Reflecting much of the tone of archrival Atos Origin’s results yesterday (see Atos holds UK ranking – probably), Capgemini also saw UK revenues shrink a little in 2010, by 1% to some £1.64b. This should be sufficient to keep Capgemini among the Top 5 suppliers of software and IT services to the UK market, while Atos has yet to breach the Top 10.

Cap seemed to come out of the UK downturn faster than Atos, with Q4 revenues up nearly 8% vs +1% for its smaller peer. However, Atos pipped Capgemini on UK (adjusted) operating margin, with Cap falling back a full point to 7.9% vs a 60bps slip to 8.5% at Atos. In 2009, Cap and Atos had a similar exposure to the UK public sector with around 60% of UK revenues deriving from government customers (see UK Public Sector SITS Supplier Landscape 2010). Doubtless this proportion was lower in 2010!

Across the group, Capgemini’s revenues fell by 1% like-for-like (+4% as reported) and adjusted operating margins trimmed 30bps to 6.8%. However, IFRS operating margins improved by 160bps to 5.6% as restructuring costs fell to one-third their level in 2009, at €71m. Management is aiming for 9-10% revenue growth this year (vs ‘slight organic growth’ at Atos) and 50-100bps on the margin (like Atos).

Part of the margin expansion for Cap will come from increasing offshore headcount, which now stands at 35% of the 109k total (2009: 31% of 91k), with some 31,000 in India. Cap boosted its Indian presence last November, buying Temenos specialist, Thesys Technologies (see here). Some 5-6k of Cap's worldwide net employee increase came from its acquisition of leading Brazilian IT services player, CPM Braxis (see Capgemini has a Brazilian), though most of CPM’s business is ‘onshore’.

I will be doing my usual ‘compare and contrast’ of the performance of the major European SIs (Cap, Atos, Logica, Steria) once all the results are out – though, dare I say it, you will need to be a TechMarketView Foundation Services client to see it! Puni Rajah (prajah@techmarketview.com) is the one to contact to find out how.

Capita is putting out some good news ahead of its full year results next week, with the announcement that it has won a £120m 10 year extension with insurer MetLife Europe, and has been selected preferred bidder to continue a long-standing contract with the Department for Children, Schools and Families (DCSF) to administer the Teachers’ Pensions Scheme (TPS).

The MetLife deal will see Capita provide customer servicing, life and pensions policy administration, claims activity and related IT support for MetLife's pension and bond products for customers in the UK and Ireland, from its delivery centre in Belfast.

The seven year TPS deal is worth £80m, and will start in October 2011, with the option to extend for a further three years. This will be the third time the contract has been renewed with Capita, since it was awarded the first deal in 1996. The last time it was renewed in February 2008, the deal value was £10m over one year to take it through to September 2011.

This latest TPS renewal, with a slightly increased annualised contract value (ACV) of £11.4m, is therefore good news for Capita. But it is unlikely to solve its big headache – where to find organic growth. Capita has already warned organic growth could be down 7% in FY10 (see Pipeline constipation forces Capita warning).

The TPS is the second largest public sector pension scheme in England and Wales with 1.6m members. The largest is the NHS, whose scheme has over 2m members. This is delivered by the NHS Pensions, which is part of the NHS Business Services Authority (NHS BSA) that processes £7b in pensions per year - as well as £8b in payments to pharmacists, and £2.5b to dentists – the latter of which Capita already administers under a £133m seven-year deal signed in September 2009 (see here). NHS pension administration and pharmacist payments are new areas where Capita could deliver growth.

While all the press reports have focused on how well Dell performed in Q4 and FY10 – indeed its share price shot up 12% following the announcement – we have concerns.

Services grew by just 1% to $1.9b in Q4 (which is a decline in real terms which ever country’s inflation figures you take). We assume it was Dell’s warranty support services that dragged things down (it accounted for $1.1b of that figure) as outsourcing was up 2%, and project services were up 6%. These are the first full year results since Dell’s big foray into IT services with the $3.9b takeover of Perot Systems in September 2009. There are some positives though – the services backlog now stands at $13.9b (up 9% yoy), with outsourcing making up $7.2b (up 8%). Services now account for 13% of Dell’s total revenue or $7.7b, and it employs some 43,000 people worldwide. Its challenge is to now get them firing on all cylinders to turn that backlog into real business in 2011.

At a headline level, Q4 revenue (ended 31 December) was up 5% at $15.7b on a 7.3% margin (vs. a 3.4% margin in Q409) – clearly a reflection of its shift to higher margin services. The full year was up 16% to $61.5b with a 5.6% margin (vs. 4% in FY09). Rival IT hardware and services provider HP however grew its Q410 revenue (to 31 October 2010) by 8.1% on a margin of 12%.

Services continues to be the focus of acquisitions, including the recent purchases of ‘cloud-based’ medical archiving provider InSite One, information security services provider SecureWorks (see More pieces in Dell’s services jigsaw), and SaaS integrator Boomi (see What is Dell up to with Boomi). In a call with analysts, president of Dell Services Stephen Schuckenbrock, explained that bringing together ‘IP’ in this way is Dell’s ‘cloud strategy’, and its plan is to broaden the focus into other verticals such as the public sector and in to both large and SME clients. However we would like to see a clearer vision for what Dell wants to achieve through these various ‘cloud’ investments. We think HP articulates its vision far better with its hybrid cloud strategy (see here), and it has some concrete vertical industry initiatives to prove it (see Cloud playing bigger role in HP’s financial services business).

On the consumer hardware side of the business we are even more concerned about Dell’s prospects. As we noted here, many analysts (including us!) are predicting the demise of the netbook, with desktops only showing minimal growth over the next 3 years – by which time tablets will represent over 20% of all the 500m PCs sold worldwide. Dell’s attempt to get a slice of action with its own Streak 7 tablet (which hasn’t had a confirmed UK release yet) is unlikely to have Apple quaking in its boots.

It’s a case (as ever) of Wireless up and Travel down at software ‘business of two halves’, Anite. Wireless division orders, revenues and (adjusted) operating profits in Q3 (to 31^st Jan) were better than expected; Travel revs and profits were flat but the backlog is lower. And this is the crux of the matter. In order to secure FY numbers, Anite needs signatures on a few Travel contracts, though CEO Chris Humphrey believes Wireless should ‘reduce the risk around the full year outcome’.  You’d have to think that Anite’s Wireless business is ‘right time, right place’ – it’s a shame investors can’t place a bet on that alone.

Interesting interview in India’s Economic Times with Capgemini CEO, Paul Hermelin, in which he talks about growing their offshore workforce to around half the total. Today, some 35% of Capgemini’s 109k-strong workforce is ‘offshore’ with 31,000 in India. I greatly look forward to reading ET’s interview with Atos chief, Thierry Breton.

Those words were the reported tweet from Mahindra & Mahindra chairman, Anand Mahindra, after Mahindra Satyam finally settled the $125m US class action suit arising from the Raju scandal. The original claim was for some $1.2b. Meanwhile, Mahindra Satyam is reportedly looking to sue Raju and cohorts, though this may be a little tricky as they have declared themselves bankrupt. Just recently (see Mahindra could delay merger with Satyam), M&M announced that the planned merger between Tech Mahindra and Mahindra Satyam may be postponed pending further untangling of the financial mess. A sword removed, to be replaced by vipers' nest perhaps?

One of our favourite ‘Little Scottish Battlers’, Edinburgh-based but entirely US healthcare-focused Craneware, has made its first acquisition, that of US-based SaaS revenue cycle software player, Claims Trust. Craneware will pay up to nearly $20m in a cash and share deal for Claims Trust, which closed 2010 with $8.5m in revenues and $900k ‘adjusted’ EBITDA (one assumes, therefore, loss-making at the bottom line). Craneware closed  its FY (to 30^th June) with €28m in revenues and $7m of ‘real’ operating profit. Claim Trust looks like a good fit for Craneware – it’s great to hear of a UK player making it work in the US healthcare market.

We like to think that we were among the first to ‘discover’ Guildford-based pharma industry data analytics firm IDBS when we met up with founding CEO (and 100% owner), Neil Kipling, about a year ago (see IDBS – mining the story reveals rich growth seams). It’s a great British success story and it looks like the success is continuing, with 2010 revenues (to 31st Dec) up 27% to $46m and a claimed 20%+ operating margin. There’s a few acquisitions in there, so it’s not clear what organic growth was. Meanwhile, they are surely getting to a size where some outside 'help' would be appropriate for the next growth stage. I’m speaking to Neil Kipling shortly and will add ‘colour and movement’ if such there is to add.

Logica has landed its second big (£100m+) UK deal since January (see Logica gets serious about crime – and Azure) announcing a €300m business process services (BPS) contract with Anglo-Dutch oil giant Shell. Logica will operate and run fuel card processing software provider FleetCor’s Global FleetNet (GFN) platform for Shell across 35 countries in Europe and Asia. Firstly it will take on Shell’s existing fuel cards system, and gradually transition it to GFN, with the first pilot to be completed by April 2012, and the full roll-out by the end of 2013.

Logica has a long-standing relationship with Shell – back in 2003 it handled a Europe-wide SAP rollout across 10 countries including the UK. Today it also provides managed switching services to Shell, which was recently extended in scope and for a further five years, as well as a managed service for the private fuel card segment in the Nordics. FleetCor meanwhile, is already used as a fuel card payment service by Shell in some European markets, and it has other oil and gas customers such as BP, Arco, Citgo, Chevron and Q8.

The Shell/FleetCor deal is a classic example of what we are calling business process services (BPS) (see UK Business Process Services: spotting the opportunities). BPS covers the lifecycle of services that underpin and support the business process – so the systems design, supply, implementation, support, and maybe BPO. We think it provides a better way of explaining how business process services are actually being bought by customers.

Logica calls this a managed service. But we see it as more than that, because Logica is acting as the consultancy, supplier, integrator and supporter of the software and services for the business process. In our view this should give it a closer relationship with the customer, and put it in a strong position to benefit from any future BPS business.

Yesterday, NCC, the IT security and testing firm, announced that its Finance director John Gittins is to leave on Feb 25^th  after just six months with the company.
NCC said its board has taken the decision 'as it believes that John's undoubted skills are not best utilised in the group'.
Read our 20^th Jan 11 review NCC 1 Fate 1 to get some of the background.

Having been a co-founder of the Technology Leadership Group back in 2002, I’ve just been made Chairman of all the Leadership Groups at the Prince’s Trust. Collectively they have over 170 members and patrons – almost all of them ‘blue chip’ corporates. Indeed, collectively they are the Prince’s Trust’s largest single form of private sector fundraising and have actually boosted their contributions to the Trust in the last year when most other charities have seen declines.

Anyway, my responsibilities now include the Retail Leadership Group where Ian Cheshire, CEO of Kingfisher, is a Committee member. So it was with added interest that I read this anecdote in Financial Times 18^th Jan 11. I report it not just because I thought it was rather amusing but because it does show how social technologies are invading the retail sector with unexpected results!

Social fixer - Source - Financial Times 18th Feb 11

Kingfisher chief executive Ian Cheshire is striving to weld together the slightly incompatible worlds of social networking and DIY.

The owner of the B&Q and Screwfix chains in the UK is planning a smartphone app designed to appeal to White Van Man, who is much more likely to place internet orders via mobile phone devices.

The initiatives come as the new “send us your pictures” function on the Screwfix website is already causing much merriment in the boardroom at Kingfisher.

“Customers have been uploading photos to our forums, typically pictures of problems, asking ‘What do you think of this?’,” Mr Cheshire explained.

One went up a few weeks ago stating: “I’ve got a problem with this pump I’ve installed on a central heating system. Can anyone help?”

Fifteen minutes later another tradesman posted the following reply: “Your main problem is that is not a pump.”

It’s been another hectic week for press coverage with Anthony Miller quoted in the FT on Micro Focus’s woes (see Micro Focus tumbles after forecasts cut); Information Age referencing John O’Brien’s views on Logica’s deal with Shell; and The Times quoting Richard Holway’s opinion of Zynga’s - the home of FarmVille – valuation (“People refer to this as a tech boom, but these valuations are not true for other parts of the tech industry which are within more modest limits…I’m sure that one or two will make enormous returns, but you will have to kiss a lot of frogs to get a prince”), to name but three examples.

TechMarketView research published last week includes John O’Brien’s analysis of Steria’s platform-based shared services strategy, which examines the outlook for Steria’s NHS Shared Business Services joint venture with the Department of Health and its £219m BPO contract with Cleveland Police Authority. Foundation Service subscribers will also find Tola Sargeant’s analysis of news that the NHS IT hospital systems procurement in the South of England looks set to go-ahead on UKHotViewsExtra. Research highlights to look out for this week include Georgina O’Toole’s analysis of the UK local government software and IT services supplier landscape.

Investors‘ love affair with UK SITS (software and IT services) stocks continued throughout 2010, a year in which the benchmark FTSE SCS (software and computer services) index rose by 23%. Though nowhere near the 64% growth achieved in 2009, the SCS index still beat all the other non-IT indices that we track, and comfortably so the FTSE 100.

But not all stocks were stars!

In our annual round-up of the UK SITS quoted sector scene, you can see where the smart money should have been – and how investors in main market SITS stocks might have done a whole lot better had they simply bet on every SITS company on AIM!

Plus we see who were the heroes and villains among European, US and Indian SITS stocks in 2010 and point out why UK BPO really was not the place to be – and why recruitment was.

And don’t miss TechMarketView chairman, Richard Holway, musing on the question, “Are we witnessing another tech share price bubble?”

Finally we take a look at the ‘Dearly Departed’ – those SITS companies waving a fond farewell to the London markets. And we rejoice in the (very) few that debuted.

All this in a six-pack (well, six pages, anyway). Just click here to download IndustryViews Quoted Sector – 2010 Review. Oh, by the way, you do need to be a TechMarketView Foundation Service subscriber – as if you hadn’t guessed! And Puni Rajah (prajah@techmarketview.com) will surprise you with how modest an outlay it requires to join the cognoscenti.

To say that TechMarketView is really motoring at the moment is somewhat of an understatement. We have been adding major top tier customers to our paid for subscriber base at a faster rate than at any time in our two year life. Getting more difficult to name the top SITS suppliers to UK market that are now not subscribers!

Undoubtedly our daily HotViews has been a remarkably good marketing tool for us. We have doubled the number of readers in just the last three months. Indeed went up another 5% in the last week alone. Approx 12,000 people now read HotViews and HotViewsExtra. They are all pretty senior people – the number of CEOs is impressive! As they have all requested it, they read it avidly – as we know from our inbox when we say something they don’t agree with!

So far we have (rightly) concentrated our efforts on subscriber revenues but we know we have a very valuable banner advertising opportunity. When customers have used it they have been impressed by the ‘quality’ of the response they get.

We’d really like help here. Do any of our many readers know of any agencies (or whatever) who might be interested in taking on the role of selling/promoting advertising on HotViews?

Additionally, we know that many of the companies that subscribe are also significant online advertisers. But we currently probably don’t get read by too many of the people responsible for buying those ads. So, if you could make the appropriate marketing people in your company aware of our services, we’d be very grateful.

If you want to discuss further contact me on rholway@techmarketview.com.

CSR is not exactly in our SITS sector but it interests me on a number of levels. Firstly, it is a relatively rare example of a UK HQed tech company with a global status. Secondly, it is a good example of what can come out of hubs – in this case Cambridge. Thirdly, I’ve known several of the people involved in its early development – Ron Macintosh and the sadly now departed Mike Shone.

CSR (Cambridge Silicon Radio) is “a leading provider of multifunction connectivity, audio and location platforms” ie Bluetooth, GPS, NFC. Formed in 1998 they listed in London in 2004 and became something of a stock market darling with their share price up six-fold to c1500p between 2004 and 2006. But, despite a series of acquisitions and being involved in perhaps the hottest of all sectors of the marketplace, by 2009 the share price had been ‘decimated’ to just 150p. Their ‘problem’ was that they never quite made it in smartphones. Indeed, both Bluetooth and GPS systems have since become commodity items.

In 2009 CSR bought SiRF – the world’s biggest supplier of GPS chips - for $136m.

Today, CSR has announced a ‘merger’ with US NASDAQ quoted Zoran. They are paying $695m– equivalent to a 40% premium on Zoran’s closing price on Friday.  CSR hope the deal will allow them “to expand into internet-enabled, location-aware products like digital cameras and home entertainment products”.

On the one hand we applaud any UK HQed company taking these kind of steps. Location-based products are getting to be pretty hot as anyone who has tried to buy a digital camera or, indeed, has looked at any inane FourSquare Twitter feeds recently will testify. Conversely, it’s a pretty big ‘merger’ for CSR and has all the hallmarks of causing the dreaded Holway Acquisition Indigestion.

The market wasn’t too impressed either marking CSR down 8% at 396p.

They may be the junior member of their peer group, but Paris-based Sopra showed its much larger French rivals Capgemini and Atos a clean pair of heels on both top line growth and margins. FY revenues (to 31^st Dec.) grew by 6% like-for-like to €1.17b (+7% as reported) and operating margins near nigh doubled to 9.3%. Like peers, Sopra management is forecasting organic growth this year and ‘slight’ margin expansion. The core CSSI (consulting & SI) division grew by 5% like-for-like to €962m, with 8.7% margins. Sopra’s soon to be divested enterprise software arm, Axway, grew by 12% like-for-like to €208m, with a 12.3% operating margin.

It’s not clear how Sopra’s subscale UK business finished the year. It was still shrinking as late as Q3 (see Sopra UK recovering) – though not as fast as in the first half of the year. With over half its UK business deriving from the public sector (especially in its Scottish heartland), it’s hard to see how they could have made up the shortfall in Q4. Management reported a late surge in its non-France business, of which the UK comprises about one-third, but we still rather expect the UK to show a number a tad lower than the c.£50m chalked up in 2009.

Embattled Australian healthcare application provider, iSOFT, has extended its contract for patient (PAS) and clinical administration systems with seven NHS trusts in London and the south of England for five years. The deal with the group, known as the iSOFT7, is worth £12.6m to iSOFT in total (£4.8m for licence fees and £7.8m for maintenance and support). Rumour has it CSC will receive a similar amount for hosting the application centrally. The trusts, including Great Ormond Street Hospital for Children, Kings College Hospital and Guys and St Thomas’, signed the original deal with CSC and iSOFT in 2006. At the time they chose to stick with iSOFT’s PAS, which they have now been using for over ten years, rather than take the Cerner application being provided by the National Programme for IT in the NHS (NPfIT) in their region.

iSOFT will no doubt be pleased to have maintained its relationship with the prestigious NHS Trusts that make up the iSOFT7. But it’s hard to say whether the Trusts’ decision is a vote of confidence in iSOFT’s software, or just a vote of no confidence in the other NPfIT applications on offer and a realisation that changing PAS now would be too disruptive (and, perhaps, expensive). Indeed, iSOFT’s own press release quotes Colin Sweeney, Director of IT at King’s College, as saying “this is the best result possible as it causes the least disruption.” Not exactly a ringing endorsement.

In other healthcare contract news this week, there are reports (see e-Health Insider) that CSC, with partner TPP, is also set to be the successful bidder for the ASCC community health systems contract in the south of England. If confirmed, this would be a real boost for TPP (formerly The Phoenix Partnership), which has grown rapidly in the UK primary care application market thanks to its NPfIT relationship with CSC, and is vying with rival InPS for the No. 2 spot in the market behind EMIS.

We don’t usually write about AIM-listed CRM software player, Rubicon, as you’d need a magnifying glass to find them. But I mention them as yet another example of a company that would surely be better off (and certainly more profitable) were it back in private hands. They’ve just announced H1 results which show revenues down 24% to £258k and pre-tax losses of £180k.

Rubicon listed on AIM in Sept. ’06 at 10p a share, capitalising the firm at some £3.8m. Today their shares are worth about 1.3p. With a current market cap of under £700k, as best as we can tell they are the smallest UK-HQ’d software and IT services stock on the London market. Yet it costs upwards of £200k p.a. to maintain an AIM listing. It seems most of Rubicon’s shares are in management’s and other individuals’ hands so one would imagine a vote would be a formality. Am I missing something here?

The UK local government SITS supplier landscape is dominated by IT and business services players that continue to benefit from the steady flow of revenues attributable to the raft of multimillion and multibillion multi-service line contracts signed over the last decade. However, our analysis highlights some significant changes to market dynamics and to supplier strategies that could result in a shake-up in the rankings.

Mega BPO deals still exist but they are not as prevalent as they once were. At the same time, there’s some formidable new competition succeeding in winning deals and taking market share. As a result suppliers are changing tack: some are trying to differentiate their BPO offerings, some are adding ‘point solutions’ to their existing portfolios, and some are backing away from mega BPO contracts altogether. Local authorities vary drastically in their contracting approaches. The winners will be those that target the right authority with the right solution at the right time. Subscribers to TechMarketView's UK PublicSectorViews can find out more in our report published today: UK local government SITS supplier landscape 2011.

Knowing what our readers are really interested in is one of the joys of HotViews. Sure, we know that you make your living from enterprise software, outsourcing and BPO, but your passion is with all things Apple, mobile internet and smartphones!

So, given the huge amount of feedback we get on any article about the iPad, get ready for iPad2 which is to be announced next week on 2^nd March. See FT iPad to launch in March. Expectations are for front and rear facing cameras, a slimmer/lighter body and a higher definition display (a la iPhone4)

The iPad is perhaps the best– certainly the fastest – example of how a consumer innovation has invaded the enterprise. More and more examples of its use in the enterprise arrive everyday. Last week I had a Prince’s Trust meeting with the CEO of one of the UK’s largest construction companies. He told me that all of their plc board papers were now delivered on the iPad and how it had revolutionised the process.

Any talk that it has not affected the PC market just must be way off. Most of my friends have abandoned their laptops or netbooks when they are travelling in favour of their iPad (as I have done). As more and more features are available on the iPad, I’d need quite some persuasion to renew my laptop when the time arrives. Even now I haven’t switched it on for over a month!