Browsing articles tagged with " economy"

IT and the Global Economy – 2014

Dec 23, 2013   //   by admin   //   Blog  //  No Comments

RFG Perspective: There will be a number of global economic headwinds in 2014 that will mean slow or no growth around the world. The U.S. could creep up to three percent growth but the Affordable Care Act (Obamacare) implementation has a high probability of reducing growth to the 2013 level or less. This uncertainty will result in IT budgets remaining constrained and making it difficult for IT executives to keep current in technology, meet new business demands, and develop the skills necessary to satisfy corporate requirements.

Third quarter U.S. GDP gives the illusion that the U.S. economy is strengthening but that is hardly the case. The gains were in inventory buildups. Remove that and the economy of the United States mirrors that of many other countries. Europe remains weak and bounces in and out of recession while many of the so-called emerging markets are no longer bounding ahead. The BRIC nations (Brazil, Russia, India, China), whose growth had offset the weakness in the developed nations, are now underperforming. Growth in Brazil, India, and Russia has dropped significantly from the peak while China’s merely slipped into more normal numbers. Now that the U.S. Federal Reserve has begun its taper, these nations could tumble even more. This does not bode well for revenue growth, which, in turn, means tighter IT budgets.

In addition to the Federal Reserve’s actions overhanging the U.S. and global markets, Obamacare may add to the negative effect. The Affordable Care Act (aka Obamacare) is not that affordable and it seems the majority of individuals (and potentially corporations) are finding monthly payments are significantly higher, as are deductibles. This could slow the general economy even more if consumers and corporations are forced to hold back spending to cover basic healthcare costs.

The Bellwethers Struggle

There are three IT bellwethers for growth that we can look at to see how the world economy is fairing and how it is already impacting IT acquisitions. Some may say these companies – Cisco Systems Inc., Hewlett-Packard Co. (HP), and IBM Corp. – are no longer applicable in the new world of cloud computing but that is a false premise. These three firms are all heavily into the cloud and are growing rapidly in cloud/Internet related areas.

Cisco reported single digit revenue growth for 2013 year-over-year with revenues in the Asia Pacific area shrinking by three percent. While that is not bad, CEO John Chambers warned that revenues would decline eight to 10 percent in this quarter – its biggest drop in 13 years. One reason is that it is struggling in the top five emerging markets where revenues declined 21 percent. Brazil was down 25 percent; China, India and Mexico dropped 18 percent; and Russia slid 30 percent.

HP’s fiscal year 2013 showed similar revenue results – down by single digits. It had lower revenues in all regions and printing supplies slip four percent year-over-year. Printing supplies has been one of HP’s internal leading economic indicators, so this news is not good.

IBM’s third quarter revenues came in four percent under the previous year’s quarter, with all geographies down slightly or flat. But its growth markets revenues fell by nine percent and the BRIC revenues declined by 15 percent. There is a pattern here.

The collapse of the revenues in the emerging markets and BRIC nations is less a story of the bellwethers but of the countries’ declining economies. These countries and the U.S. were the engines of growth. Not any longer.

 RFG POV: 2014 has the appearance of being a less daunting year for IT executives than the past few years but economic, geopolitical and governmental disruptions could change all that almost overnight. Businesses may be able to avoid the global minefields that are lurking everywhere but the risk exposure is there. Therefore, it is highly likely that most CEOs and CFOs will want to constrain IT spending – i.e., flat, down or up slightly. Moreover, most budgets are reflections of the prior year’s budget with modifications to address the changing business requirements and economic environment. Therefore, IT executives can expect to have limited options as they work to meet new business demands, keep up with technology, and develop the skills needed to satisfy corporate requirements. It is time to innovate, do more with less again, and/or find self-funding solutions. Additionally, IT executives will need to invest in process improvements to help contain costs, enhance compliance, minimize risks, and improve resource utilization. IT executives should work closely with business and financial executives so that IT budgets and plans are integrated with the business and remain so throughout the year.

Tectonic Shifts

Mar 11, 2013   //   by admin   //   Blog  //  No Comments

Lead Analyst: Cal Braunstein

Bellwether Cisco Systems Inc.‘s quarterly results beat expectations while CEO John Chambers opined global business was looking cautiously optimistic. In other system news, IBM Corp. made a series of hardware announcements, including new entry level Power Systems servers that offer better total cost of acquisition (TCA) and total cost of ownership (TCO) than comparable competitive Intel Corp. x86-based servers. Meanwhile, the new 2013 Dice Holdings Inc. Tech Salary Survey finds technology professionals enjoyed the biggest pay raise in a decade last year.

Focal Points:

  • Cisco reported its fiscal second quarter revenues rose five percent to $12.1 billion versus the previous year’s quarter. Net income on a GAAP basis increased 6.2 percent to $2.7 billion. The company’s data center business grew 65 percent compared with the previous year, while its wireless business and service provider video offerings gained 27 and 20 percent, respectively. However, Cisco’s core router and switching business did not fare as well, with the router business shrinking six percent and the switching revenues only climbing three percent. EMEA revenues shrank six percent year-over-year while the Americas and Asia Pacific climbed two and three percent, respectively. CEO Chambers warned the overall picture was mixed with parts of Europe remaining very challenging. However, he stated there are early signs of stabilization in government spending and also in probably a little bit over two thirds of Europe. While there is cautious optimism, there is little tangible evidence that Cisco has turned the corner.
  • IBM’s Systems and Technology Group launched a number of systems and solutions across its product lines, including new PureSystems solutions, on February 5. As part of the announcement was more affordable, more powerful Power Systems servers designed to aggressively take on Dell Inc., Hewlett-Packard Co. (HP), and Oracle Corp. The upgraded servers are based upon the POWER7+ microprocessors and have a starting price as low as $5,947 for the Power Express 710. IBM stated the 710 and 730 are competitively priced against HP’s Integrity servers and Oracle’s Sparc servers while the PowerLinux 7R1 and 7R2 servers are very aggressively priced to garner market share from x86 servers.
  • Dice, a job search site for engineering and technology professionals, recently released its 2013 Tech Salary Survey. Amongst its key findings was that technology salaries saw the biggest year-over-year salary jump in over a decade, with the average salary increasing 5.3 percent. Additionally, 64 percent of 15,049 surveyed in late 2012 are confident they can find favorable new positions, if desired. Scot Melland, CEO of Dice Holdings, stated companies will now have to either pay to recruit or pay to retain and today, companies are doing both for IT professionals. The top reasons for changing jobs were greater compensation (67 percent), better working conditions (47 percent) and more responsibility (36 percent). David Foote, chief analyst at Foote Partners LLC, finds IT jobs have been on a “strong and sustained growth run” since February 2012. By Foote Partners’ calculations, January IT employment showed its largest monthly increase in five years. Foote believes the momentum is so powerful that it is likely to continue barring a severe and deep falloff in the general economy or a catastrophic event. Based on Bureau of Labor Statistics (BLS) data, Foote estimates a gain of 22,100 jobs in January across four IT-related job sectors, whereas the average monthly employment gains from October to December 2012 were 9,700.

RFG POV: While the global economic outlook appears a little brighter than last year, indications are it may not last. Executives will have to carefully manage spending; however, with the need to increase salaries to retain talent this year, extra caution must be undertaken in other spending areas. IT executives should consider leasing IT equipment, software and services for all new acquisitions. This will help to preserve capital while allowing IT to move forward aggressively on innovation, enhancement and transformation projects. RFG studies find 36 to 40 month hardware and software leases are optimum and can be less expensive than purchasing or financing, even over a five year period. Moreover, IBM’s new entry level Power Systems servers are another game-changer. An RFG study found that the three-year TCA for similarly configured x86 systems handling the same workload as the POWER7+ systems can be up to 75 percent more expensive while the TCO of the x86 servers can be up to 65 percent more expensive. Furthermore, the cost advantage of the Power Systems could even be greater if one included the cost of development systems, application software and downtime impacts. IT executives should reevaluate its standards for platform selection based upon cost, performance, service levels and workload and not automatically assume that x86 servers are the IT processing answer to all business needs.

Surprises at IBM, Infosys and Microsoft

Aug 7, 2012   //   by admin   //   Blog  //  No Comments

Lead Analyst: Cal Braunstein

IBM Corp. announced second quarter financial results with lower revenues but improved profits while Infosys Ltd. had weaker than expected first quarter 2013 results. In other financial news, Microsoft Corp. reported mixed fourth quarter and fiscal year 2012 results.

Focal Points:

  • IBM reported second quarter revenues of $25.8 billion, a drop of three percent year-over-year. However, net income on a GAAP basis increased by six percent to $3.9 billion from the previous year’s quarter. Asia Pacific and the BRIC countries showed single digit growth while all other geographies declined. Europe/MidEast/Africa delivered the worst performance with a nine percent decline, although using a constant currency basis the revenues were flat. Similarly, the services sectors (GBS and GTS) were off four and two percent respectively from the same quarter last year. Global Financing and Software were flat while the Systems and Technology Group (STG) experienced a nine percent fall in revenues year-over-year. IBM’s Smarter Planet initiative saw its revenues increase more than 20 percent in the quarter while its Power Systems gained market share through competitive displacements. Year-to-date IBM states its growth market revenues were up nine percent year-over-year while business analytics revenues grew 13 percent and cloud revenues doubled year-over-year. The company also saw its gross profit margins climb by 1.5 percentage points.
  • Infosys had less than stellar results for its first quarter 2013. While revenues grew 4.8 percent to $1.75 billion and IFRS net income climbed eight percent to $416 million year-over-year, on a sequential quarter basis, the company saw revenues drop by one percent and profits slide by more than 10 percent. Repeat business accounted for 99.1 percent of sales; the top 10 clients were responsible for 25.3 percent of the revenues. Utilization levels excluding trainees have been slowly dropping from 77.8 percent over the 12 months ending June 2011 to 71.6 percent in the current quarter. The split between onsite and offshore dropped slightly from 25.5 to 74.5 percent in the year ago quarter to 24.7 to 75.3 percent in the first quarter 2013. Attrition improved slightly to 14.9 percent. All geographic sector revenues declined with the exception of North America, which grew by 1.6 percent sequentially. As expected, Europe was the worst performer with a decline of 8.1 percent sequentially.
  • Microsoft announced fourth quarter 2012 revenues of $18.1 billion, an increase of four percent from the previous year’s quarter. On a GAAP basis the company reported its first net loss of $492 million due to writing off $6.2 billion for its 2007 aQuantive acquisition. For the full fiscal year Microsoft reported revenues of $73.7 billion, a five percent jump from its fiscal year 2011 revenues. On a GAAP basis net income was $17 billion, a 26 percent decrease from the prior year. The Server and Tools business revenue grew 13 percent for the fourth quarter and 12 percent for the full year while the Business Division revenue increased 7 percent for the fourth quarter and full year reflecting continued momentum in Office 2010 sales. The Windows and Windows Live Division revenue declined 13 percent for the fourth quarter and 3 percent for the full year whereas the Online Services Division revenue advanced 8 percent for the fourth quarter and 10 percent for the full year reflecting growth in its search business. The Entertainment and Devices Division revenue jumped 20 percent for the fourth quarter and 8 percent for the full year, mostly due to the addition of Skype.

 

RFG POV: Most vendors note the difficulties that lie ahead over the next few quarters due to Euro zone problems, a slowdown in China, and a weak economy in North America as well as fears over oil prices and Middle East crisis. How well enterprises will do will depend upon the sector(s) they are in, the geographies they serve, and the agility and innovation of the firm. IBM, which has huge backlogs, is able to plow forward through the good times and bad. Its STG products continue to fluctuate depending upon age of the systems but overall IBM is on track to deliver against its five year growth plan. On the other hand, Infosys is failing to keep up with some of its outsourcing competitors and may be running into a management of growth problem. The drop in its utilization levels is a further indication that backlog and revenue management is not mapping to usage at the desired mix. Thus, while this is an overall corporate issue, the company still maintains tremendous customer loyalty and repeat business rate. In that the company is seeing weakness in most of its markets, IT executives should be more aggressive in negotiating blended rates and the overall deal. Microsoft marches on and continues to grow its enterprise businesses. The Windows business is impacted by the decline in PC sales (and growth in the Apple Inc. iPad market). There is the perception that enterprise business will improve when Windows 8 comes out later this year but that is unlikely. While slightly more than 50 percent of enterprises are on Windows 7, the other half are on Vista and XP. It takes years before companies migrate to new releases and the move to Windows 8, in that it is designed more for the personal world and tablets than the business world, most likely will not happen for most companies. RFG expects the majority of firms will wait for Windows 9. However, RFG does expect Skype and Yammer to be leverageable in the enterprise space but it is unclear whether or not Microsoft can leverage these cloud services to get organizations to move to its other cloud offerings. IT executives will continue to have more and more business platform alternatives available to them and therefore should not feel locked into Microsoft. Given that, IT executives should carefully analyze their business software requirements and negotiate for the best deals. Since Microsoft pricing can be complex and expensive, IT executives should consider using outside assistance (from RFG or elsewhere) to simplify the experience and obtain the best contractual prices and terms.