Today’s trading update from software testing and quality management services provider SQS shows further progress on its strategy to secure larger contracts, particularly around managed services (see here). So far in H2 it has signed new contracts and extensions worth €63.5m, although they are keeping performance in line with management expectations rather than pushing it ahead.
The batch of contracts include three significant deals within the banking sector in the US and Germany, three in the automotive sector again in the US and Germany, a win in the high tech sector, another one in the gaming and gambling space, plus two UK deals in the retail sector. What is particularly interesting is the level of work around online, mobile and ecommerce (as well as the managed services elements). The UK contracts for example are to provide testing services across a large retailers’ online and mobile platforms, and for a test data management contract for the ecommerce and mobile platform for one of the world’s largest furniture and home furnishings retailers.
With some of the other contracts also covering these aspects, it is a sign that enterprises are ramping up strategic investments in these areas and we expect the rate of investment will only increase during 2014 for SQS and other SITS vendors with mobile, ecommerce and online interests. There is evidence of activity elsewhere in the UK industry, for example business software provider Sanderson, who targets the UK retail sector is also seeing a marked rise in the level of retail investment in ecommerce and mobile (see here).
With its Thinksoft acquisition (see here) progressing, things are looking positive for SQS, although one of its ongoing challenges is to increase its gross profit margins, which these larger contacts are designed to do.