun offshoring more work to low-cost countries as technology budgets remain little changed and companies seek to cut costs, adding pressure on the French company to accelerate its plans to boost its operation in India.

Capgemini’s bigger rivals International Business Machines Corp. (IBM) and Accenture Plc. already have a massive presence in India. Capgemini has “a very low-margin business compared to its global peers like IBM and Accenture” which could be the reason for increasing its India offshoring, coupled with the fact that most of Capgemini’s clients are also going in for more offshoring today, said Sudin Apte, founder and research director with tech research firm, Offshore Insights.

In the last six-seven years, Capgemini’s offshore presence in India has grown from 10-12% to 45% today, and it has a very strong consulting practice, which is what will help it compete with peers such as Cognizant Technology Solutions Corp. and Infosys Ltd for the India business.

Capgemini, however, cannot be compared with IBM or Accenture, according to Apte. “Firstly, Accenture, which is considerably smaller than IBM, is still three times larger in terms of revenue compared to Capgemini. Secondly, both IBM and Accenture have 72-75% of their total resources in global delivery markets, while for Capgemini this number is about 54-55%.”

The 139,000 strong Capgemini had more than 50,000 employees in India. In comparison, IBM is estimated to employ about 150,000 people in India and Accenture, 100,000. Accenture entered India in 1987, IBM re-entered the country in 1992 while Capgemini started operations here in 2000.

By 2016, Capgemini, however, expects the number to account for half of its global workforce. Moreover, the company that has traditionally hired experienced professionals will also add freshers, said Jayanthi.

The company posted an 18% revenue growth in India on a total revenue of €5.1 billion in the June quarter, said Jayanthi.

About 85% of the work done out of India is divided between infrastructure management, application development and management, and consulting services while the remaining 15% comes from business process outsourcing (BPO).

“Our engineering services delivery that is being driven out of India will offer ‘digital engineering’ solutions to clients globally, with two-thirds of the business opportunity expected to come from the US in the next 12-18 months,” said Girish Wardadkar, global leader-engineering services, Capgemini.

Investing in the engineering space also allows Capgemini to offer a suite of services in addition to its traditional IT services, infrastructure managed services, BPO and consulting.

Capgemini, she added, with its six innovation labs in India will help drive 50% of the digital transformation required by clients out of India in areas like the Internet of Things, cloud, virtualization of the traditional application, development and management services.

Sanchit Vir Gogia, chief analyst and chief executive of Greyhound Research, acknowledged that Capgemini is building its capability in the engineering vertical but added that the company may face “tough competition from established Indian software services companies such as HCL Technologies Ltd, Infosys and Tech Mahindra Ltd, that already have a strong engineering practice”. “The company may also need to reduce its pricing by 25-30% to compete with Indian peers going forward,” said Gogia.


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