The Henry Corporation Brings Familiar Experts Back To Support The ITC Industry

What happens when a major market research organisation off-loads most of its senior analysts in EMEA? I’m sure it does its best to run its services with newer researchers. However many industry execs will miss the quality of support, ideas and advice that they once had. In the case of my old company some familiar faces, now independent, are also as eager as ever to provide support. For myself I set up ITCandor in May 2009 and am publishing research and offering my services through this web site.

To help bring potentially lost expertise back to the industry on a wider level Carsten Schmidt launched the Henry Corporation on November 1^st 2009. The aim of the organisation is to provide clients with marketing supporting (presentations, consulting and market reports) on the ITC industry in EMEA.

The constitution is a loose grouping of senior executive ‘Henry Fellows’ – currently all ex-IDC analysts with decades of experience in tracking complex markets. Current Fellows include:

• Anne-Lisa Wang (HAIKKOO) – Software industry, applications, enterprise portals
• Claus Egge – storage systems, data leakage, cloud based content, green IT, new media types, data security, disaster recovery/BC, server, storage virtualisation
• Marcel Warmerdam – IT markets, forecasting, market models
• Martin Hingley (ITCandor) – ITC markets, data centre, cloud computing, CSR, digital explosion, forecasts, market shares
• Pim Bilderbeek – Telecoms, multimedia, social media, enterprise mobility, unified communications, cloud computing, managed services, data center, and mission critical infrastructure
• Simone de Bruin (LinkedResearch) – pan-European partnership strategies pan-European partnership strategies in the software/services industry

I can personally vouch for all of these experts, as I worked with them for many years (decades in some cases). It happens that they are also all good friends. I’m very proud to be a fellow myself and pleased that Carsten’s activities will stretch my own activities into Northern Europe and beyond. We have been unshackled from the infrastructure of a large company and able to provide more dynamic support than before.

I encourage those of you in the industry looking to understand and succeed in this industry to contact the Henry Corporation for ideas and support, especially if you’ve been missing something in the last few months. I also encourage other independent analysts to sign up to the Henry Corporation to broaden its appeal even further.

If you have any questions on my participation please contact me via email or by posting a comment on this article.

Deutsche Pfandbriefbank Outsources IT Infrastructure To Fujitsu Services

Fujitsu’s Dirk Weigel and the Pfandbriefbank’s Kai Wolf held a teleconference today describing the latter’s move to outsource its IT infrastructure to the former. It’s interesting in light of the traditional reluctance of German businesses to outsource and the slowness of outsourcing business for major vendors in the recession (at least in comparison with the last downturn from 2001-2002).

The bank (one of the largest in Germany) has made a relatively quick decision to outsource its data centres, servers, networking and end-user computing in a contract that is worth approximately €100 million over a five-year period. It is expecting a cost-saving of around 20% as a result. The bank has decided to retain responsibility for its applications. Fujitsu won the contract in competition with IBM and T-Systems. Fujitsu will be taking over the 50 or so staff currently employed by the bank, of which the majority are in Germany. It also has staff in the UK, Ireland, New York and the Netherlands. It is interesting that Fujitsu will use some of its off-shore (or rather ‘remote’) resources in Russia and Poland to provide support.

Fujitsu doesn’t currently break out the revenues it makes from outsourcing, but if we look at vendor revenues from EDS and IBM we can see that there has been no great upsurge in the last year. In general I believe this is because a) most large data centres have already been outsourced and b) the standardisation of technology has made technology easier to manage internally. If we look over the horizon Cloud Computing will take on much of the role of Outsourcing – but without the need to move staff from user to vendor and with all the services being delivered remotely. My take on this latest announcement is that it has very little to do with Cloud (at least not yet).

German IT managers and CEOs have been traditionally very reticent to outsource – at least in comparison with the UK, which accounts for as much as 50% of European activities. It’s possible that we’ll now see a German trend associated with the recession and akin with the overall European growth in outsourcing found in the last downturn. Outsourcing of course has the advantage of turning large capital budgets into operational ones.

Do you know of any other examples of new outsourcing in the recession? Please let me know by commenting on this article.

Fujitsu Announces Quarterly Revenue Growth – Pushed Upwards By Fujitsu-Siemens Acquisition

Fujitsu announced its quarterly results this week (its Q2 coincides with calendar Q3). These show some interesting trends. For instance:

• Although it showed an 11% decline in revenues to ¥11,423 verses the same period in 2008, this is equivalent to a 3% growth if the company were reporting in $US.
• Its growth in EMEA was around 100% when converted to Euros, which is explained by the acquisition of Fujitsu-Siemens earlier in the year and an easier compare.
• Headcount has also increased over the year, again increased by the acquisition, although its financial statements confirm the planned reduction of 1,200 staff in the UK.

So it’s difficult to see the extent to which the company is beating the downturn. I’ll try to make a judgement later by comparing Siemens’ own revenues. In other news Fujitsu also announced a major outsourcing deal with a very large German bank, which I’ll cover in another article.

How do you think Fujitsu is doing. Have you noticed any changes since the take over of Fujitsu-Siemens? I’ll be visiting the new company in Munich in a couple of weeks, so give me some questions to ask them by commenting on this post.

Refurbish, Recycle, Repurpose – New Roles For ITC Equipment In A Downturn

Moore’s law for the downturn – the cost of the same number of transistors halves approximately every 18 months

The Downturn Makes Us Think About Using – Rather Than Buying – Computers

In a recession we tend to think a lot more about how we use rather than buy things. ‘Scrimp and save’, ‘recycle and reuse’ are now more important to individuals and families than before. Over the last year the world economy bares witness, with parking lots full of unsold cars, factories closing for months. We can see similar changes in the way ITC is seen in businesses. As in previous recessions the fall in suppliers business has been frightening in many areas, despite a few clear signs of recovery.

‘Cash For Clunkers’ Schemes Helped The Car Industry – Not Consumers Or The Environment

Governments around the world have been very active in stimulating growth, initially by bailing out banks caught out by the credit crunch, in regeneration projects (such as the ARRA in the US) and in consumer activities, such as ‘Cash for Clunkers’. The latter offered government discounts on new cars for trading in and scrapping old ones – a direct assault on ‘scrimp and save’ intentions. This is one area where governments – egged on by car producers I’m sure – have forgotten (or chosen to ignore) the environmental positives of the recession. ‘But new cars have much lower emissions’, I hear you say. True, but with c.50% of lifetime emissions tied up with manufacturing, ‘not buying new cars’ for a bit and stretching out the use of older ones would have had a more positive effect. Even worse than car schemes perhaps is Sony’s trade-in offer on televisions, which seemed to ignore the up to five-times greater electricity use of flat-screen as opposed to Cathode Ray Tube (CRT) technology. There’s no question I my mind that these schemes concern employers, employment, taxation and GDP rather than either the needs of consumers in hard times or the environment.

Like the car industry ITC also is very dependent on sales of new equipment to keep it successful. In a sense a downturn is a time to discover the ‘elasticity of replacement’. Suspending capital expenditure budgets for computers has been easier for businesses in this downturn because the market is more mature than in 2001 or 1992. Servicing and maintenance vendors have been doing a little better perhaps, but by and large the drop in new sales has cut a massive hole from most suppliers’ revenues.

The ITC Disposal Channel Extends The After-Life Of New Equipment

When looking at ways in which CIOs could do something to help with climate change  (please read my ‘don’t walk on the grass’ analogy), we looked at the development of a ‘disposal channel’ for computer equipment. It takes up the right hand side of Figure 1.

The development of the disposal channel for ITC is particularly important because – as Moore’s and other similar ‘laws’ describe – continuous technological development reduces the active lifespan of equipment. For general-purpose applications there comes a point at which the cost of maintaining older systems out-strips the annualised cost of newer ones. For instance, since the cost of maintaining a rack of storage will remain far more constant than the ever-increasing disk capacity it contains, after a few years CIOs can replace two with one at a lower annualised cost. I say ‘general-purpose’ applications, because there is always specialist equipment needed to run legacy processes and occasional products which do not need to be constantly refreshed and upgraded.

However ‘scrimp and save’ also applies in the ITC market. Not only has capital expenditure been cut to a trickle, but the reduction in transactions and business (described by the lowering GDP figures) means a drop in the need for processing, however temporary and a consequent rise in the value of second user products. Perhaps we should restate Moore’s law for the downturn as ‘the cost of the same number of transistors halves approximately every 18 months’. In addition legislation such as the Reduction of Hazardous Substances (RoHS) and the EU’s Waste Electrical and Electronic Equipment (WEEE) laws have formalised the disposal channel, forcing suppliers to control the materials used in their products and to take back end-of-life products. The existence of a formal disposal channel also makes reselling second, third, or n^th hand computer equipment easier.

As part of my research into the recession I’m looking for vendors and others actively involved with the refurbishment, recycling and repurposing of second user equipment. My first investigation is going to be IBM’s activities in Endicott, New York State. If you have an interesting story to tell. Please contact me by commenting on this article.

Cisco To Acquire ScanSafe – SaaS Security For Cloud Computing

Cisco has announced its intended acquisition of ScanSafe – a specialist in Web Security in the Software as a Service space. Although this time the company ‘only’ cost $183 million it again demonstrates Cisco’s eagerness to add to its strengths at a period when the downturn has restricted growth. ScanSafe is being bracketed by Cisco with IronPort, which it acquired in January 2007 for $274 million.

I’m tracking all acquisitions from major suppliers. Another year-to-date picture of Cisco’s by specialisation is shown in Figure 1.

It has moved away from the nuts and bolts of adding switching, optical and silicon expertise to other areas, such as voice and video. I’ve added ScanSafe to the ‘security’ category, although it could be argued it belongs equally in ‘software, service, web’. The addition will help Cisco compete with both Symantec and McAfee. Like them Cisco will be able to use these offerings to build out its Cloud Computing services.

Cisco is due to publish its next quarterly results on November 5th. Its financial quarters are one month adrift from calendar periods (tis next one ends in October, rather than September). As you may remember I try to ‘calendarise’ results in my revenue calculations. I also try to adjust regional growth to take away the movements affected by currency fluctuation – in this case restating Asia Pacific in Japanese Yen and EMEA in Euros.

Regional growth has been interesting for Cisco. Unlike a few other vendors (Dell for instance) who have reported weakness in EMEA, Cisco’s recalculated revenues suggest it has been the strongest of the three for revenues over the last few quarters. I’ll be looking at Cisco’s regional results again once it reports its quarterly results. Is this update interesting? Let me know by commenting below.

Despite Microsoft’s 14% Revenue Decline, Windows 7 Drives The PC Market Revival

ITCandor Opinion – we’ve reached the bottom of the downturn and vendor results are less predictable than in the last couple of quarters – some show an up-tick, while others – such as Microsoft’s - continue to trace the bottom of the curve. Of course customers make markets and there are enough signs to see a resurgence of the PC market. Microsoft’s introduction of Windows 7 (whether we like it or not) will be remembered as a key turning point. However, it’s likely to do more for other PC players than Microsoft itself. I sense a subtle shift in Microsoft’s approach. By making its new OS easier to use and less complicated than Vista, it is preparing to shift towards services and Cloud Computing.

Microsoft Calendar Q3 2009 Highlights

• Microsoft revenues declined by 14% to $12.92 billion
• Deferred revenues associated with upgrades to Windows 7 were $1.47 billion
• Windows 7 introduction helps the PC market, but not Microsoft for now
• The overall software market is experiencing a shallow downturn in comparison with the total ITC market, but….
• … in contrast the PC software market is experiencing the steepest decline of the worldwide PC market ecosystem
• A simpler, easier to use, operating system points to a shift in Microsoft strategy away from per-PC sales to Web 2.0 services and Cloud Computing

Microsoft launched Windows 7 on October 22^nd 2009. Although significantly earlier than planned on its broad roadmap, it was nevertheless hurried along this year. However the introduction date missed the back-to-school market (although many earlier purchasers have upgrade vouchers) and even cut into the early Christmas market by a few weeks. Its financial press release put a value of $1.47 billion on the ‘Windows 7 Upgrade Option program’, which would have reduced the decline in its quarterly revenues to 6% if it had been able to recognise this as sales – so we expect to see improved results next quarter as a result.

I’ve heard many comments about the poor performance of Vista in the months leading up to Windows 7’s introduction. The new operating system is designed to be simpler and faster and, apparently, should run on any machine currently running Vista. So perhaps for once we won’t have the traditional wait for ‘Service Pack 1’ before business adoption. In fact there are so many references already to companies running Windows 7 that adoption might be considered a way to overcome some of the technical challenges of Vista. Certainly many of those companies which held off moving from XP to Vista will now be evaluating Windows 7 with the view to skip a generation.

The Need To Defer Windows 7 Upgrades Badly Affects Microsoft’s Client Division Results

Microsoft’s delay in introducing Windows 7 is shown in its financial results (see Figure 1), where otherwise it would have shown an up-tick in it s Client business.

As we can see Entertainment and Devices as well as Servers and Tools are doing better than other areas, the Business Division is growing on a par with the overall business and Microsoft’s Online Services business is suffering badly.

The Up-Tick In The Software Market Is Delayed For Now

I’ve shown the quarterly revenues of the leading worldwide software companies in Figure 2. Of these Oracle is currently doing best and Microsoft worst, although all vendors are suffering badly in the teeth of the current economic downturn. I’ve mentioned before that I expect software overall to have a delayed and shallower (V- rather than U-shaped) downturn and that it is likely to take longer to show positive growth in comparison with the hardware market. Again Microsoft would have shown an improving trend in its revenues had it not been for the necessity of deferring the Window 7 upgrade.

Windows 7 Is Driving The Resurgence Of The PC Market

2009 has seen an unprecedented decline in revenues from PC sales worldwide, which I’ve tried to document accurately in recent quarters. Aside from Microsoft there are a number of signs to suggest there is a recovery going on (such as Apple’s results). Although it is currently too early to assess all calendar Q309 results, I’m convinced that we’ve reached an inflection point.

There are certainly many drivers for recovery, from new microprocessors and form factors to stronger demand from emerging markets and Western consumers. However I believe that in years to come we’ll look back at a troubled year and say that the up-tick in the PC market coincided with the launch of Windows 7.

Not that Microsoft’s generosity to the PC market will do itself much short-term good … I’ve shown a forecast for the worldwide PC market by supplier type in Figure 4. Software suppliers (most importantly Microsoft) have seen the worst declines in recent quarters. Unlike the overall software market, it doesn’t look as if the downturn here will be short-lived or shallow. For PC software I believe it will not be until the middle of 2010 that we begin to see positive growth, although Microsoft may change that if it is able to book most of its currently deferred Windows 7 upgrade revenue into calendar Q409.

Microsoft Was Light On Announced Activities In Calendar Q3 2009

As usual I thought it would be worthwhile looking briefly at Microsoft announcements in the quarter. Overall I believe it was particularly light on issues such as Cloud Computing and server operating environments. I expect to hear more about those between now and the end of the year.

Microsoft Acquires Four Solutions To Enhance ‘Dynamics’ ERP Strategy

Microsoft announced no major company acquisitions in the quarter. It did, however announce that it had bought four separate solutions to enhance its Dynamics ERP strategy. In particular:

• Fullscope’s process manufacturing solution, which provides integration of business processes across discrete manufacturing and process manufacturing
• Computer Generated Solutions’ professional service solution, which provides a single system to manage projects and resources.
• Retail solutions from both LS Retail EHF and To-Increase Denmark A/S, helping create a Microsoft end-to-end retail solution

 Microsoft’s Collaboration Activities Centre On Financial Sector And Communications

We’ve noted before that Microsoft acts strongly through collaboration with other suppliers. In the last quarter it announced a number of new activities, many of which were concentrated on the Finance Sector and Telecoms. In particular:

• In July Microsoft announced its ‘Banking Industry Architecture Network Alliance’, a Go-To-Market Program for Hosting Providers. It also announced that it had signed a Linux software patent agreement with the Melco Group for its Buffalo products and an agreement with Yahoo in the search engine area
• In August Microsoft and Nokia announced a global alliance to develop mobile productivity solutions
• In September it announced that Vodafone was the first vendor to bring the new Windows phone (manufactured by LG) to European customers. It also announced that – with Fundtech it had introduced the SEPA Integration Suite
• In October it announced an Exchange ActiveSync patent agreement with China’s Yulong Telecommunication, and ERP+ initiative with Capgemini and with Broadsoft for hosted Unified Communications

Microsoft’s Corporate And Social Responsibility Activities Focus On Education

During the quarter Microsoft announced a number of CSR initiatives. In particular:

• It committed $50 million to higher education resources in the US for training and certification in the drive towards economic recovery
• It gave teachers free resources to address the challenges in schools created by the impact of the H1N1 flu virus and launched a ‘response center’
• It partnered with Cisco, Intel, the government of Kenya and USAID to launch a joint project to enable ‘21^st century education’ in Kenyan schools

Some Conclusions – Microsoft Will Shift In Making Money From Services Rather Than Selling PCs

Other players in the PC market will enjoy the drive to purchasing that Windows 7 is creating. However, there’s been a big shift in Microsoft’s approach in the last few months. It’s beginning to target ‘the next billion’ customers through offering alternatives to its per-PC operating system model. In bringing forward the introduction of Vista’s replacement (and in making it apparently less complicated and easier to use) it has shifted from its historical strategy. From now on the inbuilt features of the new operating system, easier licensing regimes and online services beyond back-up and email will see it become more active in the development of Cloud Services – initially for consumers and small businesses.

What do you think? Are you going to install Windows 7 straight away? Are you rushing out to buy a new PC? Let me know by commenting on this article.

Apple Gathers In A Bumper Harvest With Recession-Beating Results

Apple Calendar Q3 2009 Results Highlights

• 4th financial quarter revenues grew 27% to $9.9 billion
• Net Income was up 47% to $1,7 billion
• Growth was helped by the i-Phone ramp up
• Macintosh sales grew 9% in the quarter – the first major PC Brand in positive territory
• ITCandor considers raising Q309 forecast for PC Brands from –11% to –6%
• Apple spearheads a ‘Saxophone-shaped’ recovery

This week Apple announced its financial fourth quarter and annual results. Its revenues of $9,870 million and Net Income of $1,665 million were 25% and 47% up on those of the previous year. Oh… and I have to admit I got it wrong when I suggested Apple would suffer along with the rest when writing about the company in the Spring… sorry!

Over the years Apple has carefully extended its brand beyond IT – into Communications with the i-Phone and consumer entertainment with i-Tunes. Last week I speculated that cost saving was one reason why Red Hat might be beating the downturn. Surely the same can’t be said of Apple, whose products are typically more expensive than its competitors. The answer this time may be in brand management and a stronger ratio of consumer to business customers. By concentrating on differentiated design Apple has managed results this year which look unlikely to be beaten by any of the other suppliers. Being different could cause no end of problems if its products failed to be objects of desire, but it has maintained the aspirational status of its offerings through dint of massive advertising spending and the cultivation of influencers. The BBC, for instance, regularly hosts video-links of Steve Job’s presentations at its own studios and never fails to feature Apple announcements on its news channels. Apple is fiercely private, which sometimes throws up negative stories, such as the occasion when it asked a customer to sign a gagging order in exchange for replacing a faulty product, according to the Times.

Apple Heads A Saxophone-Shaped Recovery In The PC Market

Apple is the first of the major PC brands to report Q3 2009 results. By growing its Macintosh sales by 9% to $3,952 million it has also laid down a high target for the others to aim for (see Figure 1). While most of these suppliers have managed to show an up-tick in their PC revenues, I believe that only HP has a chance of similar growth.

Even though it’s only one result, I’m already considering revising my PC Brand forecast upward from –11% to perhaps as much as –6%, as shown by the dotted green line in the Figure. I will, however, need a lot more evidence to confirm this. A saxophone-shaped recovery is one where the absolute value of a market falls sharply and then returns to growth, but at a lower lever than before the decline. It properly refers to graphs of absolute values or shipments – not growth as I have shown here. But I’m a saxophonist…

Product Seasonality Helps Apple Revenues

I’ve shown Apple’s revenues by quarter and offering in Figure 2 (I’ve included its i-Tunes ‘Music’ category as ‘IT Services’). It’s clear that sales of the i-Phone are continuing to ramp from their introduction in 2007 – one reason why Apple has managed revenue growth in the downturn. It’s likely to do even better now its exclusive deals (such as the one with AT&T for the US and with O2 in the UK) are coming to an end. It’s also helped by the incredible seasonality of the i-Pod, which – with very strong Q4 sales -has been least affected by the most difficult downturn quarters.

This will be a busy ITC story week. Everyone knows that Microsoft is introducing both Windows 7 and Windows Server 2008 SP2 on Thursday. I’m expected more from Apple (a cheaper Mac and an ebook/video product perhaps), Google and others as spoiling tactics. As always I’ll try to put them in context of their vendors’ strategies and customer demand.

Let me know if you’re an Apple user and have positive or negative things to say by commenting on this article.

Red Hat’s Quarterly Software Revenue – Top Of The Growth Pops

Red Hat recently announced its quarterly financial results which included revenue growth of 12% to $184 million for its Q1 2010 (ending in August 2090). Its net income was also up 37% to $29 million. I’ve followed Red Hat for many years and still have somewhere an annual report signed by its ex-president, wonderfully named Ransom Love. It’s one of the smaller of the 21 selected software vendors I include in my quarterly statistics. However with an estimated growth of 14% in Q2 2009 it topped the list in terms of software revenue growth (see Figure 1 which shows the strongest growing companies). Its latest results have set a tough mark for others to beat in Q3 as well.

Red Hat claims to be the world’s leading open source provider. Its products include its Enterprise Linux operating system and JBoss middleware. It is strongly focused on the Enterprise market and works with Microsoft on adding Linux as a guest in Windows virtual environments. No doubt part of its success is in providing ways of building lower cost server platforms for companies constrained by the recession. To a certain extent the success of Red Hat is counter indicative of the downturn.

Like other vendors Red Hat has been experiencing weaker sales in Asia Pacific than either the Americas or EMEA (see Figure 2 – in which I’ve ‘calendarised’ Red Hat and other vendors revenues for comparison purposes). As with my other vendor profiles I have estimated regional revenue growth by recasting values in local currency.

Red Hat’s revenues are tiny in a Software market, which was worth some $645 billion in the year to the end of Q2 2009 – a market with Microsoft as leader with a 6% share and tens of thousands of other players. However it is currently a leading example of growth in a falling market.

Do you know of similar or larger software companies who are beating the slump by producing positive revenue growth? Are you using Red Hat offerings? Let me know by commenting on this article.

IBM’s Q3 2009 Revenue Decline Improves – A Clear Up-Tick For The ITC Industry

ITCandor Opinion – Overall IBM’s results are better than I expected. They have been influenced by a change in targeting of Public accounts and re-generation projects, both with its Smart Planet campaign and the introduction of bridge financing from IBM Global Finance. They are also the result of close cost control. The company hasn’t updated its employee numbers since the end of 2008, when headcount stood at 398,455. I’m sure there have been some interesting changes there. Within IT Services Strategic Outsourcing category is declining less than other areas at –2%, again demonstrating that this downturn is unlike the last when Outsourcing boomed. IBM is pleasing the stock market by continuing to achieve high absolute net income results.

IBM Q3 3009 Financial Results Highlights

• IBM revenues decline by just 7% to $23.6 billion, net income increased by 14% to $3.21 billion
• IBM’s revenue growth is best in the Americas and worst in Asia Pacific once currency fluctuation has been taken out of consideration
• Growth in EMEA shows no up-tick in Q3, but there is no evidence of worsening business for IBM in the region
• Software is best, Hardware worst in terms of revenue growth by offering
• Public Administration is IBM’s strongest industry sector, Industry worst in terms of rolling 4Q revenue growth; perhaps surprisingly Financial Services is in the middle
• Among Hardware categories System p has the least decline; almost all offerings are flat or showing an up-tick in Q3 2009 on a rolling 4Q basis
• System z revenues are continuing to worsen, although this is as much due to seasonality as the recession

IBM Announces Improving results In Q3 2009

IBM announced its financial results last night. Its revenues declined by 7% to $23,566 million, while net income was up 14% to $3,214 million. As usual I thought I’d look at the numbers and tell you what’s doing well or badly form a number of dimensions – something I know many of my readers in the investment community have little time to do themselves. IBM supplies more details than most major vendors, for which I am grateful, although there are areas where I’ve had to estimate, as you’ll see. I’ve written lots of analysis of IBM over the last few months, all of which is free to my readers (check out the guide to ITCandor posts).

Asia Pacific Is Doing Worst, The Americas Best Once Currency Fluctuation Is Taken Out Of The Equation

IBM’s regional revenues (estimated in local currencies) are shown in Figure 1. The growing value of the € Euro and shrinking value of the Japanese ¥ Yen reverse the constant dollar headline views that EMEA shrank by 12% and Asia Pacific was flat. It’s also interesting that IBM’s EMEA business appears to be strong when other suppliers (Intel and Dell, for instance) have reported weakness there). IBM’s business in the Americas was better than other regions, dropping by just 5% against Q3 2008 levels.

IBM Software Revenue Is Bigger (And Doing Better) Than Hardware In Recent Quarters

Software (at just –3%) remains the strongest among the broad categories of offering (Figure 2). IT Service has tracked IBM’s total revenue growth closely since 2008, while Hardware has consistently under-performed other segments. We’ve noted before that Hardware tends to suffer first in a downturn. IBM’s decision to de-emphasise this category (or at least to invest more in other categories) has also led to a long-term decline in revenues here. Hardware now accounts for just 18% of IBM’s Q3 2009 revenues – less than Software at 22%.

Public Administration Is Doing Best, Industry Worst In terms Of IBM Industry Sector Revenues

I’ve been looking for evidence over the last month or so of the growth of the ITC market by industry sector. IBM luckily provides information on its revenues by a number of broad categories (see Figure 3 which gives a rolling 4Q view)), splitting out a ‘General Business’ category for those revenues it can’t align clearly. As we might expect Public Administration has out-performed other vertical markets; although declining its growth remained positive until reaching 0% growth for the year to Q3 2009 compared with the same period in 2008. The worst performing sectors were Industrial and Distribution – surprisingly not Financial Services, whose growth in the latest quarter was in third place. Communications was in second place with a decline of around 8%. Financial Services remains IBM’s strongest sector with around 30% of annual revenues to Q3 2009. It was followed by General Business (20%) and Public Administration (17%).

All IBM Hardware Categories Show Flat Or Improving 4Q Growth Results, Apart From System Z

Finally it’s a good idea to look at IBM’s hardware revenues (Figure 4 gives a rolling 4Q growth view which I’ve estimated from the partial information published by IBM). We see up-ticks for Microelectronics (typically custom microprocessors such as those used in Sony, Nintendo and Microsoft gaming consoles), Retail Store Solutions – a small category, but one I hope to write about in the near future, System X, which I’ve featured recently. Other categories are flat (System p/I, Storage Systems and overall IBM Hardware. IBM’s System x mainframes are continuing to decline, albeit from the strongest growth position at he end of 2008. It will be interesting to see how IBM’s hardware business picks up in Q4, which is always a strong seasonal period for the company.

Some Conclusions – How Do IBM’s Results Relate To The Overall ITC Market?

I don’t think we should get carried away. IBM’s results show improving decline and an up-tick – not revenue growth. However when added to Intel’s more positive showing they are an early suggestion the ITC industry is beginning to pick up from what has been the worst downturn in revenues and sales I have ever seen. I’ll be recording the results of around 80 more vendors in coming weeks and updating my forecasts.

Let me know if you have seen early signs of recovery (or continued signs of decline) in your business by commenting on this article.

Intel Reports Revenues Down Just 8% – Poor Signs For EMEA

Intel Q3 2009 Results Highlights 

• Intel’s revenues only declined by 8% in Q309 v Q308 – beating the growth of recent quarters
• PC revenues from EMEA were down 26% when estimated in € Euros
• Revenue and net profit by employee have risen significantly due to headcount reduction and improving business
• Intel had 2,700 less employees at the end of Q309 compared with Q308
• Intel predicts growth in its Q409 quarterly revenues

Intel is at the heart of the PC market, which in turn is the biggest single category of the ITC industry. It reported its results this week, posting a revenue decline of 8% to $9,289 million and Net Income of $1,856 million. These are certainly better than the –15% and –125% respective results in Q209. This is encouraging for the overall PC market, which I’m currently forecasting to decline by 14% to $77 billion overall in Q3. ‘One swallow doesn’t make a Spring’, but nevertheless I believe Intel is right in suggesting this is a positive sign.

 

I believe the current boom in Netbooks (all of which us Intel chips) and increased activity in preparation for Microsoft’s Windows 7 launch are two reasons for the results looking better. In its press release Intel talks up the substantial 2Q to Q3 growth which is a difficult compare due to the seasonality of demand for PCs and servers. In fact almost all the growth numbers in the press release are Q3 v Q2. For the future it predicts revenue in Q4 of $10.1 billion (give or take $400 million), which averages out at +23% for the quarter and would add to –8% for the year. It also highlighted its up-coming Xeon server, high-performance Intel Core processors and  low-power Atom processors introductions, some of which I hope to write about in coming weeks.

Intel’s revenues do not follow the ‘consumption’ of PCs by region. In fact 66% of its revenues come from Asia Pacific and Japan. We should be carefull therefore not to read too much into its published growth rates, however… According to the press this week Michael Dell mentioned poor market conditions in EMEA , which is borne out by Intel’s regional results (see Figure 1). Once converted to € Euros, I calculate a decline of 26% for the quarter (v Q308). Unfortunately this could also be symptomatic of the ‘EMEA double dip’, which is a feature of my current ITC forecast. It is also possible that the closing of PC and x64 server assembly in Western European countries is moving some production further East than Europe, reducing Intel’s in EMEA as a result. I’ll check the results of the Taiwanese sub-contractors in coming weeks to see what evidence there is there.

Intel’s strong position as the leading computer microprocessor supplier gives it strong productivity (see Figure 2). It announced that it finished the quarter with 80,800 employees – 300 up on the total for Q209, but 2,700 fewer than Q308. Its productivity figures have improved as a result of improving results and redundancies, coming in close to the highs of Q308 and Q407.

What do you think? Have you observed worsening market conditions in EMEA? Do you see signs of recovery in the business you follow? Is Windows 7 release going to stimulate the PC and Windows Server 2008 SP2 the server market? Let me know by commenting on this article.