PAC: Top players on the European IT services market in 2006

According to PAC this year, eleven providers are likely to exceed €2 billion of revenue (not taking into account possible captive revenue) on the European IT services market. They include five American firms - IBM, HP, EDS, Accenture, CSC, five European - Capgemini, Atos Origin, T-Systems, SBS, LogicaCMG, and one Japanese provider - Fujitsu Services.

Considering growth rates, the clear leader is LogicaCMG, which managed to expand by +39% in the first half of 2006, mainly thanks to the takeover of Unilog. Organic growth of +5% was satisfactory - particularly in the year of the merger.

Second comes Capgemini with an impressive +10% in the first nine months, and even +13% in Europe. With +14%, outsourcing activities generated the strongest growth. The company recorded a considerable increase in project services, amounting to +10% in the Professional Services unit and to +11% for Technology Services. Compared to this, the +5% growth in Consulting Services is rather modest, although this rate is in line with the market average. Capgemini seems to have realized that the project services market has different types of buyers, addressing them with the corresponding business models.

With +7% worldwide for the past financial year (ending 31 August), Accenture ranks third. However, EMEA revenues fell by -1% due to problems in the UK (-18%!). While consulting increased by a moderate +3%, outsourcing grew by +13%, especially in application management and BPO. It’s remarkable that the problems with Sainsbury and the NHS have not had a more negative effect on the business trend in the outsourcing area in particular.

Fourth comes a company that only a short while ago was considered to be in deep water by many market observers: EDS; it posted +9% worldwide and +10% in Europe during the first nine months, despite the GM contracts being re-awarded. EDS has returned to its old shape, its offering and delivery are up-to-date and well aligned.

IBM follows on rank 5, generating a modest +3% in the first nine months. Growth was driven by the SO (IT outsourcing) and BTO (BPO) areas, with +6% and +5%, respectively. Here IBM - like EDS - has managed a turnaround and is also benefiting from the redesign of its offering and delivery. At only +1%, though, the consulting business (GBS) did not live up to expectations.

T-Systems ranks sixth, posting growth of almost +3% in its IT activities. While the large-account business (ES) declined by -1%, the SMB business (BS) expanded by an impressive +58%. Captive business shrank by -5%; external IT revenues rose by 9% - solely thanks to the takeover of gedas.

HP comes seventh, with a weak +1% in the past financial year (ending 31 October). While performance in the outsourcing business (MS) was satisfactory with +6%, the CI area (project services) grew only modestly at +2%. HP suffered in particular from a slight decline (-2%) in TS activities (hardware maintenance and support services), which still account for more than 60% of global services revenues. Compared to its archrival IBM, however, HP still seems to be lagging behind when it comes to rationalizing delivery and portfolio. However, they are working hard to remedy this.

CSC ranks eighth after the first six months of the current fiscal year (starting on 1 April). Especially in Europe, its revenue plunged by a considerable -7%. CSC is followed by Atos Origin, whose revenue fell by -1%, or grew slightly by +2% “pro forma”, i.e. considering divestitures. Both companies show a large share of outsourcing and, what is more, have so far followed a strong big-deal approach - similar to EDS in the 1990s. Now, however, they both increasingly need to adapt to the changed market environment and adjust their business models even more to trends such as multi-sourcing, standardized offerings/ managed services, and (especially for Atos Origin) global delivery models.

Last is SBS with a revenue decline of -4% in the past financial year (ending 30 September). While captive revenues increased by +6% during this period, external revenues fell by 7%. This decline, though, PAC attributes to the sale of the PRS activities (hardware maintenance and support services) to Fujitsu Siemens. When excluding this disposal, SBS grew by +8%, its external business even by +10%, pushed by activities abroad (mainly in the UK, the US and Austria). This development is all the more impressive when it’s taken into account that SBS' past fiscal year was marked by enormous uncertainty about the company's future. After Kleinfeld's announcement that SBS would be tied even more closely to the other Siemens areas and that most of the Siemens Group's IT resources would be bundled in the SIS unit, the market regained its confidence - and SBS can be optimistic again about its future.