Cost savings boost CSC Q1 margins

Mike Lawrie’s turnaround at CSC is continuing with a marked improvement in profits in Q1. The operating margin improved from 4% to 9.3% on the back of cost reduction exercises that generated savings of $175m. The revenue tale is not so rosy with a 6% decline (adjusted and at constant currency). Revenue was down across all three business units, and was particularly deep in Global Business Services (33% of revenue) at 15%.

As well as stripping out costs from the business, a key part of Lawrie’s turnaround plan is investment in growth areas, such as cloud (including the AT&T partnership announced yesterday) and Big Data (including the recent acquisition of Infochimps). But clearly this will take time to filter through to the topline – which is reflected in CSC’s full-year target of flat or slightly declining revenue.

During the quarter, CSC booked three new wins with NHS Trusts and at the end of the quarter had c$330m in deferred revenue from NHS and iSOFT contracts - an increase of $140m over last year. Outside of that, CSC has given no specific indication of how the UK business performed. However, TechMarketView subscribers can read more on CSC in the UK in the recently-published UK SITS Rankings 2013.

It has long been questioned whether CSC could be on the brink of being sold or broken up. However, Lawrie seems to have instilled a confidence and vision such that now there is no debate internally around this happening. A lot has changed at CSC in the past year or so, and there is certainly now a sense that long-term growth is a real possibility.