Acquisitive Lyceum Capital-backed software and fledgling SaaS player Access Group has now made its ninth acquisition in the past year (see here and work back), this time snapping up staff planning and absence management provider TeamSeer for an undisclosed amount.

London-based TeamSeer has some 300 customers using its software, including some high profile names like Saatchi & Saatchi, McCann Erickson, Legal & General Investment Management, Hogg Robinson Group, Hitachi, Siemens and even the New York Stock Exchange. Overall it claims to have 40,000 individuals accessing its software, and 8,000 logins per day.

Although no financials were provided, TeamSeer claims that it is currently growing at over 35% per annum, is profitable, and is debt-free. So this looks like a healthy business for Access to take on. In terms of strategy, Access plans to integrate TeamSeer’s software into its aCloud platform, and then use its sizeable customer base to help drive up-sell and cross-sell opportunities for aCloud and other software products. There should be plenty of opportunity since Access already provides payroll, HR, expense and collaboration tools, and recent purchases like Sazneo for instant messaging and real-time group chat (see Access goes social with Sazneo) could be attractive add-ons via aCloud.

The USP of TeamSeer appears the neatness with which its web-based scheduling software synchronises with Microsoft Outlook calendars. This should make it attractive for SMEs moving away from paper-based and Microsoft Excel systems. The big names on its books however shows large enterprises can benefit too – although we suspect it is only used as an interim solution during larger HR implementation and change programmes.

TeamSeer’s software is currently purchased ‘as an annual licence according to the number of employees using the service’. Pricing flexibility will be key to success via the aCloud platform, so we suspect this will need to change.

Last night IBM announced Q1 results (for the three months to end March), which showed revenue down 3% (at constant currency) to $23.4bn. Net income (operating non-GAAP) was up 3%. It was clearly a disappointing three months for the firm, with the results missing Wall Street forecasts. To blame was a shortfall in sales (worth $400m) of very profitable software and System z mainframe deals, which failed to close before the quarter ended. Of course, what doesn’t close in Q1 could well rollover into Q2. While that might be good for the Q2 numbers, it is certainly a far from ideal scenario, and IBM is going to have to ensure that if there are weaknesses in sales execution that these are addressed quickly.

The services business saw revenue dip 1%, but pre-tax income increase 10%. There was a continuation of many of the themes from FY12 (see IBM grows profits on flat revenue). GTS declined 2% to $9.6bn – impacted by the on going decline in revenue from existing accounts and the restructuring of low margin outsourcing contracts. GBS revenue was flat at $4.5bn. However, behind the subdued top line number, there were ‘hotspots’ of “double-digit” growth from Business Analytics, Smarter Planet and Cloud solutions. To give you an idea of the scale of the services business, IBM closed 22 deals of more than $100m in the quarter.

Elsewhere in Big Blue, software revenue was up 1% but Systems and Technology revenue was down 16%.

IBM has said that it will bring forward workforce restructuring to the current quarter and may look to divest certain businesses. In light of this, media outlets are speculating that IBM could be seeking to divest its low-end server business.

Microsoft had a pretty good Q3 in terms of the numbers but the real story of how it – and particularly Windows - is faring lies in the detail.

Overall revenue was up 18% yoy to $20.49bn with net income up 18.5% to $6.06bn, and operating income of $7.61bn. So far so good and the market rewarded Microsoft with a c2% rise in the share price in after hours trading.

As for Windows, the division delivered a 23% revenue lift, taking it to $5.7bn, but after adjustments for the Windows Upgrade offer, revenue was flat. Currently Windows sales have two main drivers – PC sales and Windows 8 adoption. PC sales are slumping of course (see here) and the market is mourning the loss of the Start button and failing to take to Windows 8 with any enthusiasm. With those two negative forces, the division did well to maintain flat revenue so it looks like Surface sales played a positive part.

Microsoft cannot afford for the Windows division to run flat so there is plenty of work behind the scenes to pump it up. CEO Steve Ballmer’s comment that “While there is still work to do, we are optimistic that the bets we’ve made on Windows devices position us well for the long-term,” is an acknowledgement that change is in order. Similarly, CFO Peter Klein said that the company is working with hardware makers to take Windows 8 across different form factors and was prioritising smaller lower cost devices in coming months. And there is still the hope that Microsoft will do something to appeal to Start button lovers and address concerns about poor usability on non-touch devices when Blue, the next iteration of Windows 8 arrives, which is expected to be later this year (see here).

Microsoft is a diverse business and that diversity is helping it maintain growth but in essence the company is still defined by Windows. What happens if that changes is the big question of course, which is why multi platform Windows 8 is so important. It is still relatively early days but it is becoming evident that the company needs to redraw some of its plans.

Elsewhere, Microsoft Business Solutions, saw a respectable 8% revenue rise to $6.32bn, but adjusted for Office updates and presales the increase was a more modest 5%. There were no complications within the Server and Tools division with revenue up 11% to $5.04bn as enterprises continue to buy into SQL Server and System Centre. Online services revenue was up 18% to $832m, due largely a 22% lift in online advertising revenue from an increase in revenue per search. Entertainment is still moving ahead too.

The Q3 results were also accompanied by another announcement, that CFO Peter Klein is to leave at the end of the fiscal year in June, adding to the toll of senior people leaving the company. He has been with Microsoft for 11 years and CFO for 4. Change is often good but the loss of experienced people around Ballmer is a concern. Ballmer is a constant but with the level of attrition you have to wonder whether that could or should change (see here for additional thoughts on this theme). 

SAP started the year in good form with a rise in Q1 revenue but a slight decline in operating margin, repeating the pattern seen in Q4 (see here). However, it is significantly outperforming Oracle over a similar three-month period (see here) indicating that its more coherent message and portfolio are resonating with the market.

Revenue was up 7% to €3.5bn and operating profit nudged up 2% to €646m but the operating margin fell 0.9ppto 17.9%, presumably the effect of ongoing go-to-market costs and the shift to the cloud. Cloud revenue is still growing from its low base and made it to €137m, which is not much in terms of SAP’s overall revenue but represents a 373% improvement from €29m and the annual cloud revenue run rate is approaching €900m. Another of its key growth areas, HANA, looks good in terms of growth but again brings relatively little in actual revenue. HANA revenue tripled yoy but was just €86m. Recent moves to bring lower cost offerings to market are presumably no coincidence. The traditional business is still in positive territory but software growth was just 3%, taking revenue to €657m.

Overall it is another solid performance from the German company that has done so much to reorient itself over the last few years. Concerns over the revenue generated by new initiatives such as cloud, HANA (and mobile whose numbers were not split out this time around) persist and will be more pressing if the rate of decline in traditional area accelerates. 

Now fourth-ranked India-based IT services firm Wipro just scraped in with prior guidance, seeing Q4 revenues (to 31st March) grow by 3% yoy to $1.59bn. As predicted (see Another muted quarter for Wipro) this set FY revenues at $6.22bn, 5% higher yoy, the lowest growth rate among major peers. Operating margins just kept their head above the 20% parapet, at 20.2% for the quarter and 20.7% for the year.

Like 'Bangalore Blues' neighbour, Infosys, Wipro is struggling to find meaningful growth (see Infosys limbos under the bar). Also like Infosys, I see the problem being more to do with direction than necessarily execution. But unlike Infosys, at least Wipro management is prepared to take a punt on current quarter's performance, for which growth is expected to remain subdued at around 5% yoy.

The last of the majors, Cognizant, reports in early May, after which you will be able to read our regular review of the India-centric IT services players – including their UK performance – in the next edition of OffshoreViews.

Atos was confirmed on Friday as the Ministry of Defence’s new Defence Communications Networks Services Strategic Partner (DCNS SP). Atos is partnered with Vega, part of the Finmeccanica group, and Information Services Group (ISG), for the role which is worth £25m over three years, with the potential to extend to seven years.

As strategic partner, the Atos-led team will be working closely with the MoD’s Defence Equipment and Support Information Systems & Services (ISS) division. Atos brings expertise in managed procurement, technical architecture and migration transition. ISG has expertise in the SIAM (service integration & management) model and managed procurement, whilst Vega has a strong track record in defence and security. Their success will mean disappointment for PA Consulting, which was also shortlisted for the contract.

To date Atos’ footprint in the UK defence sector has been entirely through Atos Consulting, so it falls well outside our Top 10 for the sector with relatively low revenues from defence last fiscal year (we estimate c£10m – PublicSectorViews subscribers can read more in our recent UK Defence SITS Supplier Landscape 2013 report). This deal is therefore a significant win both in monetary terms and, importantly, because it puts Atos at the heart of all decisions made regarding the MoD’s future ICT environment. This in turn suggests that Atos has settled on a client-side role within MoD, but we believe it’s still possible it could pick up SIAM-type work in defence through future procurements.

Software start-ups are invariably cloud-based because the model allows for fast and low cost market entry and utilises the latest technologies to deliver modern, agile and innovative offerings. In a bid to identify the best independent UK cloud companies, Clearwater Corporate Finance has launched the Cloudex 20:20 programme and is calling for participants. Contact Emma Rodgers at emma.rodgers@clearwatercf.com for details.

As avid UKHotViews readers know, TechMarketView’s analyst team publishes much more than just your daily HotViews email. We keep the really valuable, in-depth research and analysis tucked behind a ‘paywall’ for our loyal subscription clients. But with so much good stuff being published each month it would be easy to miss the latest must-read report.

With this in mind, we’re releasing the latest Quarterly Research Summary, which highlights the key reports and research notes published by TechMarketView analysts in the first three months of 2013. Any HotViews reader can download a copy by clicking here. Of course, you’ll need to be an eligible (and logged in) TechMarketView subscription client to view the reports mentioned in the summary – if you’re not sure whether your organisation has a corporate subscription, or you’d like details of our subscription packages, just drop an email to info@techmarketview.com and we’ll be happy to help.

In the grand scheme of things, Bangalore-based IT services firm, Mindtree, turned in a quite respectable year, with headline revenues (to 31st March) up 8% at $436m. Profit performance was even more respectable, with operating margins now firmly in 'Tier 1' land at 18.0%, compared to 13.7% the prior year.

But in the grander scheme of things, Mindtree is rather dwarfed by its higher profile peers, which means it has to dodge between the footprints that the offshore giants tread. That said, larger footprints leave larger gaps.

Self-styled 'micronational' software testing tools firm, TestPlant has won a coveted Queen's Award for International Trade. The City of London-based firm is the only UK software and IT services that appears in the Queen's Award for Enterprise list published today. Many congratulations to its founders, chairman Jon Richards and Chief Executive George Mackintosh.

Insurance BPS player The Innovation Group (TIG) has signed a new £2.6m software deal with GuideOne Insurance Company, a niche US market insurer which provides cover for churches, education, home care providers, senior living communities and car and home owners.

TIG will provide its web-based Insurer Policy software to support GuideOne's growth in personal lines products, as well as Insurer Analytics for business intelligence, dashboard reporting and real-time analytics. Because this is a software implementation contract a high percentage of the revenue (£1.4m) will be booked up front. This revenue will be recognised in TIG’s current financial year.

While the size of the deal is small in relative terms, it is an important strategic win for TIG, which has its sights firmly on the US as a key growth market. TIG’s strategy is to go after the tier two and three insurers that still rely heavily on legacy systems for their day to day operations. Rather than a ‘rip-and-replace’ approach, which is potentially high cost and high risk for a tier two/three player, TIG’s products sit on top of these ageing systems providing new functionality, and a modernised end customer experience.

TIG is not alone seeking growth in the US however. UK-based competitors Xchanging and Quindell Portfolio are also investing in US market expansion (see Quindell takes aim at US market and Xchanging’s Xuber platform targets SaaS/BPaaS), attracted by the 30%+ organic growth market leader Guidewire is achieving (see our recent BusinessProcessViews report General insurance BPS opportunities in a rapidly changing market).

If you’re not yet a BusinessProcessViews subscriber and would like to find out more, please contact Deb Seth (dseth@techmarketview.com) who will be only too happy to help.

With the announcement that its Enterprise Solutions division has moved into profitability for the first time, Aveva is starting to enjoy the benefits of its extension into the information management solutions and services space. That was the key message from today’s post year end trading update. The update is the latest in a line of comforting announcements from the provider of engineering data and design IT systems, although the Enterprise Solutions milestone will not change full year results (to March 31 2013) which are expected to be in line with consensus forecasts for revenue and profit.

There is little change in the business since the last update in January (see Steady Aveva) – H2 appears to have gone well driven by the oil and gas sector. Power was steady, while marine is still depressed. What the update does indicate is that the company is overcoming weakness in the Latin American market with momentum in China, indicating the need to invest in multiple high growth regions. Aveva is sitting comfortably in it sector, performing better than Autodesk but probably not as strongly as Delcam (see here). 

Capita is not usually one for making 'left-field' acquisitions. But it has stepped way outside its usual BPS territory with its latest acquisition of simulation and virtual environments developer G2G3 Group Ltd.

Capita is paying an undisclosed sum for G2G3, which employs 26 people in Edinburgh, and ‘designs immersive simulations, virtual environments and organisational change management programmes for corporations in the UK and overseas’. Apparently, G2G3 has developed simulations for the likes of Thomsons Reuters, DHL, BBC, ServiceNow and global IT players like HP, IBM and Microsoft.

Capita’s intention is to pool G2G3 into its justice and secure services division, which focuses predominantly on blue light emergency services sectors i.e. the Police, ambulance and fire services. Capita’s takeover of the Fire Service College in March 2013, and subsequent £200m ten-year training BPS contract (see here), is going to be a test bed for the technology, to simulate scenarios like a large fire, a riot, a nuclear emergency or a terrorist attack, as part of the training Capita provides to senior police, ambulance and fire officers.

While the term ‘gamification’ might sound a bit left-field to a BPS provider, we can see that simluation for training purposes might be of use to Capita.

Of course this deal about driving out the costs of training for Capita and the client, by replacing live training scenarios with virtual ones. And Capita has committed to deliver £30m back to the taxpayer in the first few years via the sale of the college. But we wonder what impact simluated or virtual training will have on the morale, and more importantly performance of front line emergency services personnel.

The year got off to a good start for UK software and IT services (SITS) mergers and acquisitions, with 78 UK buyers and 93 UK sellers (including 60 domestic deals) making it the best first quarter since 2008, according to data from corporate finance firm Regent Partners.

UK companies remain the most prolific buyers of UK targets, acquiring 60 companies. North American buyers acquired 20 UK SITS companies and were responsible for 3 of the top ten deals. European buyers made 8 acquisitions in the UK.

Eligible TechMarketView subscription service clients can read more in the latest edition of IndustryViews Corporate Activity, our regular summary of trade sales and private equity deals in the UK software and IT services market.

Punishing local market conditions continue to take their toll on the UK arm of Paris-based SI, Sopra Group, with revenues in the quarter to 31st March down another 3% yoy (like for like) at €21m. Headline growth was 21% including last year's acquisitions (see Sopra UK goes shopping (again) to double size).

At the group level, Q1 revenues rose by 2.4% like-for-like (11.6% headline) to €321m, mainly driven by similar growth in France, which represents 65% of the total. However, management warned that pricing pressure and new project ramp will likely impact margins (Sopra – like French peers – does not report profit on 'odd' quarters).

Sopra UK has been in organic revenue decline for each of the last four quarters, suggesting that competition is relentlessly eroding its increasingly fragile customer base. It has some useful partnering arrangements with larger French and UK players but this of itself is not enough to stoke the boilers. Sopra has some loyal marquee clients in the UK and does a good job for them. But you have to ask, given its scale (or rather lack thereof), whether it's not time for management to carefully consider whether there truly is a meaningful future for its UK services operations.

Hot on the heels of the news of its Queens Award for Enterprise (see here) , TestPlant has expanded the business with the acquisition of fellow UK software testing provider Facilita Software Development for an undisclosed sum.

Founded in 2001, Facilita specailises in load and performance testing. These capabilities bring a new dimension to TestPlant and management believes the combined assets will enable it to compete directly with larger players like HP and Micro Focus in the testing sector. The acquisition also comes with a credible customer base from the public sector and large enterprises in the private sector. As for Facilita, it will benefit from being part of a larger operation with more international support.

Demand fluctuates but there is always a level of demand for software testing and with the growth in mobile and web-based applications and services, the prospects for the sector look positive. It is still a busy market – Qualitest recently launched in the UK - while established providers can stumble as SQS showed recently (see here). However, TestPlant is being proactive, expanding via acquisition, partnerships and taking on the hot area of mobile application testing too while maintaining its USP of non-invasive automated testing (see here).

TechMarketView’s PublicSectorViews team forecasts continuing declines in the UK central government SITS market over our forecast period. We doubt the level of cuts recently suggested by Rohan Silva, David Cameron’s Senior Policy Advisor are achievable; he told the Telegraph that Government spending on IT could  be cut from the £15b a year spent on IT when the current Government was elected to “low billions of spend”. Supporting our view of the considerable challenges that the Cabinet Office faces, a recent NAO report highlighted that the Cabinet Office's Efficiency & Reform Group (ERG) needed to move beyond the role of imposing spending cuts towards indentifying long-term sustainable savings (see UK central government: NAO seeks sustainable savings).

We do, though, accept that the Cabinet Office is showing a great determination to get best value for money for the taxpayer and is truly committed to driving down ICT expenditure. Indeed, it continues to put the platforms in place, particularly governance structures, to make this happen. As a consequence, we are seeing a number of significant changes in Whitehall that will have an impact on suppliers, both large and small, targeting central government departments and agencies. Many of those changes have been driven by the Digital by Default agenda. In this latest PublicSectorViews research note – UK central government: ‘the rise of digital’ - Georgina O’Toole considers recent developments and determines the impact they will have. If you are a PublicSectorViews subscriber you can download the report now. If not, please contact Deb Seth to find out how to get access.

Despite the fact the two major SaaS contracts signed in the UK in Q1 – the Department for Transport shared services deal with Arvato and the London Tri-Borough shared services deal with BT– had no impact on the Q1 results, Unit4 still managed a 2% increase in total revenues over the period (finishing at €117.6m). Though modest, this was above expectations; Unit4 had expected to finish the quarter below the same period in 2012 due to its transition from license sales to SaaS/subscription sales. EBITDA (excluding restructuring costs and extra investments in cloud applications company FinancialForce.com)was €22.0m (compared to €21.9m in Q112).

The UK and Benelux are both highlighted as having strong performances; the latter achieved double digit revenue growth (driven by healthcare). But the real success story appears to be Unit4’s SaaS and subscription revenues, which compensated for a decrease in the number of license deals. FinancialForce.com, Unit4’s cloud venture in which it is the majority investor, reported a 90% increase in revenue – continuing at the same % growth rate as for FY12 (see Unit4 winning in public sector and SaaS) - and had a record quarter for bookings and run rates. However, it is clear that additional investment in its cloud business continues to impact the bottom line. Subscribers can access Angela Eager’s analysis of Unit4’s SaaS journey in our previously published UKHotViewsExtra note.

Holway in SamsungLand

I’ve often thought that the best pointer to what is really going on is just to keep your eyes and ears open. The great general public is often a much better guide to what is really going on than a multitude of highly paid analysts.

I’m in Hong Kong with my family. We are riding the superb MTR each day. It has free WiFi. This morning, in a crowded commuter train, I counted devices. No dumbphones. Some iPads and other tablets but almost everyone had and was using a smartphone. They were engrossed in videos and games. For every iPhone there were 50 Samsungs. They all had larger screens than the iPhone – some so big they looked like iPad Minis. So much better to watch videos. Indeed as they were mostly Chinese, so much better at both writing and reading Chinese script. If Hong Kong is ‘SamsungLand’ then that’s what it is like in mainland China too. A country with 1.3b people of which 300m are ‘middle class’ and quite capable of buying a smartphone. That’s more than the population of the US and UK combined and bigger than the ‘middle classes’ of the US and Europe.

ARM

Of course, what is wondrous about ARM is that their chips power Samsungs AND iPhones. If you are betting on MIDs but are unsure of the winning device manufacturer then clearly ARM is your company. No wonder that ARM’s results today just blew everyone away. ARM’s Q1 profits were £89.4m – a 44% increase YOY and nearly 20% better than those analysts had forecast. Revenues were up 28% at £170.3m – a massive 50% margin. All this resulted in a massive 10% increase in ARM’s share price today (26% YTD).

What happens ‘post smartphone’? Well, one of the really interesting things to come out of Warren East’s (last) analyst call as ARM’s CEO was his comments about ‘wearable’ devices where it looks as if ARM (yet again) has the ultra low power consumption chips and components required. He confirmed that Google Glasses contain ARM products as do the Nike Fuel Band and, who knows, probably Apple’s iWatch too. East also mentioned Internet TVs – another ARM market and one that I think will be’hot’ too. So the outlook for ARM is rosy, to say the least ,with FY results ‘at least in line with market expectations’.

Apple

Given that Apple’s share price has fallen from $705 in Sept 13 to under $400 this week, you can understand why their Q2 results were “eagerly anticipated”. They were better than expected.

Revenues grew 11% YOY to $43.6b but profits fell 18% - the first quarterly profits decline in 10 years. As you can quickly infer, profit margins plunged from 47% to 37% as Apple faced increased competition (from that pesky Samsung) and introduced lower margin products like the iPad Mini.

But all this was better than was feared. Indeed, there was a pretty impressive 65% surge in iPad sales YOY to 19.5m (the one Apple product I did see in Hong Kong) and a 6% increase in iPhone sales to 37.4m. But Mac sales declined slightly to <4m.

Perhaps the best news for investors was a 15% dividend hike plus a massively increased share buyback – now c$100b by 2015.

Conversely the outlook for Q3 was of further declines before new product announcements ‘in the fall and throughout 2014’. Tim Cook talked of ‘new product categories’. But the wait for anything new is becoming worryingly long.

Conclusion

My eyes open on the Hong Kong MTR showed me that the world wanted smartphones – but now not necessarily Apple. And they wanted bigger screens. The tablet form factor is a real winner as is the smaller sized iPad Mini. But there are many other, cheaper Android versions. It is difficult to see how Apple can compete on price in these mass markets and the premium end is saturated. ‘New product categories’ are needed and, indeed, are on the way. But the Apple wait is too long and they will not have it all their own way this time.

Apple or ARM? Answer seems only too obvious right now.

Video search engine provider (and Autonomy spin-out) blinkx has closed FY12 (to 31st March) above prior expectations with revenues 71% higher at $196m rather than the $180-185m forecast in its February trading update (see Blinkx blasting ahead). Looks like a profitable year too with pre-tax profit up 15% to $15m. More when results are published next month.