Telstra's sale of Kaz will hand Fujitsu the keys it has been seeking to federal government work, bringing it up to be able to compete effectively with rivals such as IBM and CSC, analysts said yesterday.
Ovum analyst Jens Butler
Ovum principal analyst for IT services, Jens Butler, said that although he at first thought the $200 million price tag on Kaz to be expensive, considering its instability, loss of major accounts and "general brand impact" after being acquired by Telstra, he decided after consideration that it was worth what Fujitsu was getting.
"In the end of the day, Fujitsu needed it because they weren't going to get into the Federal Government any other way," he said. "They've tried to get into the Federal Government space for a very long time. It's always been an option to buy their way in."
Indeed, the next few years were going to present the company with an enhanced opportunity to do so, according to Butler, with three quarters of the Federal Government's ICT contracts up for tender by 2011.
In addition, Kaz was worth much more than its Defence and Customs contracts, according to Butler, with a wide spread over a large number of agencies. "They basically have a piece of every pie," he said. Currently Kaz had federal contracts equating to $142 million in 2007/2008, he said, plus $300 million forward value.
"This is a great fit for them," Gartner VP distinguished analyst Rolf Jester agreed, saying that despite the fact that Telstra had sold pieces of the company off and had taken some of the networking skills from Kaz to transfer them into its own units, the IT services subsidiary still had plenty to offer Fujitsu.
Telstra's inability to make the Kaz business sing under its care would also not hamper Fujitsu's chances of making the business work, according to International Business Research Services advisor Alan Hansell. "They've got a better chance than anybody else because they understand IT services," he said, adding that the added scale and contracts would allow it to compete better with IBM and CSC.
In the end of the day, Fujitsu needed it because they weren't going to get into the Federal Government any other way.
Ovum's Jens Butler
Telstra, on the other hand, could be happy about a deal on which it was able to exorcise a "problem child" and get its money back in the bargain, according to Ovum's Butler. It would also remove confusion around Telstra's new network enterprise service operation, which had potential to overlap with the Kaz operations.
All the analysts agreed that the customer would win.
"The really big thing is from the Kaz customer point of view — it just gives them a solid sense of business direction, that they're in the hands of a company that is in the IT services business," Gartner's Jester said. Customers of the IT services subsidiary had previously been suffering uncertainty, exacerbated by reports of sale negotiations and rounds of layoffs, he said. "None of this would have helped customers," he said.
Now, however, he believed they'd rest easier in the knowledge that they were being serviced by a company whose area of core competence is IT services.
The thing to watch now, according to Ovum's Butler, was how the two companies managed their integration. "Agreeing a price may have seemed difficult, but successfully integrating 1,400 generally disgruntled resources into a different set of business models and diverse cultures will take more effort," he said.