In Nov 2002, I delivered what I consider to be the most important and significant speech of my so-called career. It was my first for the Prince's Trust and I entitled it "IT's all over now?" (after the Rolling Stones 1964 track). I used the automotive industry as an example of an industry that had gone through a period of rapid growth for 40 years, when it grew several times faster than GDP, before reaching maturity. Growth first fell to equal GDP and then started to decline even further. Even though the number and usage of automobiles in the world continued to rise dramatically, prices declined even faster. I said that IT had reached this 'maturity' stage and future growth would be around GDP (average GDP over the last 20 years is 2.5% and current inflation is c2-3% - so to meet this target, headline growth would have to be around 5%) Almost everyone seemed to disagree with my thesis at the time. As it turned out, I was too optimistic.
Two years later, in 2004. Nicholas Carr published "Does IT matter?" which also questioned IT's place and importance in the future economy. Carr's book came to similar conclusions to me, did rather well and certainly got more international publicity!
Over the last few years I have been making presentations about the major changes which are taking place in how people will use computing. The move towards achieving Holway's "Martini Moment" - achieving connectivity "anytime, anywhere and from any device". The move towards SaaS. The move away from the Desktop - indeed away from the WebTop - towards MyTop and MobiTop.
So I was particularly interested that Nicholas Carr's new book - The Big Switch; Rewiring the World - is pretty much along the same lines as the points I have been making for these past many years. Read A revolution is taking shape in today's FT. If you have been unconvinced so far about the changes that are and will affect all of us - as individual users and in our businesses - then I really do commend you to read the FT review and the book itself when it comes out in the UK on 1st Feb 08.
I really do believe that this will be the main driver for the next generation. The term 'Next Big Thing' (NBT) is over used. But in the context that the PC was a revolutionary NBT and that the NBT that followed that was the internet, then I firmly believe that what Nicholas Carr (and me!) are desribing - whatever term is finally used to define it - will be a NBT of equal magnitude.
Wednesday, 30 January 2008
Nicholas Carr - The Big Switch; Rewiring the World
Readers Queries and Why Life begins again on 6th Apr 08
Just to answer a few of the readers queries that I have received in the last couple of days.
The new lifetime £1m limit on CGT does indeed start again on 6th Apr 08. So if you like me have already busted the £1m limit taxed at 10% under the previous regime, that all gets 'written off' and you start again. This could have an effect on those readers who might be dithering (to use the word of the moment) about selling up before the end of this tax year. If you sold a part of your investment, you could still leave a potential gain of £1m on the table to be realised later which would still only be taxed at 10%.
If you reread Crazy changes to CGT you will see that Stephen Timms MP (Timms was an analyst at Ovum earlier in his career) had sent in a response. I'm not sure if I got an exclusive at the time, but Timms had been Minister of State for Business and Competiveness but Peter Hain had just quit and Timms says in his comment that he had been moved back to the Department of Work and Pensions as the new Minister of State for Employment and Welfare Reform under James Purnell (who also addressed today's Prince's Trust Parliamentary Reception - see above) This move was announced officially today. More relevantly for tech, Timm's role as Minister of State for Competitiveness - which includes trying to get a more effective broadband service in the UK - has been taken by Baroness Shriti Vadera. See Timms replaced by tough new IT minister - but don't be hoodwinked. IT is one of thirteen industry sectors that Vadera will have responsibility for. Such is the importance of IT nowadays.
Bill Gates addressed a Prince's Trust Parlimentary Reception at the House of Commons today. Microsoft have been members and supporters of the Prince's Trust Technology Leadership Group for some years; I am the current Chairman. In answer to those readers who asked what Bill said to me, I can honestly report that the only words he addressed directly to me were "Who are you?". I have already replied to the reader who asked me to take up with Bill the faults he has had on his X Box.
Who paid for your lunch with Mark Hunter at Axon?
I did. I have had a rule for many decades that the least I can do for anyone who takes the trouble to visit me in Farnham, is to pay for the lunch.
I'd also like to make clear that I wasn't giving any personal view about whether Axon would make or exceed current analyst forecasts. I was merely saying that Axon has already publically said that they will and Mark Hunter concurred. I haven't got a clue whether this expectation is right or wrong. On the other hand, Hunter has never knowingly deceived me in the past.
Tuesday, 29 January 2008
Autonomy tops expectations
Autonomy has announced its full year results which came in ahead of analyst expectations. Revenues grew 37% to $343.4m and operating profits up 60%.
The following comments have been extracted from the Panmore Gordon morning note written by George O'Connor.
Operational highlights included 13 OEMs signed – underlining the view that Autonomy is now the default OEM, ASP increased to $390k from $375k – a rarity in the sector and illustrative of Autonomy’ s strong competitive position, a Q4 operating margin of 36% - indicating the strength of the operating model. Autonomy comments that sub-prime has been positive for its business.
Autonomy is a gorilla in its target areas of enterprise search. Its strong execution in these markets is resulting in positive earnings growth and surprises as these markets go through a structural step change in IT spend. The Zantaz acquisition expanded the business into eArchiving and discovery and has since been stimulated by a legislative push. Autonomy has not been impacted by financial services or indeed concerns about any softening in IT spending levels in 2008. Indeed Autonomy comments that it has not seen any change in trading conditions.
Autonomy shares are up 2% at 862p (10.30am). But it seems to be a rare morning where almost all the tech stocks are 'in the black'.
Monday, 28 January 2008
Mark Hunter and Axon
When I made my posting Axon shares halved on 11th Jan 08, I said I was having lunch with Mark Hunter later in the month. This happened today.
It would be inappropriate for me to go through our long and highly enjoyable session together. But I just wanted to reiterate that I probed Mark quite extensively about whether he knew of any other reason (other than the general tech market downturn and his own departure) for Axon's steep share price fall.
I am entirely satisfied that there is none. Indeed, I fully expect (as Axon has said publicly) that they will make - maybe even exceed - analyst expectations. I'd also say that I think that Axon is as well placed as any - and a lot better than most- to weather the current storms. They have a diversified customer list encompassing public sector, utilities, aerospace, defence and financial service with no particular heavy exposure to any. Their big contract with Barclays is in factoring - which tends to do well in a financial downturn! The US business is well balanced and resilient.
Anyone who knows Mark will realise that he was a great founder/leader. But he seems to have had the sense to realise that the talents required to grow from nothing to £200m are quite different talents to those required to grow from £200m onwards. As Mark points out, he has visited the US operations just three times in the last couple of years; letting new CEO Steve Cardell run the show.
So should Mark have stayed on as an NED?
Ex CEOs as NEDs are really bad news anyway. But, I hope Mark won't be offended, I don't think he'd make a good NED at any SITS company. I know from my own experience how frustrating being an NED can be. Mark doesn't even have my patience!
The real question therefore is "Is Axon now undervalued?" or "Was Axon just overvalued all the way along?". I guess I'll leave that one to my broker friends/readers but readers also know that I sold my own Axon shares last November at c800p.
McKenna to leave LogicaCMG
Posted at 11.00am on Monday 28th Jan 08
One minute I get a news report that LogicaCMG is (very sensibly in my view) setting up a dedicated Outsourcing Services division (see Ovum Holway HotNews report from Ian Brown Click here) to be lead by Jim McKenna. Then I get news that McKenna is to leave in the second half of the year. (see Top executive to quit troubled LogicaCMG from The Times online) McKenna is to start a portfolio career which includes become chairman at voice and data company Azzurri Communications and Rainer, a youth charity.
McKenna served as acting CEO before Andy Green took on the role on Jan. 1.
Seems a bit strange to me! I'll have to delve deeper. So more later.
Posted at 11.00pm on Monday 28th Jan 08
Jim hasn't returned my call but I did have an interesting conversation with Carolyn Esser at LogicaCMG. I think I was meant to get the two pieces of news at the same time. But clearly I wasn't the only one who didn't. The release on the setting up of the Outsourcing Services division makes no reference to Jim leaving (which would have helped even if they were both meant to arrive at the same time!)
I have a lot of time for Jim. I can understand that he wanted the #1 role. All credit to him that he stayed for a proper controlled handover to Andy. Not all of Martin Read's senior management at LogicaCMG behaved in that proper manner. But I have to be honest in saying that I still find it difficult to understand why you give an outgoing director such an important role for six months. Indeed, I tried to search my memory for a precedent - and can't think of one. In politics it would be like a Prime Minister handing over to his successor but saying that he was going to act as Chancellor of the Exchequer for six months before leaving politics for good. Just think what the media would make of that.
I assume that Jim's #1 task now is to appoint a permanent head of the all-important Outsourcing Services Division. The sooner that happens the better.
Thanks and Welcome
The number of HotViews subscribers to the daily email doubled in the last week and is now three times higher than at the start of 2008. The same applies to those viewing the webpage. A BIG WELCOME to all new subscribers including those from LogicaCMG signing in to look at George O'Connor's comments about Andy Green. I'll be meeting Andy in his new role again soon - I obviously have known him well for years via my enduring role on BT Global Services advisory board. Goodness knows how many hits I'll get when I post my own views!
Also an increasing number of readers are sending in their own views/feedback. I must admit that most of this is via email and 'not for publication' which is a shame. But it is always worth checking the website for posted comments (which I welcome!) from time to time.
PLEASE, if you like Holway's Hotviews, spread the word by forwarding this daily email to your friends or giving them the weblink http://hotviews.blogspot.com/.
Warning from Maxima - Beware the consolidators
I note that Maxima has issued a profits warning; sending their share price down 30% to 165p (10.00am). The reason given was that “several major work packages with a large client were terminated prematurely due to a vendor consolidation exercise. This resulted in the work transferring to a tier 1 Global IT Services player...Certain business… in some other areas of the business, is experiencing client delays, not helped by broader current market uncertainties”.
The reason for the profits warning contains a certain irony as Maxima is as good an example as you will ever find of ‘vendor consolidation’. They now seem to be suffering from the current ‘flight to quality” whereby customers favour the larger “Tier 1” suppliers over their smaller competitors when a choice has to be made.
The latest incarnation of Maxima came into being in 2004 as the company name used for a merged Azur and Maxima. Maxima was an EPR supplier in the 1990s formed from an MBO at Minerva which then acquired Systems Team. Azur had been created out of Weir Systems and had bought Maxima in 2001 before acquiring IBS in 2004. By 2004, Maxima had such old established UK IT luminaries as Roger Graham and Mike Brooke on their board. Kevin Harrison (ex of Vega) was its CEO and Geoff Bicknall (ex of Northgate) its CFO.
In Nov 2004 Maxima IPOed at 110p and then set off on a buying spree. I think I’ve counted 10 acquisitions in the last 3 years. The most recent being Elcletic only last month/Dec 07. So today’s Maxima with annual revenues estimated around the £50m mark is actually the amalgam of over 20 different companies.
My views on consolidators is well known. They rarely, if ever, work. Investors value organic growth much more highly than inorganic growth – even if that inorganic growth boosts earnings by way of cost cuts. The best use of acquisitions, in my view, is when a company already has a good core proposition and uses acquisitions strategically. For example to expand overseas (Sage is a great example of this), to buy in the technology it needs (Microsoft is a great example of this) or to move into allied business areas (Cedar/COA is a good example with their move to add HR to their FMS core offerings).
The problem is that I keep getting sidetracked into thinking that perhaps I’ll find someone with the magic formula of making consolidation work for the long term benefit of shareholders. I have a lot of time for Harrison. He’s a thoroughly nice guy who tells a very convincing story and has executed well. Indeed Harrison himself has often told me personally that he intends to be the one who proves the Holway sceptic wrong. It’s a shame that he has now seen much of the considerable shareholder value he has created since the IPO knocked away as a consequence of the very vendor consolidation he has taken part in.
Taking responsibility
I spent a jolly few hours this weekend reading a rather thick board report. Apart from the usual performance and strategy issues, most of the paperwork was devoted to audit and compliance reports. I have never claimed to be an expert on the complex laws and procedures relating to investment trusts. But, at the end of the day, I fully realise that I am liable for the accuracy of, for example, our upcoming annual report and accounts to shareholders as well as the frequent notifications to the Stock Exchange. I therefore take my duties very seriously and read every word. But, most importantly, I have a list of questions for our external auditors and the people responsible for ensuring that our internal procedures are adhered to.
I realise that no court of law would expect me to know every detailed rule or the details of every company transaction. But I know that any court of law would have expected me, as a director, to have taken every reasonable step to ensure that the controls were in place and were adhered to to avoid the company breaking any rule. If they were found lacking, I realise that the punishment for me could be severe. At worst a jail sentence or heavy fine. But even an investigation of which I was aquitted could ruin my career as a director – whatever the outcome - as well as having a detrimental effect on my own quality of life.
I say all that because I am just getting really fed up with politicians who seem to imply that such responsibilities should not apply to them. How many directors would even dare to suggest as a defence that they were too busy to know what was going on or didn’t take steps to ensure that they they had people on their teams whose job it was to know the rules and report on their adherence? If Govt Ministers can’t set up the simplest of control/compliance procedures over their own donations then what hope do they have in doing the same in the biggest offices of state? By the way I know quite a few businesses that are required to undertake full audits on turnovers of c£200,000 – roughly the total of donations that Peter Hain doesn’t seem to know anything about. Indeed, how many of us would even dare to suggest similar excuses for errors on our tax forms? Even at the level of benefits claims, Peter Hain’s own department used the slogan “No ifs, No buts” in their campaign of zero tolerance against people making erroneous benefits claims.
As you might guess, I have no sympathy towards Peter Hain. Perhaps what is wrong is that too few MPs have any real experience of business. How many have had to face up to the liabilities of being a company director before entering Parliament?
Perhaps if they had, they’d take their responsibilities a little bit more seriously.
Friday, 25 January 2008
Correction
Please note that I meant to refer to Fujitsu Services, not CSC, in my piece earlier today. Public sector gravy running into the buffers. I have now corrected it. It wasn't even an error - I meant to type Fujitsu! Sorry, but I plead senility.
2008 - the year to be 'Boring'?
I'm meeting Bill Gates next week for the first time. Although I have written quite a few critical articles about Microsoft in the last 20+ years, Gates has clearly had a huge effect on my life (and everybody else involved in IT).
When founders step down from their executive roles (as Gates will do in a few months time) the dream is to be able to say "I leave the company in good health" and for the analysts to agree!
Given last night's Q2 results (see Microsoft bucks tech trend in Businessweek and Bullish Microsoft jumps 10% in today's FT), it seems that Gates has achieved the dream. These are excellent results which only a nit-picking analyst could criticise. Even if you strip out currency effects and take a pretty cautious line on revenue recognition on deferred revenue on Vista updates paid for but not installed, you are still talking a 12% revenue rise (compared to the 30% headline figure) That is at least twice the the most optimistic view of average market growth. Of course, what propelled Microsoft shares up 10% in after hours trading, was an equally positive outlook statement. We had the same good results and even better outlook from that other giant of the IT industry - IBM - last week. (see IBM Results lift cloud over IT sector - FT 14th Jan 08)
Compare and contrast that to Apple. (See Warning bells over Apple's iPod sales in the FT on 24th Jan 08.) Apple shares have taken a real hit this year. After hitting $200 at the turn of the year, they ended yesterday on $135 - down 32% on the year.
In the UK, I do note from my own portfolio that the two SITS shares that have fallen least this year are Capita and Sage. ie the only two Holway 'Boring' Award Holders. In the spirit that "Boring" is "Good", I'd have to put both Microsoft and IBM into the 'Boring' camp too. Let's face it, nobody could ever apply the adjective 'Boring' to Apple!
So maybe the lesson in all this is that, as the world economy enters its most turbulent period for many decades, Boring companies will yet again be the 'safe haven in the storm'?
Footnote - Those interested in following the Holway Portfolio might be interested to know that it has fallen 12% YTD - wiping out almost all of the 2007 gains. However, as I reported faithfully at the time, I had sold much of the portfolio in Q4 07 and reverted to cash - so much of the 2007 gains were locked in. For example I sold half my Apple shares in Oct 07 when I had recorded a doubling in the value of my shareholding since the start of 2007. This was a decision, I joke, that I got 'half right' - I should have sold the lot!
Thursday, 24 January 2008
Crazy changes to CGT
So now we have Darling's new CGT proposals. Basically he's amended his proposals so that the first £1m of any gain in your lifetime is taxed at 10% (as before) rather than 18% (as proposed). But, apart from the lifetime limit (more later), there are other limitations. Like you have to hold more than 5% of the equity (and voting rights) in a qualifying private company and be a director or employee. Very, very few employee shareholders will therefore qualify.
Bluntly, I think the whole situation is crazy. As I have said before, I campaigned long and hard in 1996-1998, with Kenneth Clarke and then Gordon Brown, to get the CGT rate reduced. I publicly said that I thought the 10% rate after 2 years was one of, if not THE, most 'entrepreneur-friendly' measures introduced by any Government. Before that, many of my friends moved abroad to avoid tax when they sold the businesses that they had worked a lifetime to build up. I, myself, benefited from this new CGT regime in 2000 and again in 2006. But so did hundreds of people who had worked for Richard Holway Ltd and Ovum.
Since then I have invested some of the proceeds in AIM companies, start-up private companies and new ventures - all with the expectation of a 10% CGT rate when I eventually sold up.
But I've used up my £1m lifetime allowance. So I guess I'll have to pay 18% on anything I may make for now on. Even if I hadn't (or the rather vague details of the new CGT regime means that my "lifetime' starts again from zero on 6th Apr 08), my AIM investments are not over 5% . I'm reluctant to become either a director or employee in the private companies in which I have invested. I prefer to be a 'mentor'. So none of the things I do as a 'serial entrepreneur' qualify!
So I might as well invest in property and short term stock exchange investments. What an absolutely crazy situation!
Even if I hadn't used up my £1m lifetime allowance, many of the very bright entrepreneurs I know will certainly be hoping for a much bigger gain than £1m. I am absolutely certain that many will now consider moving abroad, as 18% is really worth saving whereas 10% was both fair and perhaps not worth all the upheaval and accountants bills to avoid! As before, surely it was better to raise 10% than nothing at all?
Of course, this all applies to employee shareholders with SAYE schemes, share options and smaller shareholdings. They are all similarly penalised with an 18% CGT rate.
When Darling announced the original scheme back in Oct 07, it looked as if it had been made up 'on-the-back-of-a-fag-packet' as a means of raising the funds required to produce a counter-measure for the Tories' very popular Inheritance Tax proposals. All this because a General Election was in the offing.
I always thought that Ministers had enormous departments who worked on the details of such Budget proposals and went through all the resulting consequences? Clearly (given the 'U-turn' yesterday) this didn't happen and "incompetence" - the 'term of the moment' - seems an apt description.
I really am not a political animal, but my confidence and trust in the economic abilities of the current Government have evaporated.
Public sector gravy train running into the buffers
As the FT headline in the FT today (24th Jan 08) announced "Companies abandon ID card project", Accenture and BAE Systems have withdrawn from the bidding process for the ID card project. This leaves Fujitsu Services, CSC, EDS, IBM, Steria and Thales still in contention.
At one time ID cards was the biggest Public Sector IT project yet to be awarded. But both the scale of the scheme and its delivery dates have been under question for some time. Only last week news of another two year delay in the roll out was 'leaked'.
Of course, the biggest Public Sector IT project was/is the NHS IT Project (it's gone through too many name changes for me to remember its current nomenclature). We have already seen Accenture quitting the project. Now Computer Weekly suggests on its latest front page that Fujitsu Services is ready to quit in the South. (Personally I think this is probably more sabre rattling by Fujitsu as several regions are currently going through a project 'reset' with associated renegotiation of contracts and prices) This comes a week after 'leaked' news of CSC being fined £5m for delays to the rollout of NHS patient administration systems in the North Midlands and East.
Also, last week, the C-Nomis system at the Ministry of Justice was 'scaled down'. I could go on with further examples of Public Sector contracts also being 'scaled down' and quietly abandoned.
My friends at Ovum's excellent Public Sector practice (well, several of the senior analysts are 'ex-Holway') have growth of 11.2% in 2007 reducing to 8.4% in 2008 and down to 4.4% in 2011. Even that is going to seem like a massive slowdown to companies well used to the high double digit growth rates of the first part of this decade. On top of that HM Government is demanding much more "bang for their buck" - putting considerable pressure on prices. But with Government finances in an increasingly perilous state - as the economic slowdown hits tax revenues - perhaps even these significantly reduced growth rates for UK Public Sector IT spend are now looking too high?
Wednesday, 23 January 2008
European Technology Acquisitions – 2007 Annual Review
As readers will know I was appointed as a non executive director at tech M&A specialists, Regent, early in 2007 – although I’ve had a relationship with Peter Rowell and his team that goes back many years.
Regent’s statistics are the most extensive available and, indeed, coupled with the considerable experience of Peter and his team, have the added benefit of a long historic base.
Analysis of acquisitions involving European technology companies throughout 2007 has revealed a total of 3,215 transactions, a slight decline of 2% on the 3,295 deals completed in 2006. However, despite there being fewer transactions than in 2006, the total value of these deals has actually increased by 4% to $349bn, suggesting that the technology sector has yet to feel the effects of the global economic slowdown.
2007 Review Highlights
No bust without a boom – There have been suggestions that some parts of the industry are seeing symptoms similar to those witnessed prior to the dot.com crash. This is not the case. Whilst deal volume certainly remains high, transaction valuations remain quite sensible.
Decline in super deals – 2007 saw four key deals with values in excess of $10 billion, down from seven in 2006. However, any perceived shortfall was made up by a large increase in the number of large deals ($1bn to £10bn), which at 54 deals was up 32% on 2006
Increase in quoted targets – Of the 3,215 transactions in 2007 an increasing number were quoted companies, with sales of those listed on the LSE up 35% and those listed on European Primary markets up 16%
Keeping things private – Despite serious concerns that sub-prime problems and the resulting tightening of credit would mean that private equity investors would be less active, that appears not to be the case so far for deals other than the very large (greater than $1b). Financial investors accounted for over 14% of all acquisitions in 2007
2007 Sector Highlights
Content & Media – Once again, the content and media sector accounted for the majority of activity, with 957 transactions representing 30% of all deals (up 2% on 2006)
IT Services – The second largest sector, accounting for 26% of all deals. Within the sector, the most active segments were Professional Services, Consulting and Systems Integration
Software – The software sector, which is the focus of consolidation, held its activity level after the 26% growth in acquisition activity during 2006, making up 13% of all deals. Application Software dominates this market, with about two thirds of all deals
Telecoms – The telecoms sector accounted for 11% of all deals, with fixed line services dominating this market with just over a third of all deals.
Comment
Rowell added, “The great land grab within the media and content space continues, and explains why this sector again leads the way. This is partly fuelled by consolidation, but mostly it is about positioning for new digital media services. Central to all of this is advertising, which is seen by many as the fuel of the new age.”
2007 Country Highlights
UK – The UK retained its position as the most active buying region, with 24% of all deals. The UK was closely followed by Scandinavia, which saw an increase of 11% on 2006 levels. North America was third, with 12% (down 7%)
Western Europe – The biggest growth in buy-side activity came from Germany (up 23%) and France (up 15%). This continues a trend of increased activity for both countries over the last few years as their economies have strengthened
India – Indian companies saw a big decline in activity, concluding just 15 acquisitions in the year, well down from the 26 in 2006
Comment
Rowell says “Country activity largely reflects economic trends so it is no surprise that the USA and the UK have experienced the slowdown before other countries. We have seen on many occasions over the past 20 years that Germany and France run counter cyclical to the UK and North America. Most recently, we witnessed similar trends over the whole bubble period and the recovery. There is no doubt we can expect solid buy-side activity from French and German companies in 2008.”
I think what surprised me most was the decline in M&A activity from the Indians. I must admit that, so far in my discussions, I have witnessed many "expressions of interest" but little "consummation". Maybe this will change? But, in the short term, I see a continuation/uptick in “Western” companies buying in India.
2008 and beyond
Whilst the full impact of the global economic slowdown is not likely to be felt until 2009, there is every indication that 2008 will be a more challenging year for the sector, with the industry now having come past the peak of the plateau.
Comment
Interestingly, Peter Rowell concluded, “Acquisitions remain a fundamental part of this fast moving industry. Activity in 2008 will clearly be driven largely by the economy and we’d therefore expect to see a gradual slowing of deal flow over the next 12 months. However, because it is moving from such a high level it is clear that there is still plenty of time for those wishing to sell their businesses to do so with the expectation of strong interest and competitive valuations.”
For someone often labelled a gloom merchant, I’m rather more upbeat about the prospects for M&A in 2008.
- the IPO market seems to be dead for the time being, so other forms of ‘realising shareholder value’ will be sought.
- Private equity still has loads of dosh and loves to use it when prices are ‘better value’ – as they undoubtedly will be in 2008.
- Public to Private deals (as in the recent Northgate deal with KKR) will be a very fertile route for many mid-range/mid-value quoted SITS companies; particularly in the UK
- A number of larger companies have been looking at strategic acquisitions in the SITS space for several years but have been put off by the valuations. Contrary to other observers, I do forecast that some of the very largest IT services companies might well get snapped up in 2008/9. But the acquirers will be from outside the conventional SITS sector.
I’ll post the pdf of the 2007 Annual Review in the next few days. But if you want a full copy sooner or, indeed, want to discuss any of this, please drop Peter Rowell an email on prowell@regent.co.uk.
Also I will remind readers of - The Intellect Annual Regent Conference on 5th Feb 08. Chaired, as usual, by Jeremy Paxman at The Millennium Gloucester Hotel, London SW7.
Speakers include :
- Doug Richard, founder and chairman of Library House who appeared in the BBC series Dragons' Den;
- Mike Harris, CEO of Garlik and founder of Egg plc;
- Anil Hansjee, head of corporate development EMEA, Google;
- Nigel Clifford, CEO, Symbian
- Anthony Miller. My old and much respected colleague now at Arete
- Peter Rowell, executive chairman, Regent Associates;
- and me... on a panel at the end with Jon Molton from Alchemy, Crispin O,Brien from KPMG and Anil Hansjee from Google.
To register, contact Tina Gallagher; T: 020 7331 2023; E:tina.gallagher@intellectuk.org
Analysis of European Technology Acquisitions 2007
Transaction volumes v IPOs
There were 3,215 acquisitions involving European technology companies in 2007, a decline of 2% from the 3,295 deals announced in 2006. This indicates that the growth trend of the last few years has come to an end after deal flow plateaued at just about 800 deals a quarter. The combined value of all deals in 2006 was up 4% to $349 billion compared to $337 billion a year earlier. Our prediction for 2008 is that deal flow will remain at healthy levels, perhaps with some tailing off as the year progresses. It is evident that the current activity is being fuelled by the confident performance of the industry as a whole but if the predicted economic slowdown takes hold then it will have an inevitable effect on deal flow.
IPO activity continues to be quite volatile. The 104 new listings in 2007 were well down on the 145 in 2006. Most of these happened in Q2 before economic woes hit. It was very difficult to get even 'quality' IPOs away in the seconf half of 2007. There is no evidence that this situation will improve in 2008 - indeed we will see a significant decline in IPOs even from 2007 levels.
Software and IT Services transactions
In the Software and IT services sectors, which I know interests many HotViews readers, there has been a trend towards much higher value deals. Although the number of transactions in this sector has fallen slightly from 1303 in 2006 to 1261 in 2007, the total value of these deals has increased significantly from $49b to $88b. The number of deals valued at $1b or more has more than doubled from 6 in 2006 to 15 in 2007 with a significant increase in the $100m-$1b range - up from 51 in 2006 to 74 in 2007.
Valuations of European Technology Companies
Price earnings (PE) ratios have remained reasonably consistent for the past few years. The Q4 2007 PE ratio was 18.87 compared to 19.50 a year earlier. This contrasts to the price to sales (PS) ratio which has displayed greater volatility ending the year on 1.38 compared to 1.24 a year earlier. These shifts are not unexpected and reflect a return to normal valuation metrics following improvements in the profitability of the industry. Sharply increased profitability causes the PS to increase in the short term. These profit levels are now factored in to the valuation multiples.
Tuesday, 22 January 2008
Holway's HotViews news
Holway's HotViews continues to go from strength to strength - a lot of it do with you, dear readers, 'spreading the word'. We have doubled the number of subscribers since the start of 2008. Please continue to tell you friends by forwarding them a copy of the daily email or the weblink http://hotviews.blogspot.com/
I am building a group of very occasional expert contributors - gleened from the people and organisations I have worked with over the last many years as an analyst. Today Gary Barnett gives his views on IBM and SMEs and George O'Connor his feedback after his first meeting with new Logica CEO, Andy Green. More to follow from other contributors in the weeks to come.
I am also evaluating a number of offers to take Holway's HotViews content - thus greatly extending the reach and associated influence.
As a 'founder reader' of HotViews, I'd really welcome your views on how it is and could be developed and improved. Indeed, if you have a topic and associated 'view' you would like aired on HotViews, then please send me an email on rholway@holway.com.
Logica and Andy Green
I've known and respected George O'Connor - now at Panmure Gordon - for many years. Yesterday George met with Andy Green, the new CEO at Logica, for the first time.
This is the Panmure Gordon morning note that George wrote after the meeting - with the "Buy/Sell and forecast" bits omitted for obvious reasons!
George O’Connor from Panmure Gordon meets Andy Green, Logica's new CEO - 21st Jan 08
With the exception of not mentioning the phrase “shareholder value”, Mr Andy Green’s first experience should be seen as positive. In our view forthcoming actions should include a restructuring which in turn creates forecast uncertainty.
Key messages.
Mr Green sees his role as being to concentrate on;
1) improving LogicaCMG selling capabilities,
2) improving integration across this country-based company by creating horizontal capabilities, and
3) building up the offshore capabilities.
Positively, our impression is that Mr Green has engaged with many LogicaCMG customers and staff over the past three weeks. He cites ‘customer intimacy' as a key advantage of LogicaCMG.
Creating a ‘modern’ IT services company.
We are very encouraged that Mr Green appears to share our view that LogicaCMG’s country operations are not joined up on vertical lines. This, in our view, reflects the nature of the acquired businesses rather than any country specific characteristics, and highlights a lack of integration. In addition, we see his support for our structural view that Asian offshoring is simply too small – the current footprint is 3,000 in India with a further 150 in the Philippines, additional resources in Morocco and Eastern Europe, and of course the near shore resources in Wales. At forthcoming results Mr Green is likely to sketch out his near term plan – to better understand LogicaCMG with a restructuring plan outlined by March/April. This should involve cash exceptionals.
Investment case net/net.
Investors should be broadly encouraged - Mr Green is making the correct noises, greater devolved decision making marks a welcome break with the past and so, in our view, employees should welcome this appointment. We still see a restructuring as inevitable as the short term increases the cost base as LogicaCMG builds its capabilities especially in large bid teams, offshore customer delivery and process management. For us this suggests increased costs.
George O’Connor
Software & IT Services analyst
Panmure Gordon & Co
E-mail: george.oconnor@panmure.com
Monday, 21 January 2008
Blue Monday - If it feels like a Bear, if it growls and bites like a Bear....
Climbing a career ladder with the bottom rungs missing
e-skills UK has concluded that IT professionals are being forced "to climb a career ladder with the bottom rungs missing" . I completely agree and, indeed, have made the point countless times that you can't give birth to fully formed Project Managers earning £80K pa. The UK has a considerable shortage of those high level skills - a point made in my Are the ITSAs still good barometers? piece a couple of weeks back.
My submission to the skills shortage debate in 2006 concentrated on the fact that UK SITS companies had largely abandoned graduate recruitment - a state of affairs that has existed since at least since 1999. Indeed I remember tackling Alastair Cox - then CEO of Xansa - on this issue. He told me that I was wrong - Xansa had a considerable graduate recruitment programme...in India NOT in the UK!
As you will read in the FT article, e-skills has got companies like BT, EDS and Cisco to sponsor "a masters degree that teaches entry-level skills that have been offshored to India and China". I guess that's a sort of fast track course in all the foundation IT experience that people like me learned "on-the-job". I suppose that is better than doing nothing but surely that isn't any real substitute for the real thing?
That's why my real fear is that the only people who will fill those high paid UK IT Project Manager jobs in a few years time will be those very people learning the job 'the hard way' today in India, China - and a range of other countries which does not include the UK.
IBM, NITs and SMEs
On Friday 18th Jan, IBM bought Net Integration Technologies Inc (NIT) which offers a "business server software solution for small businesses". This is part of IBM's revived attempt to break into the SME market with a SaaS offering. Together with another recent IBM acquisition - WebDialogs - this will be integrated into IBM Lotus Foundations; taking IBM into face-to-face competition with Microsoft Small Business Server. With Lotus Symphony, IBM has a direct competitor to Microsoft Office.
The SME market is now looking more attractive to companies like IBM - mainly because the larger Enterprise market is looking much less attractive. SAP has also seen the potential for SaaS in this $400b SME IT market (according to IDC)
There seems to be an increasing view that SaaS will unlock the SME market. The problem is that I've had this view for 10 years - and it still hasn't happened yet. SMEs are remarkable Luddites. I am amazed at the sizable minority who don't have email access - let alone a website. If Sage can't get SMEs to accept SaaS, then I have doubts that IBM or SAP will. I remember discussing this with Paul Walker (CEO of Sage) some time ago. He talked about how so many of his customers 'liked to take the books home each night to keep them away from prying eyes' (like the tax man or even the wife!) Large companies may have got over that some time ago - but even they have not rushed to SaaS as yet. How much more difficult will it be for SMEs?
Mind you, it does put another company on my "Who might buy Sage" list!
Another view?
I asked my ex-Ovum colleague, Gary Barnett who is now with the Bathwick Group, to give me his views. Gary is one of an elite band of highly respected and influential IBM watchers.
Some time ago (in 2005) I wrote a piece describing the clash between IBM and Microsoft as a clash between two completely different cultures - One, IBM, very used to storming big cities, the other very used to storming small villages - I said at the time that the big challenge for both is to figure out how to win over the medium sized towns.
On one hand, Microsoft is pursuing a pretty straightforward "scale up" strategy - Forging alliances with VARS and integrators - usually off the back of a very technology-led play. IBM, meanwhile, is trying to stoop to conquer - by trying to engage the same set of VARs and Integrators with a "Hi, we're IBM, how can we help you get richer" story.
One of the ironies, particularly where it comes to IBM's relationship with the mid-market and slightly bigger integrators. is that a number of them have an obsession (a stupid one I think) with competing with IBM for big deals... and they tend to sneer at targeting the mid-market.
As for SAAS and SME's ... the reluctance of SME's to embrace SAAS is much more prevalent in Europe than it is in the USA. And I'm afraid I think that much of it has to do with "Luddite" tendencies. I'm happy to go on record to say that any firm with fewer than 500 mailboxes is insane to run its own email servers... but there are many that still believe that they can do a better, cheaper job than an external provider. They do so for a number of reasons - One of which is the fact that they don't actually understand how much running their own email is costing them, next they over estimate the level of availability that they have (and therefore ask for levels of availability that are necessarily more costly), finally - I have had SME IT managers admit to me that they didn't outsource because they wanted to gain experience running email etc etc.
On the other hand, the mid-sized VARs have done a really poor job of selling SAAS (and services generally). Their conclusion is that "it's hard to sell services to mid-market" - and I think they're really wrong.
The answer is that you sell differently to mid-market - and once you figure out how to do it, it's actually pretty straightforward. The problem, in my view, is that services companies have forgotten how to sell the idea of services - and are therefore only able to sell to companies that have already decided that they want services...
There is a vast opportunity for SAAS and services generally in the mid-market - but it requires that service providers implement the level of automation they need in order to deliver small deals to a greater number of clients (Many "SAAS" propostions are woefully complex to fulfill - no matter what the brochures say about "automated provisioning"), and it requires that service providers get their heads around the idea that there are some segments of the market that aren't going to beg them to bid... where they're going to have to sell the concept as well as the deal.
Gary Barnett
Partner and CTO
The Bathwick Group Ltd
gary@bathwick.com
Shine comes off Apple - or Why haven't I bought an iPhone yet?
Saturday's FT front page headline screamed iPhone sales miss UK target. It was a bit 'harsh' as the body of the text said that the shortfall was just 10,000; 190,000 sold compared to a 200,000 'expectation'. That came on top of lack-lustre reviews of Steve Jobs' new product announcements at MacWorld last week. ( I must admit that was my view last week. See Nothing short of miracles will do from Jobs.) 4m iPhones sold globally since launch was also less than expected (apparently the expectation was 5m - but I've never seen this number quoted before) The MacBook Air also failed to get the usual rapturous reception. (Seeking Alpha has a quite interesting, and amusing, take on who the MacBook Air will appeal to)
This has all translated into Apple's stock performance. Apple stock has lost nearly 20% of its value this year so far - although you have to set that against a bear market where NASDAQ is down 12% in the same period.
I could repeat my Beer Syndrome discussion. But you already know that I believe that if things get really bad (and I somehow feel today we might have got to that point), however wonderful the latest gizmo is, people will not feel they have the spare cash to buy it.
But my problem with Apple is that I do have the spare cash and I haven't yet taken the plunge on any new Apple gizmo for a year now. My problem with the iPhone is that my Blackberry works 'just fine'. However much I really want an iPhone for other reasons, will it actually work as well as my trusty Blackberry? For example, where I need it most...in some faraway country? Once I go with a new iPhone I will have to ditch my Blackberry and I'll be committed for 18 months. The same decision faces me with ditching my Panasonic Toughbook (aging as it is) in favour of a MacBook Air. I've never had to make that decision with any Apple products before. I didn't ditch my stereo when I bought an iPod. I didn't ditch my Dell PC when I bought an iMac. I didn't ditch Sky+ or my DVDs when I moved to download or show videos via my Mac.
Maybe that's the rub. Maybe Apple has already won over all the "I love this so much I don't care if my trousers fall down" kinda people. Maybe I'm just too 'belt and braces'?
Thursday, 17 January 2008
Bumper day for M&A
One of my predictions for 2008 was that M&A would continue apace as valuations eased and IPOs dried up. If the first two weeks of the year is anything to go by, I might be proved right!
Yesterday, three significant deals were announced - although, to be fair, two of them were conclusions of bids started in 2007.
- Oracle 'won' its $8.5b battle for BEA Systems. raising its offer by 14% to $19.375 per share was enough to win over the board.
- SAP announced that it had enough shareholder support to conclude its €4.8b purchase of Business Objects.
- The new deal was Sun Microsystems buying MySQL for $1b. MySQL is a European-based open source database company which challenges the likes of Oracle, IBM and Microsoft. Although revenues are growing rapidly (up 50% last year) they still amounted to only $70m. But, I guess that's what happens when you distribute your software for free! This disruptive software model plays precisely with Sun's view of the world. But, even so, the $1b price tag looks pretty good!
This software consolidation is just the continuation of a well-established trend. What yesterday showed is that the turn down in tech stocks has made no effect on the appetite for M&A. Indeed in a conference discussion yesterday, I made the point that the only real opportunity for successful tech stock investment in 2008 would be to pick the M&A targets.
I'll return to M&A in more depth in the next week as the full M&A statistics for 2007 are collated and published.
Wednesday, 16 January 2008
Importance of blogs
Apart from my persistent warnings that businesses cannot ignore social networking I've also been banging on, in many speeches and articles, about the increasing importance and influence of bloggers. However, most of the tech CEOs I meet are downright dismissive of bloggers. The CEO of one of the UK's largest software companies said to me recently, in no uncertain terms, that he was fed up with being cross examined about his company by 'here today, gone tomorrow' bloggers.
Of course, many blogs are rubbish. But there is little doubt, in my mind, that blogs written by 'influencers' are now of great and ever growing importance. Clearly, I'd like to put Holway's HotViews in that category!
To back that up, read 75% of journalists use blogs as sources in StrategyEye yesterday which reported:
"75% of journalists say they read blogs with the aim of getting ideas for stories, according to a survey by Brodeur and MarketWire. The same percentage of journalists say they read blogs at least twice a week, according to the survey. 70% of those surveyed claim they read blogs every day, with 21% reading for more than an hour a day.
Close to 30% of journalists are also writing their own blogs, according to the survey. Journalists write blogs in order to gain visibility amongst readers who tend to find journalists via their own pages listed on search engines, the two firms claim."
CGT dithering
If you don't know my views on the new proposed CGT regime then you clearly haven't been paying attention. I exploded last Oct when Darling first announced the increase from 10% to 18% in CGT on business assets. See post here. As I'd played a part in getting it to 10% in the first place, by lobbying first Kenneth Clarke and then Gordon Brown back in 1996/1997, I felt particularly aggrieved. This was the one really good demonstration that Labour had repented its old ways and would now be more 'business friendly'.
I've just been listing to Richard Lambert - Director General of the CBI - on BBC Radio 4's Today programme. He was angry! And he said that, in the whole history of the CBI, nobody could recall CBI members enmasse being so angry either. Darling had promised to review his ill-thought out 'back-of-a-fag-packet' proposals before Christmas. Then it was delayed to the New Year. But with an April tax watershed looming, nobody really knows what CGT regime will be in place in the next tax year. If you own a business, shares or options in a private business or even AIM shares, this really matters to you. You can read the CBI's proposals on CGT, as sent to Darling, here. I would broadly support these.
There is nothing that industry hates more than uncertainty. Darling has produced it in spades by his dithering. Lambert said that CBI members regarded Labours CGT proposals as a touchstone. Lambert believes that business support for Labour depends more on what happens to CGT in the weeks to come than almost any other issue.
FTSE100 dips below 6000
An awful start to 2008, an awful day yesterday and an awful start to trading this morning. As I write at 9.00am, the FTSE100 is down 1% at 5960. Although the FTSE100 closed <6000 for one fateful day in Aug 07, you really have to track back the trend line back to Oct 06.
There is a wide-spread belief that tech has been hit hardest. But, in the UK at least, the figures don't support that. Techmark is down 4.3% in 2008 to date compared to a 6.7% fall (to last night) in the FTSE100. The FTSE SCS Index is down 7.4%.
However, US tech stocks have been hit hard with NASDAQ down 8.9% YTD. There is every expectation of further US falls today as Intel fell around 15% in after hours trading last night. See Intel shares slide as profits and sales miss targets in today's FT. Actually, I thought the Intel results were pretty good. But it is almost as if investors want to find reasons for selling/marking stock down. So every nuance is picked over. In Intel's case a Q4 £100m revenue shortfall (on a $10.8b analyst expectation!) was taken as a sign of slowing PC sales and 'troubles ahead'.
My problem is that I am firmly in the bear's camp - have been for some time as readers will know. I do see problems ahead and 'commodity PC' sales would be the first and hardest hit. But I really can't find the evidence for that in Intel's statement. But investors rarely let evidence get in the way of sentiment.
Tuesday, 15 January 2008
Nothing short of miracles will do from Jobs
OK, I am a self-confessed Apple addict. Have been for 25 years I'm afraid. Too old and late now for rehab. So at 5.06pm UK time, I was glued to my screen to watch Steve Jobs tell me what gizmos I was might yearn for in 2008.
He started with some impressive sales figures for 2007. For example, 4 million iPhones sold to date putting Apple in the number two slot to RIM and about equal to all the other contenders combined. We had the expected announcement about movie rentals via iTunes (including HD versions), a revamped Apple TV (we've had these features in our house for 18 months though) and some really neat upgrades to the iPhone. The "Where am I" feature looked really good. But none of these had the WOW factor that we expect from a Jobs presentation.
Something approaching that only came at the end when Steve took a MacBook Air out of one of those interoffice envelopes. The MacBook Air is REALLY thin - 0.76 inchs at its max. point. I was really pleased to see that it came with an 80g hard drive. You can get a 64g flash drive but that nearly doubles the price ($3098 compared with $1799 for the hard drive version). What it doesn't have is a DVD drive. It has a neat attachment that allows you to use the DVD drive on a nearby Mac via WiFI and if you really want a optical drive there is a $99 optional add on.
As you can see in the pictures below, the MacBook Air really does look...fantastic! But as I said in my post last week, I've been using a treasured Panasonic Toughbook for 5 years now and have been waiting to see how the MacBook Air measured up to the latest model before deciding to buy a new one. On first sight, I think I'll go for a Toughbook W5 which is lighter (2.9lbs compared with the Air's 3lbs) has all the ports I need for things like a mouse, 3G card, ethernet and SD slot (none of which the Air has) and is ruggedised. Of course it only comes with XP or Vista - but, in life, you can't always have everything.
As I look at Apple stock, maybe I am not alone in my initial impressions. Apple is down a massive 7.6% so far today (8.30pm UK) - which makes a fall of over 17% in the first two weeks of 2008.
I am sure that the Air will be a huge commercial success. But it hasn't got the "earth has just moved" factor that I got with the Lisa and Mac back in 1983/1984 or indeed more lately with the iPod, iMac and the iPhone. That must be the problem being a God like Steve Jobs - nothing short of miracles will do anymore.
MacBook Air
Facebook IPO and StrategyEye
I'd like to point out an excellent Viewpoint article on StrategyEye concerning the likelihood of a Facebook IPO (not for 2-3 years apparently) as a result of comments made by Mark Zuckerberg to CBS. This article was written by Aleksandra Bosnjak who has recently joined StrategyEye as Lead TMT Analyst...from Ovum. One of a number of leavers from the 'old firm' recently.
There was a really excellent articles on StrategyEye - They used to drown in a deluge of data. Now City workers have a souped-up search engine - in the Independent on Sunday and - Web 2.0 for Buzz - in BusinessWeek. I became an investor in Nick Gregg's holding company for StrategyEye last year - so clearly I have a vested interest. But I really like the product very much and have been somewhat influencial in getting StrategyEye to move towards "influencer comment".
Of course, what I now hope to read are reports of StrategyEye's IPO and of Nick Gregg mulling multi-billion dollar offers for his company!
Business implications of social networking
I've given many talks and written even more articles in the last year or so on the need for businesses to wake up to the potential - and threat - posed by social networking. Which was why I was attracted towards the Business urged to woo social network figures article in the FT on 15th Jan 08. It's all about how viral marketing campaigns via Facebook and the like are of ever growing importance. But also points out that companies embark on them at their own risk as they are "high maintenance". If handled badly they have an even greater potential to destroy brands too. You can read the full Hitwise/Experian press release here which also has a link to download the full Impact of Social Networking in the UK report.
I was also interested to note that Christmas Day was the busiest day ever for social networking sites as everyone wished each other Happy Christmas. Much as everyone sends a text at midnight on New Year's Eve - only to find them arriving days later!
"Facebook was the third most visited website in the UK over the Christmas period, pushing eBay into fourth place for the first time since January 2005. Furthermore, in 2007 social networking sites such as Facebook, Bebo and MySpace accounted for one in every five Internet page impressions in the UK, and their mass appeal and importance to companies will only increase in 2008."
Although there is huge potential in 'data mining' the content on social networking sites, site owners have to do this in a way that will not drive away their users. Facebook seems to have over stepped the mark with its intrusive monitoring and use of "your friends bought this so why don't you" information. Indeed, although I am a Facebook addict, I am getting sick and tired of the dross which appears everytime I sign in. Just as I employ spam filters on my email, I now need this on Facebook too. If Facebook really is worth $15b, it has to find an effective way of monetizing itself without upsetting its extremely fickle users. Not an easy task!
Monday, 14 January 2008
Goodbye Coda?
Coda has received a bid valuing them at c£158m from Dutch software house Unit4Agresso. The bid, at 205p, was at a 20% premium to Friday’s close.
Anyone who claims “I told you so” concerning any prediction they might have made concerning consolidation in the financial accounting software market would be about as prophetic as a forecast of rain in England in the month of January. I reckon there has been more M&A in that sector over the years than any other. The UK used to boast hundreds – if not thousands – of such companies all providing their peculiar proprietary accounting systems. I haven’t got long enough to list them all. Indeed my first real M&A experience was back in 1980s when I was a non exec. of BOS Software which then got acquired by Misys in 1988.
One of the great attributes of financial accounting system suppliers is that once companies install systems they tend to stay…for ever. I remember a piece of research a few years back which showed that 39% of all such systems were originally installed 10+ years ago and another 29% 6+ years ago. In other words 68% were 6+ years old! On top of this, maintenance and support revenues are stable, predictable and provide positive cash flow.
For this reason, financial accounting system suppliers have made fertile acquisition targets. Some people believe that these companies are acquired so that customers can be moved onto the acquirer’s software. But, even if this does eventually happen, it happens very slowly. If you tell customers that they are going to have to change their software they might as well look at what else is available – the last thing you want! That’s why one can often find a consolidator being landed with many different disparate systems to support.
A look through the Top Twenty suppliers of financial accounting systems to the UK market just five years ago shows half of them have been acquired. Oracle has bought several of them. One of the last of the independent ‘majors’ to go was Systems Union (who had themselves acquired quite a few UK accounting systems providers like Pegasus) being acquired by Extensity/Infor in 2006 for £220m. Given revenues of £113m and PBT of £16.5m, the multiples at that time were considered pretty good! The market is now dominated by really large companies like Sage, SAP, Oracle and Microsoft (the dominant company depends on the size of system/customer). The only ‘independent’ now left in the top echelons is Cedar Open Accounts (COA) – the Alchemy-backed company. I am sure that my friends at COA/Alchemy will be looking at the Coda valuation with great interest!
As will the market... Some think that Unit4Agresso is getting a bargain and that a rival/higher bid is possible/likely. Given that Coda shares closed Monday at 197p – it doesn’t look as if the market agrees. Compared to the Systems Union deal in 2006, these multiples are much better across the board. A P/E of 19 based on 2007 figures looks pretty good to me! As it looks as if the process is quite advanced and, in today’s dodgy economic climate, “a deal in the hand…” and all that!
From a business logic viewpoint, the deal is a no-brainer. It enables two companies with limited international capabilities to gain critical mass in a number of overlapping geographies. In the UK and Benelux, in particular, both companies have sizeable operations and therefore the combined operations will be a considerable force.
I predict with certainty that I will be reporting further such deals throughout 2008.
Beware - the "Currency Effect" is back!
You may have read that IBM has pre-announced that its Q4 results will be considerably ahead of expectations – sending IBM’s stock up 5% last night. All IBM has so far said is that revenues rose by 10% to £28.9b – about $1b ahead of market expectations. However, half of this gain is due to currency fluctuations. Or put another way, growth would only have been 5% and revenues over $1b lower had the dollar not weakened. Strangely similar to the amount they supposedly beat expectations!
Americans, as we all know, believe that there is only one world currency – the dollar. All market sizing and growth rates are computed in dollars. So you can now expect most analysts to infer that the global IT services market is heading back to double digit growth. This same thing happened a few years back when the dollar weakened. Everyone got fooled then too.
So PLEASE take currency fluctuations into account when looking at or interpreting US results in this upcoming reporting season.
Note – I wrote this piece last night but notice that it is taken up in Lex in Tuesday's FT.
PS – I note that France has recently overtaken the UK in the world economic league tables for similar reasons!
The Beer Syndrome and Consuming Passions
Anyone interested in how the tech sector may fare in this new, changed economic environment should read Consuming passions are in transition in the FT 12th Jan 08.
The opening paragraph reads
"Flick through 30 or so trading updates during the past two weeks and a curious picture of Britain's typical consumer emerges. It is someone who on New Year's Eve will probably have stayed in and played on Nintendo Wii, rather than going on a big night out. Dinner may have been a Pepperoni Passion take-out from Domino's Pizza, washed down with lager from J Sainsbury."
This might be familiar to readers as it echoes my 3rd Oct 07 post entitled The Beer Syndrome.
UK consumers seem to have behaved over Christmas exactly as predicted in that earlier post. But the real question is whether things have changed since. Three months on the world seems much less confident. NASDAQ has declined by a pretty significant 13%. Apple is down 15% in the first few trading days of 2008. Nintendo, however, is pretty much unchanged - so has done extremely well relative to the market.
In my view, the Beer Syndrome only works if the downturn is relatively mild. If the UK and the US do get a recession - something that seems increasingly likely - I don't think it would apply anymore. Consumers would have to give up buying the new gadgets and rely on playing with the ones they already have.
As I have said repeatedly, tech's fortunes are now heavily reliant on consumer tech. If consumers stop buying tech, the industry is going to get hit hard.
Volatility
Last week I made reference to Logica and Axon which had both halved in value since their 2007 highs. They were not alone… I was surprised, on a quick scan through my FT today, to note that all these UK SITS main market quoted companies are also trading close to or less than half their 2007 highs:
- Anite
- Computacenter
- Detica (who closed Friday at 178p - a 12 months Low compared to a 422p High)
- Gresham
- Morse
Tech averages are one thing. But if you were in the “wrong” stocks at the”wrong” time, you would have taken a really cold bath.
Dates for your diary
Two dates for your diary. Both involving Regent (where I am a director) and Intellect. And both where I will be attending or participating (or both!)
Friday 1st Feb 08 Intellect Regent Industry Leadership Lunch at Claridges.
“What next for outsourcing” - The speaker this time is the much respected Guy Haines, President and CEO EMEA at CSC
5th Feb 08 - The Intellect Annual Regent Conference
Chaired, as usual, by: Jeremy Paxman at- The Millennium Gloucester Hotel, London SW7
Speakers include :
- Doug Richard, founder and chairman of Library House who appeared in the BBC series Dragons' Den;
- Mike Harris, CEO of Garlik and founder of Egg plc;
- Anil Hansjee, head of corporate development EMEA, Google;
- Nigel Clifford, CEO, Symbian
- Anthony Miller. My old and much respected colleague now at Arete
- Peter Rowell, executive chairman, Regent Associates;
- and me on a panel at the end with John Molton from Alchemy, Crispin O,Brien from KPMG and Anil Hansjee from Google
To register for either or both of these event, contact Tina Gallagher; T: 020 7331 2023; E:tina.gallagher@intellectuk.org
Friday, 11 January 2008
A personal request
I am amazed at the response I have received for Holway's HotViews. The readership goes up and up every day. The email version is particularly popular and has the added advantage of allowing me to see exactly who reads it. It's a fantastic high quality list of the very top "Leaders and Shakers" in the tech industry - from CEOs to investors and advisers.
So far I have done little to publicise Holway's HotViews as I was unsure about its future. But it is now a vital and important part of my life - sad as I am! I have some interesting plans for its development as well as numerous interested partners.
So, can I ask ALL READERS to do me a favour?
If you like Holway's HotViews please TELL YOUR FRIENDS (just forward a copy of the email version or weblink http://hotviews.blogspot.com) and recommend them to 'sign up' too.
Facebook to get more 'business-friendly" features?
Many readers have asked if I ever got a reply to my Open Letter to Mark Zuckerberg that I sent back in Sept 07. The answer is...No. But at least it appears that he might be taking action on the main point I raised.
According to StrategyEye today Facebook is rumoured to be about to launch a new Friends List function. This would "allow a range of privacy controls to be exercised, allowing users to set the visibility for their profile, uploaded photos, and installed apps using their Friend List as a basis for letting users choose what each group of their friends can see. The move would also make the site a more valid option for businesses that have so far been limited by the ability to prevent business clients and associates from seeing private Facebook data or information related to other clients."
Exactly what I asked for.
