Sunday, 30 March 2008

Mixed signals

Oracle said that an increased risk of recession had made customers more prudent in their technology spending. Cisco has reported slower corporate IT investment – particularly from the financial services sector. See Cisco signals trouble ahead in Fortune 27th Mar 08. Google reported that there had been slower growth in clicks to text ads, adding to worries about an economic slowdown.

Conversely, Accenture seems to be powering ahead. Latest results for quarter ending 29th Feb 08 showed revenues up 18% (11% in constant currency) at $5.61b with operating profits up 14% at $638.1m – an impressive 11.4% margin. (see report from my (ex) Ovum colleague John O’Brien Accenture continues strong growth in Q2)

Accenture seems to be one of those rare gems – a bit like Capita – which seem to do well ‘whatever the weather’. Its two best performing divisions – consulting and outsourcing – were both said to be prospering because of the cost cutting agenda. Outsourcing was particularly strong in the financial services sector and ERP consulting was strong as cost control in the supply chain increased in importance.

Accenture’s CEO William Green couldn’t see any reason to lower his market outlook as he believed the current environment would spur a ‘flight to quality’. Indeed the earnings estimate for the year was upgraded.

How can this be?

Some analysts seem to think that all tech companies behave in a similar manner to changing markets. As in “a rising tide lifts all ships”. Oracle/Google/Cisco/Accenture might well all be labelled ‘tech’ companies but they are really as different as chalk and cheese. Google relies on consumer confidence (currently waning). Cisco’s fortunes depend on ever increasing network traffic – be it from corporates or consumers. Again an area under threat. Oracle has one foot in the “we do well when corporates expand and install new systems" (clearly under threat) and the other in “we do well when corporates don’t install new systems but upgrade their current Oracle-based systems” (clearly still doing well). Accenture has a foot in both camps too. But it has outsourcing – which Oracle doesn’t have. As I have said countless times before, outsourcing is merely a switch from inhouse to external spend. Often the total expenditure reduces but this shows as a major revenue gain for the outsourcing sector. Outsourcing always seems to do extra well in times of economic downturn.

I guess that’s why I get a little annoyed when I read headlines like “Oracle results cast shadow over tech sector” (Financial Times 28th Mar 08) Results from tech companies will for ever more be ‘mixed’. But there will be many companies that thrive as a direct consequence of the current economic environment – Autonomy, Accenture and Capita among them.

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