I have been saying for a while that the IT outcome of the Sub-Prime mortgage issue in the US would be an increase in the regulation of that sector in the US and UK following Northern Rock.
Given what has happened in the last few weeks and particularly the last 24 hours, the regulation will be from one end of the Financial Services sector to the other, and will likely impact across industries. This is perhaps going to be a rare bright spot for the IT industry, it is clear that whilst there will always be regulatory requirements, the relative optimism will have to be tempered. Opportunities will occur, but they will be harder to find. Smarter not bigger will be the way to succeed.
In terms of IT companies there will be significant brands that disappear as a result of merger and acquisition, and in some cases bankruptcy. This will also change the way in which the industry will move forward. Cash will be king in terms of determining who survives, clearly some relatively strange bedfellows may emerge.
Clearly the US government had to intervene in the US and global banking system, it was only going one way otherwise, and that was not up. However as credit availability shrinks and the consolidation in the banking sector increases, along with challenges for the private equity and investment markets. I fear that we will have a potential for a lack of innovation as new ideas are harder to fund. IT will not be immune to this of course, so there is a chance that innovation will become more difficult, or be placed in the hands of the largest firms such as HP, IBM and Microsoft who are able to capture capital more readily. Whilst this is at least some innovation, e-Bay, Google and Symantec did not spawn from IBM et al, rather from small funded ventures.
One may also argue that there is a lot of capital in the emerging economies such as the Middle East, China and India, this may lead to the innovation not so much dwindling, but accelerating the shift from the US to China et al. This is of itself a fundamental shift as the emerging markets have in almost every type of IT investment been guided by US based firms. If this shift or transfer occurs it is going to be one of the most seismic shifts IT has experienced.
What did the Investment Banker say to the arts graduate?
You want fries with that.
How do you get the Equities Trader off your front porch?
Pay him for your Pizza.
Bluesky Industries went in to administration today. This is not the first, and will be followed as it is on an almost weekly basis. It is getting so tough to be a channel player anywhere are margins are squeezed, credit becomes tougher, and vendors tighten the screws.
http://www.itnews.com.au/News/84892,bluesky-industries-calls-in-administrators.aspx
This had to be reposted
Singtel's IT Services subsidiary NCS has indicated that it will buy it's Temasek stable mate SCS, putting value on SCS of about S$250M. NCS has never really fulfilled its potential outside of the Singapore government and the governments various investments. SCS to was heavily reliant upon the Singapore government for revenue. Basically it will have a limited impact outside of Singapore, and perhaps even the Singapore government. SingTel has had the same mixed to poor track record of managing IT Services companies as its peer Telstra, as well as AT&T and others. As many would know as an analyst I do not rate telcos being IT Services providers, and I see no reason here to change this opinion.
BT who bought the largest South East Asian IT services firm in Frontline earlier this year appears to be the only really credible provider of IT Services in the region.
Bottom line, this will not have much of an impact outside of the Singapore government and will not provide SingTel with any super capabilities in terms of building a services capability.
On today's security call from HP dealing with the EDS, the headline was saved until last with the announcement of approximately 25.000 jobs, or 7.5% of the workforce being reduced in politically correct terms, or fired in reality.
Before the headline number, HP announced its integration strategy, it is still a lot of slideware to consume at this point in time, however, the direction is not surprising or that dramatic, leverage of the mutual installed base is critical, and current overlap is minimal. Customers to date are happy, but staff in the HP Services and EDS business may not be so positive as they see the vacant seats around them increase. However this is a natural and whilst difficult, not unexpected outcome. It will likely be shaded by the job losses in the financial services sector as the Lehman, AIG and Merrill Lynch meltdowns continue.
From my point of view, I believe that countries such as the US, Australia, NZ and the UK will be heavily impacted, and will likely make up the overwhelming majority of losses. Clearly HP in the PSG, IPG and ESS group as well as software should be unscathed. I do expect however a heavy swathe through HP's outsourcing business.
On a positive note, the job re-positioning will result in additional jobs, but overwhelmingly this will be in low cost and emerging markets such as India, China and Brazil, not expensive markets such as the UK, US and Australia.
While it’s both important and desirable for services players to have a presence in the metro towns, infrastructural constraints have made it increasingly difficult to operate solely from them. The next popular alternative is to set up base in suburbs like Gurgaon, Noida, Ghaziabad and Navi Mumbai. But this approach has been well utilized and these areas have reached saturation levels, and are no longer considered cheap alternatives. Moving forward, vendors are now looking at Tier-II and Tier-III towns that are not only more cost-effective but also offer a wider geographical reach. While in many cases, the expansion to these towns has been client-driven, often the move has also been made by companies as a part of their market expansion plans.
Government policy is also driving companies to invest in such cities. There is clear intent from the government (both central and states) to increase Special Economic Zones (SEZs) that offer location-based tax sops, over and above the national-level rebates, and the states of Tamil Nadu, West Bengal and a few others have been active in this area. Other benefits include cheaper real estate prices (by 15-20%) than Tier-I cities, rapidly maturing business support facilities and soft loan facilities from the state. Even in terms of human resources, there is availability of qualified professionals from local colleges, albeit usually requiring greater on-the-job training than their counterparts from bigger colleges. This availability is further supported by employees wanting to move closer to their home towns, for lower cost of living.
Springboard Research believes that expanding to the Tier-II and III cities will be key for most service providers in 2008 who are aiming to not only increase business by capturing the domestic market, but also to keep their facilities profitable.
Overnight the HP and EDS deal was closed, it is too early really to make any more statements that what we have made earlier. I still see it as a positive, and with integration the key challenge along with client engagement and communication through the process. I believe that HP can manage these issues but the scale that EDS brings in terms of enterprise services relationships will really be a tough ask, there will be cracks, it is how they are managed that matters.
I will look to add more on this as more information comes through.
An interesting article highlighting that fact that Sun could be acquired
http://www.arnnet.com.au/index.php/id;1786016474;pp;2
I have been saying this for a while now, it has little room to grow in many ways, and it is having competitors get much larger than it. The pressure is all powerful. I do not think that HP will acquire it, but anything is possible, and perhaps a radical step would be Dell, though the clash of innovation versus volume would make it a nasty transition.
I have for a long time held the view that the most competitive markets for IT services in the world are the UK, Australia and Canada. This is due to the presence of most MNC service providers as well as locally produced providers of note. From my point of view the baton has changed and now India has the perhaps dubious honour of being the most competitive market. This is a direct result of course of offshoring. Not only does every vendor of note have a presence in India for global delivery, but of course it is the home of the Indian based providers such as Infosys and Wipro. The reason for the acceleration in competitive pressure is that all are focusing now on local leverage to the Indian market, from Infosys to Cap Gemini.
The benefits of this increased competition are clear, innovation of solution and relatively reasonable pricing for end users should be a clear outcome. However it is important to note that not all vendors will survive, the market is not big enough from a services point of view to enable that to happen.