Companies want more from offshore IT, likely leading to more on-shore IT growth

The most recent offshoring survey from Horses for Sources suggests that companies will have less use for traditional IT outsourcing.

When it comes to IT services and BPO, it’s no longer about “location, location, location”, it’s now all about “skills, skills, skills”.

Instead of “commodity” capabilities (things like password resets, routine programming changes, etc.), companies want more highly-skilled, innovative capabilities. Either offshorers need to provide this, or companies will in-source those skills.

Because offshorers typically don’t focus on such “open ended” roles, analysis of the survey suggests offshorers will have less business, at least new business:

aspirations for offshore use between the 2014 and 2017 State of the Industry studies, we see a significant drop, right across the board, with plans to offshore services.

And:

an increasing majority of customers of traditional shared services and outsourcing feel they have wrung most of the juice offshore has to offer from their existing operations, and aren’t looking to increase offshore investments.

What with the large volume of IT offshorers companies do, and how this outsourcing tends to control/limit IT capabilities, paying attention to these trends can help you predict what the ongoing “nature of IT” is in large offshorers.

This fits the offshoring and outsourcing complaining I hear from most all software teams in large organizations.

To me this read as “yes, we need to refocus IT to help us create and refine new business models.” You know, “digital transformation,” “cloud native,” and all that.

Source: “Offshore has become Walmartas Outsourcing becomes more like Amazon”

Highlights from: IBM’s continuing quest to refresh its revenue mix

TPM has one of his usual, great round-ups of IBM’s business:

For the full 2016 year, IBM’s revenues were off 2.1 percent to $79.85 billion, but its “real” systems business, which includes servers, storage, switching, systems software, databases, transaction monitors, and tech support and financing for its own iron, fell by 8.3 percent to $26.1 billion.

Changing the revenue mix:

IBM’s efforts to promote SoftLayer cloud and Watson cognitive computing, mobile and social and marketing software and tools, and security wares – what it calls its strategic imperatives – are almost filling in the gap left behind as the core businesses shrink. IBM wanted these strategic imperative businesses to reach $40 billion and 40 percent of revenues by 2018, and in this quarter it already hit the 40 percent mark, with $33 billion in revenues for 2016–as much because of its overall revenue decline as for the growth in these businesses.

And, some info on their hardware revenue:

IBM sold just over $8 billion in Systems products, and brought $934 million to the middle line as pre-tax income

Also:

Schroeter said that Linux-based Power Systems machines now drove 15 percent of revenues, and that is pretty good considering that two years ago it was a few percent of sales.

Source: ”Drilling Down Into IBM’s System Group”( https://www.itjungle.com/2017/01/23/drilling-ibms-system-group/)

Even the burger-flippers are threatened by digital transformation.

One current attempt at machine-made burgers comes from a San Francisco startup called Momentum Machines, whose founders have estimated that their burger-making robot will save the average restaurant $135,000 a year in wages. Momentum says their machine can also customize burgers to include different blends of meat and special cheeses, neither of which the AMFare could handle. “Our device isn’t meant to make employees more efficient,” co-founder Alexandros Vardakostas has said. “It’s meant to completely obviate them.”

Also, one of the better headlines you’ll see today: “America has been trying to automate cheeseburgers for more than 50 years”

Link

TrumpTech: $450bn in annual fed spend in limbo

There is a lot of uncertainty in the air,” said one consultant close to the Office of Management and Budget’s IT efficiency initiatives who asked not to be identified. “The whole IT industry and federal IT operations are in a wait-and-see holding pattern,” he said, anticipating official word on key federal IT initiatives and leadership positions.

In my amateur analysis of Trump’s effect on IT spend, it seems like there’s three options:

  1. More of the same with big contractors and vendors, just wrapped up in myths of change.
  2. Complete shut down of everything with respect to growth; they just stop spending and let government IT age.
  3. Start working with new government contractors and doing things differently; the “Space X” option.

Who knows what’ll happen?

Link

At $3.7bn, AppDynamics sells to Cisco at 17.3x, estimated

Based on the S-1 filings from the business, a $3.7B price implies a 17.3x enterprise value/trailing twelve month revenue multiple, which is 41% higher than the next nearest acquisition, Salesforce/Demandware. There’s no comparable pricing event in the M&A market in the last 10 years.

And, from Simon at The Register:

The Borg’s plucked the company mere days before it was expected to float on the stock market, an event expected to raise around US$1.4bn for a portion of the company.

While AppDynamics could point to over 2,000 customers and nine-figure revenues, it also had rather a lot of red ink to deal with. That’s Cisco’s problem now, as it will make AppDynamics a software business unit in its internet of things and applications business.

Source: The Biggest M&A Multiple in Software History

Cash repatriation could inject $850bn, post-tax

If Congress enacted such a deal, of course, only a fraction of the $2.6 trillion would reach shareholders. It’s important to note that much of the UFE is not actually in cash; it’s invested in overseas plants or provides working capital for foreign subsidiaries. At press time, specifics of a plan hadn’t emerged, and figuring out which assets will ultimately get taxed, and at what rate, will be thorny. But based on Trump’s earlier proposal and on past holidays, investing pros estimate that about 40% of the UFE, or around $1 trillion, will come back to the U.S.—and that companies would net at least $850 billion after taxes.

Tech and health care companies would get most of that.


I think most people believe that cash would be used in stock buybacks and dividend to raise share prices and give cash to investors. Trump would probably want it for creating new jobs, and it could be used for domestic acquisitions.

See the rest from Shawn Tully at Fortune.

Hardware layoffs at Oracle

Oracle claims the company isn’t closing the Santa Clara facility with this reduction in force. Instead, “Oracle is refocusing its Hardware Systems business, and for that reason, has decided to lay off certain of its employees in the Hardware Systems Division.”

Those hardware employees appear to have been Oracle’s failing SPARC hardware department staffers. In mid 2016, Oracle claimed its new SPARC S7 processor would be offered on Oracle Cloud. The cloud is Oracle’s new revenue hope since its new software licensing revenue plummeted by 20 percent in its last quarter ended December 15. At the same time, Oracle’s hardware revenue had fallen 13 percent.

Link

Thoma Bravo Acquires Austin-Based, privately held Planview, PPM and Enterprise Architecture Tools

Passed from one PE firm to another: from Insight Venture Partners to Thoma Bravo. Sort of, one piece of coverage says “Insight Venture Partners will maintain its original 2014 capital investment in company.”

Carl Lehmann (he’s popped up a lot recently here!) and Liam Rogers at 451 have some numbers estimates:

Thoma Bravo’s acquisition of Planview comes three years after Insight Venture Partners acquired the WRM software company for an estimated $150m. The latest acquisition comes well above that – we estimate the deal size to be $800m. The multiple paid for the business is also substantially higher than the last purchase of Planview, which generated $175m in revenue in 2016. Insight will maintain an equity stake in the company, and Thoma Bravo becomes the new majority owner.

The rest of the excellent (as always) deal write-up also reminds me that Planview bought Troux back in 2015, consolidating this space a bit…albeit a pretty small market.

In addition to the Silicon Hills piece, see the official press release.

Link