T EC H N O LO G Y B U S I N ES S R ES EAR C H, I N C. RECENT PUBLICATIONS AT TBR The following is information compiled from recently published Technology Business Research Inc. reports. Excerpts included in this release are: 3Q13 IT Services Vendor Benchmark 3Q13 Public Sector IT Services Benchmark 3Q13 Healthcare IT Services Benchmark 3Q13 Network Infrastructure Services Benchmark 3Q13 Software Vendor Benchmark 3Q13 Public Cloud Benchmark 3Q13 Managed Private & Professional Services Cloud Benchmark 3Q13 Cloud Components Benchmark 4Q13 Corporate IT Buying Behavior & Customer Satisfaction Study: x86-based Servers 4Q13 Corporate IT Buying Behavior & Customer Satisfaction Study: Notebooks Feb. 11, 2014 3Q13 IT SERVICES VENDOR BENCHMARK REVENUE GROWTH DECELERATES, EVEN FOR THE TOP 10 TRAILING 12-MONTH REVENUE LEADERS, INDICATING CONTINUED PRESSURES IN THE IT SERVICES MARKET
Fundamental pressures continue to hammer the market, as eight out of the top 10 trailing 12-month revenue leaders experienced a deceleration in trailing 12-month year-to-year revenue growth in 3Q13. CSC and T-Systems merely slowed their revenue contraction. IBM GS revenue, the largest of the covered vendors in volume, will continue to contract in the low single digits until 2014, as pervasive industry changes wrought by cloud-led business model transformation result in lower revenue from legacy single-supplier outsourcing contracts that comprise a major portion of IBM GS revenue base. 3Q13 PUBLIC SECTOR IT SERVICES BENCHMARK Revenue, Growth and Margin Leaders TRACTION IN HEALTHCARE, CYBER, CLOUD AND OTHER SPECIALIZED SERVICE AREAS IS DRIVING SALES AND PROFITABILITY FOR THE GROWTH AND MARGIN LEADERS Outperformers Key Characteristics Vendors posting the leading growth rates among the benchmark companies in 3Q13 continue to expand and gain traction in the public sector healthcare space (CGI, Xerox, Accenture and General Dynamics IS&T) and a niche focus on maintenance, modification, training and technical services (Boeing GS&S). CGI continues to win public sector deals in cloud, mobility and cybersecurity, though the recent troubles with the launch of the HealthCare.gov website cloud the outlook for CGI in 2014. Margin leaders in 3Q13 included CSC, IBM Global Services and Harris (14.9%, 13.9% and 11.9%, respectively) and each of whom owes their margin performance in large measure to continued growth in higher-value, more lucrative services areas such as cybersecurity (CSC), automated solutions (IBM) and intelligence work on classified programs (Harris). CSC and IBM also continue to restructure operations, consolidate facilities and rightsize their respective workforces to cut costs.
Laggards Key Characteristics TBR Although a margin leader, CSC remains a growth laggard and, along with the remaining growth laggards SAIC and ITT Exelis, had its revenue growth constrained more than its benchmark peers by sequestration and ongoing budget uncertainty, which resulted in a slower contract award environment. SAIC s margin performance was impeded in 3Q13 by the transaction and separation costs associated with the completion of the split from Leidos. 3Q13 HEALTHCARE IT SERVICES BENCHMARK Market Overview UNCERTAIN ECONOMIC CONDITIONS AND THE LOGJAM IN CONGRESS CONTRIBUTED TO THE DECELERATION OF HITS REVENUE EXPANSION IN 3Q13 Implementation of the mandates set forth by the ACA served as a primary driver of healthcare IT services spending during 3Q13, with several HITS vendors associated in some capacity with the launch of HIXs. The aftermath of the difficult rollout of Healthcare.gov increased the effort and expenditures on healthcare IT, but it fell in the 3Q13 period for many vendors. Funding approvals and allocations for the end of the fiscal year were superseded by negotiations in the U.S. legislative branch to determine the overall funding of government, which acted as a drag on HITS revenue expansion in 3Q13. Furthermore, a wait-and-see approach by commercial providers and payers as the ACA continued to roll out produced additional downward pressure. Ongoing impacts of the sequestration on federal agencies overall budgets continued to manifest additional cutbacks in healthcare IT spending during 3Q13, and contributed some additional headwinds to growth for vendors with larger federal healthcare IT service practices, with declines in outlays expected in 4Q13. Emerging markets around the world will continue to augment HITS vendors results, despite conservative predictions for new-term economic expansion, as upwardly mobile populations demand upgrades in healthcare service delivery.
% of Revenue Market Overview TBR 3Q13 NETWORK INFRASTRUCTURE SERVICES BENCHMARK PRODUCT REVENUES MAINTAINED THEIR LEVEL OF CONTRIBUTION TO THE TOTAL ENTERPRISE NETWORK REVENUE OF EQUIPMENT SUPPLIERS IN 3Q13 TBR 50% 40% 3Q13 NIS REVENUE AS A % OF TOTAL ENTERPRISE NETWORK REVENUE 30% 20% 10% 0% Avaya Cisco Dell HP Huawei Juniper Unify 3Q12 3Q13 As a group, the NIS revenue contribution of network equipment suppliers has not changed significantly over the past year, proof that the suppliers remain focused on attaching services to sales of products rather than take a services-led approach to network infrastructure. Dell experienced the biggest change in its enterprise network revenue mix in 3Q13, with NIS declining 200 basis points year-to-year as a percentage of revenue. TBR believes this is due in part to the company s increasing focus on channel partners, e.g. utilizing partners for low-end implementation services on the company s products. Huawei s NIS revenue contribution grew 500 basis points year-to-year, driven by customer adoption of the company s Hi-Care Support Services portfolio, which was rolled out in December 2012. 3Q13 SOFTWARE VENDOR BENCHMARK TRADITIONAL VENDORS INTEGRATE AND ENHANCE EXISTING OFFERINGS, AS MARKET DISRUPTER TABLEAU DELIVERS UNMATCHED GROWTH WITH BI AND ANALYTICS
Software vendors covered in TBR s 3Q13 Software Vendor Benchmark experienced an average year-to-year revenue growth of 15.6%, up from 4.5% revenue growth during 3Q12. In contrast to improved revenue growth from a year ago, average operating margins declined from 19.2% during 3Q12 to 17.4% during 3Q13. Excluding Dell Enterprise Software s inorganic revenue growth of 221.6% in 3Q13, business intelligence and analytics vendor Tableau emerged as the top growth leader across TBR s 3Q13 Software Vendor Benchmark following its May 2013 IPO. This growth is a result of continued differentiation and specialization within the BI and analytics space, as the company continues investing in headcount and resources to scale its revenue base. 3Q13 PUBLIC CLOUD BENCHMARK ACCELERATING GROWTH WILL BE DRIVEN BY LOB AND VERTICAL MESSAGING PAIRED WITH RAPID CAPABILITY EXPANSION
Messaging and portfolio expansion targeting LOBs and verticals will drive increased share of wallet among the largest vendors and begin to squeeze opportunities for niche vendors. Public cloud vendors are adding analytics and mobile capabilities across portfolios and development platforms to expand addressable markets and increase control points within the install base. To keep up with growing demand, public cloud infrastructure vendors will acquire IaaS players, build regional data centers and partner with data center vendors to add capacity and grow globally. 3Q13 MANAGED PRIVATE & PROFESSIONAL SERVICES CLOUD BENCHMARK MANAGED PRIVATE AND PROFESSIONAL SERVICES CLOUD REVENUES ARE EXPECTED TO GROW IN TANDEM FOR VENDORS AS ENVIRONMENTS GROW MORE COMPLEX As IT services vendors continued to build out their portfolios to address customers desired business and IT outcomes, including as a Service managed private cloud solutions, managed private and professional services cloud revenue grew 35% in 3Q13 across the 29 vendors included in TBR s Managed Private & Professional Services Cloud Benchmark. Industry-focused solutions aimed at providing business outcomes coupled with the transition of traditional services and software to new business models are enabling vendors to ride the rising tide of cloud as a Service offerings by providing consulting, integration and application development services. Vendors understand that things are better together, partnering to quickly expand their addressable markets and client wallet share, evidenced by the build out of partner networks by traditional software and IT services vendors. Alliances offer vendors quick, low-cost means of filling in portfolio gaps while promoting technology agnosticism.
3Q13 CLOUD COMPONENTS BENCHMARK TBR AS CLOUD MATURES, THE DRIVING FORCES OF CLOUD COMPONENTS WILL SHIFT DEMAND TOWARD MANAGEMENT AND ORCHESTRATION SOLUTIONS Software will lead percentage growth between 2015 and 2018 as management and optimization of existing environments fuel components adoption. The current cloud components opportunity is a hardware- and virtualization-led story Infrastructure buildouts and virtualized IT environments are the prerequisites for cloud, driving the initial cloud components opportunities for current hardware and software components revenue leaders HP, IBM, Cisco and VMware. Maturation of infrastructure and demand for operational support will shift components opportunity to management and orchestration With customers infrastructure optimized for cloud, simplifying IT operations will be the next step to achieving cloud benefits, tipping the cloud growth opportunities to vendors such as VMware and EMC that provide operational support through service delivery and orchestration. Empowering customers to realize long-term benefits of cloud will weight the components opportunity to management and security Once cloud environments are up and running customers will then invest in systems management and security solutions, through vendors including IBM, Dell and HP, to ensure the benefits of cloud will be sustainable as their business evolves.
4Q13 CORPORATE IT BUYING BEHAVIOR & CUSTOMER SATISFACTION STUDY: X86-BASED SERVERS HIGH PRODUCT-RELATED SATISFACTION SCORES AND HIGH CUSTOMER LOYALTY POSITIONED HP AS NO. 1 OVERALL IN 4Q13 Dell Dell experienced a decline across all of its satisfaction scores, tying or falling below the competition in all attributes for 4Q13. Similarly, Dell customers server loyalty fell, with a reduced percentage of customers planning to buy again or recommend Dell s product. These declines landed Dell in the bottom position for the quarter. HP HP customers were the most likely to buy the vendor s servers again and recommend them to peers. HP s satisfaction scores also took the top position in 14 of the 22 attributes, with most increasing from the prior period. This mix of loyalty and satisfaction earned HP the No. 1 position for the quarter. IBM IBM performed competitively across all metrics this quarter, tying or surpassing the competition in 13 of the 22 attributes. In most cases, IBM increased or remained at the same level of
satisfaction compared to the prior period. Declining loyalty scores, however, constrained IBM, holding the vendor back and dragging it down to the No. 2 position. 4Q13 CORPORATE IT BUYING BEHAVIOR & CUSTOMER SATISFACTION STUDY: NOTEBOOKS WHILE ALL VENDORS ACHIEVED STRONG MEAN SATISFACTION SCORES IN 4Q13, HIGH IMPORTANCE RATINGS PROPELLED HP TO THE NO. 1 POSITION Dell Dell s mean satisfaction scores remained competitive across most attributes in 4Q13, although it dipped slightly below its competitors scores in the service-related attributes. Similarly, overall customer loyalty scores remained competitive, but low importance ratings continued to pull down Dell s score. TBR s tiebreaker methodology was applied to Dell s and Lenovo s weighted satisfaction index scores, which placed Dell in the No. 3 position for the quarter. HP Although HP tied Lenovo for the most No. 1 attribute positions this quarter, it was the higher customer importance ratings and higher-than-average overall loyalty scores that drove HP to No. 1. HP earned the highest scores in the services and loyalty index areas, resulting in the overall No. 1 spot in both indices.
Lenovo TBR Lenovo posted strong attribute scores this quarter, taking the No. 1 position for the product index. However, the mixture of lower-than-average recommendation scores and low importance ratings pulled Lenovo s overall weighted satisfaction index position to tie for No. 2 with Dell. TBR s tiebreaker methodology gave Lenovo ownership of the No. 2 position for the quarter.