Annex Bulletin 2005-09                                       March 10, 2005

 

IT SERVICES

Annex Research 2005 Global IT Services Octathlon

Accenture Wins the “Gold”

HPS, Capgemini Tied for “Silver;” IBM Global Services Places Fourth

PHOENIX, Mar 10 – Accenture won the “gold” in our 10th annual global IT services Octathlon, ahead of Hewlett Packard Services (HPS) and Capgemini that tied for the “silver.”  IBM Global Services (IGS) placed fourth, followed by EDS, CSC and Fujitsu.

This is Accenture’s sixth gold medal in the last 10 years, the best long-term record of any competitor.  IGS earned three “gold’s” during the same period, while HPS claimedText Box:  two of them.  These were the only three companies to win the overall global IT services competitions during the last decade (see Table 1).  But it was EDS that had the third-best long-term record (after Accenture and IBM), as HP was a late bloomer in the IT services business.

Just to recap quickly for our new readers the IT Services Octathlon scoring… The overall medal standings are determined by awarding three points for a “gold,” two points for a “silver,” and one point for a “bronze” in each of the eight competitions of the Top 7 global IT services vendors.

The eight categories are:

1. Revenue Growth – current year

2.                                                                              …and 5-year

3. Market Share Gain/Loss

4. Net Margin

5. Gross Margin

6. Frugality

7. Sales Productivity

8. New Contract Sales

All these figures are for the prior calendar year results. 

Regular Annex Bulletin readers will notice that we have added a new competitor this year to our global IT services leaders – Fujitsu (and have updated the Top 7 historical charts accordingly). 

Although big enough to be tied for second place in worldwide services revenues, the top Japanese computer company derives most (about 70%) of its business from its domestic (Japanese) market.  So it has not been exactly a trendsetter in the U.S. or other international markets.  But its recent successes in Europe, and its stated intention to internationalize its business have turned it into a global contender.

So welcome to the Top 7, Fujitsu!

We also wish to remind our readers that the only competitors among the Top 7 that don’t publish their new contract sales are HPS and Fujitsu.  As a result, we treated them as  “no shows” in this Octathlon category.

And now, here’s a “play-by-play” report from this year’s competition.

1.-2. Revenue Growth (2 Medals)

The “gold” medal for the best revenue growth in 2004 went to Capgemini (up 15% over 2003).  Accenture won the “silver” with a 14% jump, while HPS earned the “bronze” with a 10% spurt.  IGS was fourth with an 8% increase in revenues, while EDS and CSC saw their revenues decline 4% and 5% respectively.  The CSC revenue decrease is a result of its sale of the two former DynCorp units (see “Gearing Down on Purpose,” Feb 2005).

As with previous Octathlons, all revenue figures used in this year’s competition were either the reported numbers for companies whose fiscal year-end ends Dec 31, or were our estimates of other competitors’ calendar year 2004 results.

The “gold” for long-term growth (last five years) went to HPS (up 23% per year during 1999-2004).  Capgemini won the “silver” with a 15% jump, while CSC snagged the “bronze” with an 8% compound annual increase during 1999-2004.

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It should be noted that most revenue growth medal winners grew by acquisitions.  CSC acquired DynCorp (2003), HP acquired Compaq (2002), while IBM acquired PwCC (2002).

The same is true of long-term medal winners, except for Accenture.  As we also noted in 2003, Accenture is the only company among the Top 7 whose growth has been mostly organic (internal). 

In fact, Accenture (formerly known as Andersen Consulting) had to overcome the reverse problem - breaking away from Arthur Andersen.  When it finally did that in mid-2000, after a bitterly contested arbitration process, Andersen Consulting went public in July 2001 under the name Accenture. 

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Growth Slows

Last year’s double-digit revenue growth did not last long.  It gave way to another single-digit increase in 2004.  The Top 7 dropped back to a 5% rise in 2004, after a 13% surge in 2003.  The main reason for last year’s double-digit growth was IGS’s 17% jump, fueled by its PwCC acquisition, rather than any upward move in customer spending.

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The five- and 10-year growth rates for the Top 7 are still in double digits (13% and 15% respectively), but there is no doubt that the robust market of the 1990s is slowing down among the top tier global IT services competitors.

3. Market Share (1 Medal)

IGS, Accenture and Capgemini were the biggest market share gainers among the Top 7 in a year that did not see much movement in this competition category.  IGS and Accenture gained 0.8 and 0.7 of a point respectively, while Capgemini added half a point to its worldwide total.  EDS continued to be the big loser, dropping 1.5 points of global market share.

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In the U.S. market, IBM and HPS gained share, while Capgemini lost and the rest of competitors pretty much treaded water.

In Europe, Capgemini and Accenture were the big gainers, while EDS and CSC lost share.  In fact, Accenture has now surpassed EDS to become the second largest IT services vendor in Europe (after IBM). 

Last year was also the first that Capgemini passed EDS, dropping the former “Euro star” to the fourth place.  But this may change now that EDS has won the big British defense contract.

In the Asia/Pacific market, Fujitsu lost share, while HPS, CSC and Capgemini gained some.

4.-5. Profitability (2 Medals)

Accenture again won easily the gross margin “gold,” followed by Capgemini and IGS, which claimed the “silver” and the “bronze” respectively. 

The net margin “gold” again went to HPS this year, while IGS and Accenture claimed the “silver” and the “bronze” respectively.

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It was the same lineup of medal winners for the two profitability categories as a year ago.

6. Frugality (1 Medal)

Just as Accenture seems to be pre-subscribed to profitability medals, EDS has been a perennial winner of the frugality competitions.  One of the most beleaguered competitors in the last two years, EDS still continued its unfettered grip on the “gold” for the lowest operating expenses.  At 9.8% of revenues (down from 9.8% the year before), EDS’ 2004 operating expenses were by far the lowest among the Top 7 competitors.

The “silver” medal winner CSC came in at 12.5% of revenues, while the third place finisher HPS clocked in at 13%.  IGS came fourth with a 14.5% ratio. It is essentially the same lineup of medal winners as last year. 

EDS’ successive “gold’s” for frugality made it all the more ironic that Wall Street was expecting cost cuts from the new EDS management team that took over in 2003, instead of focusing on the top line growth and gross margin improvements.  The latter are some of the areas in which EDS is lagging behind its top competitors. 

It’s even more ironic, in fact downright ludicrous, that the new EDS leaders took the bait and pursued the cost and expense cuts as a panacea for recovery (see “Pain without Gain,” Oct 2003).  As a result, the company kept falling deeper into the hole, with new contract sales plummeting in 2003.

Well, EDS seems to have had a wake-up call this year.  Following the release of its final 2004 results, its chairman and CEO declared that from now on, "our focus is revenue, revenue, revenue" (see “EDS: A $6 to $9 Stock?,” Feb 2005).

Better late than never…

7. Sales Productivity (1 Medal)

Fujitsu won its first and the only “gold” in the sales productivity category (revenue per capita), while the “silver” and the “bronze” went to IGS and HPS respectively.

8. New Contract Sales (1 Medal)

Accenture won second individual “gold” in this year’s competition in the new contract sales category with a 53% year-over-year surge.  EDS won the “silver” with a 6% increase, while Capgemini earned the “bronze” for a 6% decline!?

Yes, so bad were the new contract sales records in 2004 that we even had to give out one medal for a drop in this category.  IBM’s new contract sales declined by 22%, while CSC’s shrank by 15%.

Overall, the new contract sales dropped by 7% from 2003.

As you have seen from our recent analyses of IBM and IGS’ results in the last several years, selling new IT services seems the easy part (see “Smaller, Shorter – Better?”, Mar 2005).  Keeping the business you’ve already sold is another story.  “Rescoping,” cancellations and expirations have been robbing the IBM shareholders of some $13 billion-worth of new business each quarter, up from $11 billion per quarter from the year before.

As a result, we think that monitoring the changes in the IT services vendors’ backlog would be a more accurate way of gauging their net sales performance.  Alas, only IBM publishes its backlog.  So we’ve settled for the next best thing – measuring gross sales as expressed in new contract signings.

Well, we suspect that once some other competitors’ backlogs start heading north, they may start publishing the figures, too.

Happy bargain hunting

Bob Djurdjevic

For additional Annex Research reports, check out... 

2005 IT:  Octathlon 2005: Accenture Wins (Mar 2005); IBM Global Services: Smaller, Shorter - Better? (Mar 2005);  IBM 5-yr Forecast: Quality over Quantity (Mar 2005); Rumor Lifts EDS', Fujitsu's Shares (Mar 2005); Capgemini: Turning the Corner (Feb 2005);  IBM Servers to Grow Again (Feb 2005);  Carly's Fickle Fans (Feb 2005);  CSC: Gearing Down on Purpose (Feb 2005);  EDS: Grossly Overpriced Stock (Feb 2005);  IBM Historical Update: 2004 Shot in the Arm (Feb 2005); New HeadTurners Series #1 (Feb 2005); IBM: A Crescendo Finale! (Jan 2005); Accenture: Strong Finish, Better Start (Jan 2005); Annex Coverage 2004: IT Services Dominate (Jan 2005)

2004 IT: EDS: The Titanium Stock (and other Wall Street tales) (Dec 2004); IBM PC: Good Riddance (Dec 2004); Fujitsu: Recovery Continues (Nov 2004);  IBM Server Renaissance (Nov 2004);  HP Hits Home Run (Nov 2004); Capgemini: Revenue, Stock Soars (Nov 2004); EDS: Jordan's Swan Song? (Nov 2004);  To Russia with Love and $ (Oct 2004); IBM: Slow Quarter No Longer (Oct 2004); Accenture: Revenues, Profits Up, Stock Down (Oct 2004); Capgemini: A Takeover Target? (Oct 2004); Sellout of America (Oct 2004); Spy Wars (Sep 2004); Outsourcing Boomerang (Sep 2004); EDS to Cut Up to 20,000 More Jobs (Sep 2004); Capgemini Stock Plummets on Unexpected Loss (Sep 2004); HP Savaged by Wall Street (Aug 2004); Moody's Lowers the Boon on EDS (July 2004); HP: Delivering Value Horizontally (June 2004); Accenture: Revving Up a Notch (June 2004); Beware Your CFO! (May 2004)IBM: Changing of the Guard (May 2004); Capgemini: Texas-size Home Run (May 2004); Following the Money (May 2004);  EDS: On a Wink and a Prayer (Apr 2004); HPS Wins by a Nose! (Octathlon 2004); Accenture: Burning the Track (Mar 2004);  IGS: "Crown Jewel" Restored? (Mar 2004); HP: Still No Cigar (Feb 2004); Cap Gemini: Another, Smaller Loss (Feb 2004); CSC: Good Quarter Gets Boos (Feb 2004); EDS: "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT Industry: Whither Goeth It? (Jan 2004); Cronyism Is Alive and Well at EDS" (Jan 2004)

Or just click on and use appropriate  keywords.

Volume XXI, Annex Bulletin 2006-09
March 10, 2005

Bob Djurdjevic, Editor
(c) Copyright 2005 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

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