The Bloor Perspective: Services carve up, Vodafone and SFR, ARM's lay-offs

Robin Bloor and his team of analysts consider possible vendor-consultancy partnerships, Vodafone's latest big bid and troubles at a UK leading light...
Written by Bloor Research, Contributor

Robin Bloor and his team of analysts consider possible vendor-consultancy partnerships, Vodafone's latest big bid and troubles at a UK leading light...

Last week IDC cast its eye over the rapidly maturing, and consolidating, IT services industry. It makes for fascinating reading. Did you know, for instance, that the addition of PwC to IBM Global Services will give IBM a European market penetration of 12.2 per cent and revenues of approximately $11bn? It gets better. The PwC acquisition will take IBM GS into previously uncharted waters, most notably business process outsourcing - a rapidly growing market according to many of the services firms. Similarly, in IDC's opinion, the PwC acquisition will help IBM "...close the loop on the entire IT solution". The argument is that while IBM can do much at the moment, the few areas left uncovered will be swept up with PwC - giving IBM the chance to steal further markets from competition. Having tackled the real world scenarios, IDC shifts up a gear into speculation mode and attempts to assess the effects of some of the year's acquisitions from the rumour mill. If Microsoft, for instance, finally plucked up the courage to buy Accenture what would happen? According to IDC, Microsoft would get itself a top 20 consulting house with combined revenues of more than $3.5bn. It wouldn't help Microsoft's relationships with the likes of EDS or Fujitsu, however. It would also hurt Accenture's profitable software relationships too - meaning that this one will probably stay in the rumour mill despite the potential boon to Microsoft's enterprise division. What about HP and Deloitte Consulting? According to IDC this is less controversial than the Microsoft/Accenture possibility. For starters, if HP doesn't get itself a sizeable consulting arm soon it's going to have difficulty going up against IBM and EDS in the services space. Beyond that though, it's a move that appears to make considerable sense. The final scenario IDC looked at, or at least the last one of any interest to us, was the speculation of a link up between Sun and Fujitsu. Before you say it, yes, we agree, Sun definitely could do with some help, particularly in the services arena. And already the pair work in tandem through a number of Fujitsu's operations. Looking at their services capabilities they could both do with a boost too. IDC rates Fujitsu at 14th in Europe and Sun at 27th. Put the pair together and suddenly you have a top 10 player - in seventh position - with revenues of more than $2.5bn. Better still a combined Sun/Fujitsu scenario would give them a 2 per cent share of the global software market, which would put them in fifth place worldwide. *Vodafone en France* Vodafone prepared itself to take a sizeable bite out of the wireless competition last week when it weighed in with a £4bn cash bid for Cegetel, Vivendi's French telco outfit. Vodafone has reached an agreement with the firm's other shareholders, BT and SBC, and is now relying on cash-strapped Vivendi giving the go ahead. Vivendi, with 44 per cent, is the majority shareholder of Cegetel and therefore has the last word on such a deal. It could easily scupper the plans. Having been pretty sorely burned over recent years the company is striving to find some kind of profitable business. Obviously, the firm is aware of the bid and is said to be weighing its options. It could, it told the BBC, even end up buying a bigger slice of Cegetel, which would screw Vodafone's plans. Chances are it won't. Vivendi could do with £4bn to fill gaps. Also it's unlikely it could afford it anyway. If Vivendi was to attempt such a move it would have to outbid Vodafone and that would be costly. BT, which is said to be thrilled with the offer, has accepted a bid worth almost E4bn for its 26 per cent stake. SBC has accepted E6.1bn for its holding. If it goes through, of course, Vodafone will gain control of the firm and we'll soon see SFR, the wireless operator company owned by Cegetel, falling in line with Vodafone's operations. So far Vodafone holds a 32 per cent share of SFR, with BT's and SBC's share, that will give it a controlling stake of 65 per cent. And then SFR would, the company's chair Sir Christopher Gent told the BBC, "...benefit from being part of the leading global mobile operator". One thing you can say about Gent, he's not exactly backwards in coming forward. In the past couple of years he, and Vodafone itself, has built quite a reputation for getting what it wants when it wants it. This looks like another fine example of that strategy: find what you need and get it. *ARM heads roll* The UK's leading light in chip design has marked its third quarter results with disappointment. Revenues have stalled for the one time irrepressible chip designer. Speaking at the firm's Q3 results announcement, CFO Tim Score said: "ARM continues to be profitable and cash generative despite the fall in revenue due to the prolonged semiconductor industry downturn." Profitability, however, comes at a price - the heads of 10 per cent of the firm's workforce. ARM hopes by trimming costs now it will be well positioned for a bounce back when the semiconductor industry makes its inevitable recovery. That will be little consolation to the 70 or so employees who find themselves out of a job. It can't have come as much of a surprise to anyone at ARM that redundancies were looming. Only a fortnight ago the company issued a profits warning that stated the semiconductor industry was going through the worst down turn that ARM had ever seen. Added to that, of course, was the news that its third quarter revenues were going to fall short of previous predictions. And indeed they did. Revenues for the third quarter came in at only £33.3m, an 11 per cent drop on the same period last year. Profits for the quarter were hit too with the firm banking a relatively meagre £8m, down from the £12.9m. That put a stop to the earlier theory that the second half of 2002 would show signs of recovery. It also put a stop, and swift nudge into reverse, for ARM's share price, which plummeted by more than 50 per cent on the news. There is still some hope for the fourth quarter, typically the industry's best, which might bring something of a recovery. But, as ARM has warned previously, don't expect miracles. Bloor Research is a leading independent analyst organisation in Europe. You can find out more at http://www.bloor-research.com or by emailing mail@bloor-research.com.
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