Network equipment specialist Juniper Networks posted disappointing results, with FY17 revenue flat at US$5bn and Q4 turnover down 11% yoy as its large cloud customers delayed new system deployments in the second half. Net income for the year was down 48% yoy to S$306m with diluted net income per share dropping by the same margin to 81 cents.

Interestingly the company attributed the drop in income to a higher tax bill following the implementation of President Trump’s US Tax Cuts and Jobs Act which saw it incur additional expenses of US£290m in the year ending 31st December. We wonder how many more US companies will be similarly affected when reporting financial results for 2017, though the regulatory changes do include tax reductions that should start to yield benefits from 1^st January 2018.

Reports that Juniper was on the brink of acquisition by Nokia have so far come to nothing, and like rival network hardware manufacturers (notably Cisco) Juniper is steadily shifting the mix towards a more services-led proposition to combat declining network hardware sales. Juniper’s product revenue dipped 2% yoy to US$3.4bn with services delivering US$1.6bn (up 8 percent yoy to account for 31% of the total). Routers were the big loser with sales falling 7% to US$2.2bn, though switching sales grew 12% to US$963m.

Turnover from Junipers security products again fell, down 8% yoy to US$293m (having dropped 27% to US$318m in FY16). That will be disappointing for Juniper which has made recent efforts to broaden its traditionally hardware-orientated network security solutions (eg firewalls) into virtualised equivalents alongside cloud hosted threat prevention services.

Whilst these do not yet appear to have struck a note with the company’s core customer base of cloud and telecoms service providers (which contribute 72% of Juniper’s revenue), it is early days and Juniper will point to a gentler rate of decline for its security business this year compared to last as evidence of progress.

The company’s ongoing evolution will be assisted by a US$3bn war chest “repatriated” due to the US tax reforms, some of which is earmarked for the acquisitions and innovation we think Juniper may well need to regain momentum.

You would think that a 47% yoy rise in revenues in Q4 to $12.97b, a 61% rise in profits to $4.2b and a 56% rise in EPS would be greeted with a share price rise. In fact Facebook shares dropped by nearly 5% in afterhours trading on these results.

Negatives included a drop in daily active users in the US and a slowing user growth rate - up just 2% at 1.4b daily users in Q4 and the slowest growth ever recorded. Time spent on Facebook reduced by 50m hours a day in Q4.  Fears were that new measures to ‘Fix Facebook’, that included showing fewer and shorter videos and boosting local news, would come at the expense of more lucrative ads. Doubling its 10,000 staff engaged in safety and security will add to costs too.

Mark Zuckerberg admitted that 2017 had been a tough year. Indeed, as I have reported many times recently, Facebook has been battered by all kinds of bad news which has included fake news, child abuse, terrorist posts & videos etc. There is a growing tide of views that Facebook is bad for us - and particularly bad for our kids. Time spent scrolling Facebook can add to unhappiness and mental problems let alone wasting lots of time at work.

I do get an ever-stronger feeling that the tide has turned against Facebook and it could well be facing a period of decline. Of course it has other platforms like Instagram and WhatsApp. But they could all be tarred by the same brush in time.

I have been a shareholder in Facebook for some considerable time but sold out in early January - mainly to gather some cash to pay my tax bill on 31^st Jan. But it now seems like a good move for other reasons.

I was genuinely saddened to learn of yet another Capita profits warning today - See Capita shares down on cash call and transformation programme. Not just as a Capita shareholder who had seen his shares down c40% in just one day (although I admit that I had sold most of them last year…) but because Capita had occupied a special place in my heart.

I’d known Paul Pindar and (Sir) Rod Aldridge since before their IPO in 1989. A company run by two accountants must surely be ‘Boring’? Indeed they were a really worthy recipient of a Holway Boring Award - not just for 10 years uninterrupted EPS growth - but 20+ years. I was genuinely delighted to give Paul Pindar a real (£50!) Holway Boring Award at the Prince’s Trust ICT Leaders Dinner in Sept 2012. See The Last Time.

Paul followed Rod out of the door and Andy Parker arrived. And then it all went wrong - really wrong. The writing was on the wall well before Parker went. Indeed the Capita board allowed him to  linger far too long in my view.

The problem is that how you account for any long-term contract is more of an art than a science. If you are prudent you take all kinds of provisions in the early years and only release them in later years when the risks are diminished. Made much more easy to do if you are signing loads of new contracts. When the going gets tough, the pressure is on to release profits earlier. I’ve been in those situations and I really do have sympathy! But that’s when ‘Boring’ accountants come to the fore.

A really knowledgeable - as in ‘been there, done that’ - former CEO of a FTSE100 company wrote to me earlier today saying “While executives correctly are held responsible, boards, investors, advisors, analysts and others should in my view be much more thoughtful about how easily accounting diverges from reality.” I can’t agree more and am willing to hold my hands up if I am a guilty analyst (…hope not!)

The email went on to say “At least Capita and Serco and the rest have not spread woe to suppliers and pensioners in the way Carillion has. But as they say ‘There but for the grace of God’. We all have a responsibility to try to stop this cycle. It hurts real people”.

Duco (du.co), the data engineering technology company , has just completed a US$28m investment round with participation from Insight Venture Partners, NEX Opportunities and Eight Roads Ventures. The money is earmarked for investment in expanding the company’s reach, with additional staff in Europe and the US and setting up an office in Asia. Duco will also add to its product portfolio.

Duco's SaaS-based reconciliation solution, the “Duco Cube”, enables companies to normalise, validate and reconcile large volumes of data at speed. Duco is targeted at the financial services sector where for example ING’s wholesale banking unit selected the company to automate a range of processes overseeing cash, trade and position reconciliation. Duco also provides internal system-to-system data controls.

There is a rapidly growing market for Duco’s system, as financial services companies respond to more regulation (e.g. MiFID II) and meet higher reporting standards for transactions and risk exposure. Duco’s target customers will generally have a multiplicity of systems providing a degree of reconciliation and regulatory reporting. These systems will often have been developed in-house and will usually rely upon Excel spreadsheets. In many cases these will not scale, will be specific to one activity and will require expensive re-work to meet new regulatory requirements. A SaaS-based, standardised system with a rapid set-up time as offered by Duco will therefore be very appealing.

TechMarketView has chronicled the substantial progress of Gresham Technologies whose reconciliation software business unit grew revenues by 48% and added 15 new clients over the past year. At first sight, Duco appears to have a similar target customer base, value proposition and strategy. However, in an extremely large, dynamic and complex market there will be ample scope for differentiation and for them both to do very well.

Enterprise Linux specialist, Red Hat, has acquired container management start-up, CoreOs, for $250m.

CoreOs entered the market in 2013 with Container Linux, a stripped-down operating system for hosting containers. It initially supported Docker, but has since developed its own cross-compatible platform, Rkt (or Rocket), to address shortcomings it saw in Docker. The company received seed funding from Y Combinator, and further funding from investors including Sequoia Capital and Intel Capital. CoreOS gets less attention than Docker, but its products are highly regarded and integrate well with Kubernetes, the open source container orchestration platform originally developed by Google that is becoming the orchestration tool of choice.

By bringing CoreOs ‘into the fold’, Red Hat can unite resource and take advantage of the added brainpower. It’s a smart move in an area that is rapidly developing and garnering more and more interest from certain enterprise buyers.

Containers have progressed from being a relatively niche technology just a few years ago to becoming the method of choice for developing new workloads in the cloud. InfrastructureViews clients can understand more here: Understanding the containers ecosystem.

Performance at analytics-as-a-service provider Rosslyn Data Technologies is far from consistent as this young company works out how to make the most of the winds of progress in the analytics market. During H1 (to October 31 2017) net loss deepened to £1.6m on revenue that was up an impressive 74% to £2.9m. This contrasts with the year ago quarter when it saw revenue fall 8.5% as it discovered it can take longer than expected to monetise partnerships.

The year on year revenue comparison benefitted from the acquisition of unstructured data content management provider Integritie which Rosslyn acquired for £3.35m however it’s not clear how much of the improvement was due to Integritie and how much was organic growth. Rosslyn’s management team points to customer wins, US expansion and the development of its partner programme as H1 operational highlights. It also stressed a strengthening pipeline and H2 activity that includes a partnership with a global data firm (which it would be good hear more about) and a contract with one of the largest privately owned FMCG groups.

We get the sense that momentum is building in H2, which will make the full year results an interesting read and provide a better perspective on overall performance. With the ability to handle structured and unstructured data and provide analytics on top, Rosslyn is in the right place in the market with good and ongoing platform and service developments. The analytics market is crowded but Rosslyn is winning customers and multi year contracts, signing white label agreements, while the average deal size is rising. It is a ship unfurling its sail with a fierce analytics tailwind so the challenge is applying the discipline to stay upright so it can continue to move forward.

The turnout today to the ScaleUp Group Breakfast session at Silicon Valley Bank was truly impressive. Over 100 attendees were there to hear pearls of wisdom from Adam Hale (ex of Fairsail), Mike Tobin OBE (ex of TeleCity and now director of too many tech companies to mention), Paddy MccGwire of SilverPeak and TechMarketView’s very own MD -Tola Sargeant. All under the excellent Chairmanship of John O’Connell.

Anthony & I are both associated with/investors in ScaleUp Group  who are, of course, sponsors of TechMarketView’s Great British ScaleUps programme.

Also pleased to report that Adam Hale, Graeme Mair and Malcolm Thorp have recently joined the ScaleUp Group team. Very latest addition is Tim Gregory who, until recently, was CEO of CGI’s $1.4b UK business. Great respect!

Got to give my old mate John O’Connell every accolade for bringing together a superb ‘top-notch’ team. Indeed I am sure we will report on their successful investments often on HotViews. Well, as an investor myself, I really hope so! 

Following on from Computacenter’s pre-close statement last week, we have added a few more thoughts regarding the company’s performance in UK Services. The trading statement for FY17 brought positive news and said adjusted pre-tax results were “anticipated to be ahead of the Board's expectations”. Indeed, the company had upgraded its expectations several times during the year.

In the UK specifically, revenue increased 9% for the year, with Services up 6% and Supply Chain (resale) up 10%. The firm did well outside of the UK too, in both France and Germany - see more details on the figures in our original post: Computacenter back in its groove for 2017).

The pre-close figures show a return to form in the UK, following a decline in the Services business in FY16. Based on FY16’s figures, Computacenter placed at number ….. MORE……

Out now is our UK Public Sector Supplier Prospects 2018 report, which looks at the Top 20 suppliers in the UK public sector software and IT services (SITS) market. We review recent progress, look at the key market challenges and assess what suppliers need to do to maximise their potential in 2018 and beyond.

The leading suppliers to the UK public sector face a challenging market. One defined by contract disaggregation; a shift to digital technologies and new ways of working; and tough budgetary pressures. These challenges are compounded by macro issues such as Brexit, skills shortages, cybersecurity threat, and the advent of new regulations.

Some suppliers have accepted and reacted faster than others in adapting their businesses to changing market conditions. To succeed in 2018 will require organisations to retain as much of their incumbent business as well as adapting to win smaller, lower value deals and building up their digital transformation references.

This report should be read alongside the UK Public Sector SITS Supplier Rankings report for 2017 and UK Public Sector SITS Market Trends & Forecasts to 2020.

If you are an existing PublicSectorViews subscriber you can read the report now. If you’d like to discuss an extension to your existing subscription or would like details of how to subscribe to TechMarketView, please email Deb Seth.

It’s not too late to join the record number of UK tech SMEs who have applied to participate in the next Great British Scaleup event next month.

Due to high demand, we are extending the deadline for applications until next Wednesday 7th February. This follows the outstanding success of yesterday's Selling Out vs Scaling Up Breakfast Seminar organised by Great British Scaleup Advisory Sponsor ScaleUp Group, the team of successful tech entrepreneurs that have been responsible for accelerating growth and achieving over £4b in successful exits at many well-known tech companies.

The TechMarketView Great British Scaleup programme has already helped several UK tech SMEs test their readiness to scale up further and faster using the ScaleUp Growth Index®, a proprietary scorecard which identifies areas of your business that might be an inhibitor to achieving extraordinary growth. Unlike traditional company scorecards which typically measure past financial performance, the ScaleUp Growth Index® assesses your company’s future scale-up potential.

You can find out your potential too by applying to participate in the third Great British Scaleup Event (GBS3), to be held at the offices of GBS Programme Official Supporter, techUK in London on Tuesday 6th and Wednesday 7th March 2018. Successful applicants will be invited to participate in a CEO-level closed-door 90-minute workshop session with TechMarketView research directors and executive advisors from ScaleUp Group.

In addition, every applicant, will be entitled to an optional initial infrastructure assessment at no charge and with no obligation by managed cloud and infrastructure services firm Cogeco Peer 1, the Enterprise Cloud & Infrastructure Services Technology Partner for the Great British Scaleup programme.

To apply, please fill in the Nomination Form on the TechMarketView website here by Wednesday 7th February 2018. There is no charge to participate, nor any obligation to follow through on the outcomes.

Apply now and let us help you get better prepared for the next stage of your scale-up journey

If you have any queries about the Great British Scaleup programme, please drop an email to gbs@techmarketview.com or call TechMarketView Managing Partner Anthony Miller (020 3002 8463).

A key takeaway from Microsoft’s Q2 was accelerating Azure growth as it barrels towards Amazon Web Services. Microsoft is sustaining near double levels of Azure growth – 98% in Q2, the same as Q2 last year and 90% growth in Q1. Tackling AWS on its home ground, Compute usage more than doubled, as it did last Q2. By contrast, where Azure is accelerating, AWS is seeing its rate of growth decline and delivered 42% revenue growth in its most recent quarter (Q3). AWS leads the market but Microsoft is gaining ground.

Azure growth underpins other cloud service expansion. While it achieved the highest revenue growth within the portfolio, Dynamics 365 came second with 67% and Office 365 third with 41% growth. The breadth of Microsoft’s cloud offerings combined with its embedded position within enterprise businesses are key advantages over AWS who is still working to ramp up its own sales to enterprises. Looking ahead, we see the strength and style of delivery of machine learning and AI capabilities (including voice) as important for both suppliers in terms of cloud growth within enterprises. With AWS offering more in the way of tools compared to Microsoft’s approach of infusing these techniques into applications, Microsoft could have an edge..

Q2 results show the changing shape of Microsoft’s business. With 25% growth taking it to $9bn revenue, Productivity and Business Processes (incld Office 365, Dynamics, LinkedIn) showed the highest level of growth but $1.3bn revenue from LinkedIn helped. Intelligent Cloud (incld Server products and Cloud services including Azure) delivered 15% growth taking revenue to $7.8bn. More Personal Computing (incld Windows) remains the largest division with $12.2bn revenue but only managed 2% growth.

Overall revenue rose 12% to $28.9bn, with Q3 forecast for $25.25bn-$25.95bn. The downside of the results was a net loss of $6.2bn due to a $13.8bn one time accounting charge following US tax code changes; excluding the tax impact profit would have been $7.5bn.

While there is more shifting and settling to be done, these results underline the change driven by CEO Satya Nadella - and with more to come as machine intelligence prowess and related revenues grow. 

German media giant Bertlesmann announced plans yesterday to seek a buyer or partner for Arvato’s customer services business.

Customer Management is one of four Arvato businesses, the others being supply chain solutions, financial services and IT services. Getting the business ‘match fit’ for digital is going to require significant levels of investment in automation, AI and voice activated services in a market that is becoming extremely price competitive with margins already tightening.

Arvato CRM is one of the largest providers of Customer Management across Europe and is a top ten supplier of BPS in the UK as covered in our Business Process Services Supplier Ranking 2017 report. It has a significant UK footprint with clients including BMW, Renault, Harley Davidson, and Texaco (see here). In Public Sector it has contracts with a number of Local Authorities and the Department for Transport to deliver shared services.

Arvato CRM’s business in French-speaking territories is being excluded from the process and will continue to be managed by Bertelsmann. Excluding the French-speaking business, the group employs around 36,000 people at more than 90 locations worldwide and offers services in more than 30 languages. In 2017, the group generated revenues of around €1 billion outside the French-speaking territories.

The move follows the resignation last July of the head of Arvato, which was then placed under the direct control of Thomas Rabe, Chairman and CEO of Bertlesmann.

A sale appears the most likely outcome, Rabe added yesterday “A partnership does come into the question, but you would be right to say that a disposal is our primary consideration.”

The process is expected to take several months.

At the global level, CGI’s results for Q1 (to end December 2017) look good. Revenue up 4.9% (ccy) to $2.8b (CAN $). Adjusted EBIT margin largely unchanged (14.4% vs 14.8% in the comparable quarter). And a book-to-bill ratio of 102.8%.

Dive down into the UK numbers, though, and the quarterly decline continues. And, indeed, steepened compared to Q4 last year (see CGI FY17: UK struggles in Q4). Revenues declined 16.8% (ccy). Though the EBITDA margin improved from 14.5% to 16.3%.

The UK business has been predominantly impacted by changes in the UK public sector market, which makes up a large proportion of its revenues (see UK Public Sector Supplier Prospects 2018). Like others, it has had to face up to the run-off of large contracts that have been disaggregated.

In January, CGI moved quickly to instate a new UK President for the business, Tara McGeehan (see CGI moves quickly: instates new UK president). The good news for her is that the book-to-bill ratio improved significantly in Q1 (111.4% for the trailing 12 months). The company benefited from adding the £210m/seven-year Glasgow Council deal. It also has started to see growth in some of the vertical sectors where it was previously under-represented and has continued to grow in telco & utilities.

However, with deals like that at Glasgow few and far between, and CGI aiming to deliver projects higher up the value chain (in line with Canada), the biggest task ahead will be adapting the business, culturally as well as operationally, to embark on different types of client relationship.

The strong performance of Symantec and Check Point appears to indicate continued momentum in the cyber security market, though both firms posted weaker than expected numbers in the run up to Christmas.

Despite achieving impressive double digit growth, Symantec’s Q3 results came in around US$40m below its previous guidance. The company misjudged the rate at which its enterprise customers would move away from its licensed, on-premise software to subscription based cloud-hosted security solutions, resulting in a larger than anticipated increase to its deferred revenue balance.

Symantec said it is winning the volume of business it expected, which non-GAAP revenue growth of 13% yoy to US$1.2bn appears to confirm. Non-GAAP implied billings rose 32% to US$1.4bn, 58% of which (US$829m, up 27%) came from its enterprise business (including US$29m from website security service and PKI products since sold to DigiCert).

Operating income grew to US$96m compared to a loss of US$16m in Q316, with diluted net income per share hitting US$2.17, up from a loss of 9 cents per share last year.

Check Point is seeing a similar shift in the way customers buy its solutions. Despite a sluggish Q4 (up 4% yoy) the company grew its full year turnover 7% to US$1.85bn, with deferred revenue from its own subscription services up 23% yoy to US$480m. Product and license sales declined 2% to US$559m but the Israeli company still made a large chunk from software updates and maintenance, up 5% yoy to US$815m.

An 11% increase in net income (US$802m) came on the back of an 8% hike in operating income (US$924m), with Check Point’s basic earnings per share jumping 16% to US$4.93.

Suppliers will inevitably have better quarters than others depending on the exact timing of new product and update releases. But cyber security was one the stronger performing areas of IT provision in 2016/2017 and we expect that growth to continue over the next few years (read our Cyber Security Supplier Prospects report here).

tx2events is a London based event management business that offers a first-class, bespoke service. It was formed by Tina Compton and Tina Gallagher who have over 40 years combined experience of managing and organising events in both the public and private sectors.

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Following on from Computacenter’s pre-close statement last week, we have added a few more thoughts regarding the company’s performance in UK Services. The trading statement for FY17 brought positive news and said adjusted pre-tax results were “anticipated to be ahead of the Board's expectations”. Indeed, the company had upgraded its expectations several times during the year.

In the UK specifically, revenue increased 9% for the year, with Services up 6% and Supply Chain (resale) up 10%. The firm did well outside of the UK too, in both France and Germany - see more details on the figures in our original post: Computacenter back in its groove for 2017).

The pre-close figures show a return to form in the UK, following a decline in the Services business in FY16. Based on FY16’s figures, Computacenter placed at number ….. MORE……

That’s west as in White City in West London, where self-styled ‘digital venture builder’ Blenheim Chalcot and Imperial College London are to build a 200,000 sq ft digital tech hub within Imperial’s new White City Campus. The £50m hub, dubbed Scale Space, is due to open in 2019 and will house over 2,500 people, including many from Blenheim Chalcot’s portfolio companies such as IT services firm Agilisys and Fintech play SalaryFinance.

Imperial College itself has a well-earned reputation as a hotbed of technology innovation and also as a canny as a tech investor, through its technology commercialisation arm Touchstone(nee Imperial) Innovations, now part of IP Group (see Imperial’s Touchstone joins Dearly Departed).

Forget Paris and Berlin – it’s all happening in White City!

Now here’s a different business model for a venture capital firm – share the ‘carry’ pot with the entrepreneurs that it backs! Not all of it, of course, but around 20%.

This was one of the founding principles laid down by Leila Zegna, Tracy Doree, Mark Evans and Russell Buckley, co-founders of London-based Kindred Capital. They call it ‘equitable venture’ because, in effect, every founder they back becomes a co-owner of their fund.

TechMarketView Managing Partner Anthony Miller recently met up with Kindred co-founder Leila Zegna to find out why entrepreneurs are so enthusiastic to have Kindred as backers. Subscription service clients can readmore …

Last month, Leidos appointed a new Chief Executive of Leidos UK: Matt Wiles CBE. Wiles was previously Senior VP and MD and had been “instrumental” in the delivery of Leidos’ core defence contract in the UK: Logistics Commodities Services Transformation (LCST).

Wiles has a military background. He served in the RAF, leaving as Air Vice-Marshal. His roles ranged from Director General of the UK Joint Supply Chain, to Chief of Personnel for the RAF. Prior to joining Leidos in 2016 he worked for Serco (roles include Partnership Director for the Atomic Weapons Establishment and Managing Director, Defence).

Wiles has a big opportunity at Leidos. The company’s biggest challenge in the UK is one of branding and positioning (read more in UK Public Sector Supplier Prospects 2018). The LCST programme has left the firm pigeon-holed in defence logistics. But Leidos, particularly globally, is about much more than that. It has more it can offer in defence, but also has hidden gems across health, safety & security, transformation and civil government. If Wiles can shift perception of the firm and bring some of the global capabilities and expertise to bear in the UK, the rewards could be great.

It was a mixed set of results from Citrix for Q4 and FY17 in the aftermath of its restructuring turmoil and the necessary absorbing of US tax changes.

While 6% revenue growth to $778m in Q4 was creditable in the circumstances, with an improvement in the operating margin too, but the company also reported a net loss of $284m due to those tax changes and restructuring costs. For the full year (to December 31 2017) revenue was up a more meagre 3% to $2.82bn with a net profit of $22m (vs. a $470m prior year profit), reflecting the challenges the business faced that necessitated restructuring and layoffs in the second half of the year, and the earlier LogMeIn spin out/merger.

On the positive side, subscription revenue grew to $89.7m although that was only 12% of revenue in Q4 and $315m/11% for the FY, while SaaS saw 38% growth in Q4 and 31% across the year. The networking business also did well.

Understandably, management is being cautious about the future and is only guiding for a small revenue rise in FY18 - $2.86bn-$2.88bn. Citrix is still in recovery and its challenge now is driving up subscriptions revenue and SaaS business.