CSC bucks trend with outsourcing decline

(By Anthony Miller). Somewhat contra to other players’ experience, CSC saw outsourcing revenues decline 3% (constant currency, ccy) in Q3 (to 2 Jan. ’09), yet business solutions and services revenues grew 7% ccy. CSC’s North American public sector business also grew 3%. Chairman, president and CEO (that’s a heck of a day job) Mike Laphen attributed the outsourcing decline to contract decision deferrals, though currency movements turned the -3% into -13% as reported.

What this suggests is that CSC has been unable to get much (any?) extra ‘out of contract’ work in its existing outsourcing client base and has to rely much more on winning new deals to keep the business growing. Traditionally, ‘add-on’ work has been the ‘cream’ on large outsourcing deals, both in terms of revenues and margins, but with the clampdown on discretionary projects, CSC seems to have been caught a bit short. However, Laphen said that order sales were up on last year for the 9 months YTD. Net net, total Q3 revenues rose 2% ccy to $3.93bn and operating margins expanded 110 bps to 9.4%. Sounds pretty reasonable in that respect.

CSC’s strongest verticals were Publics Sector and healthcare – a theme I think we are going to hear repeated quite often from other players in the next few quarters.