MCN Direct Newswire

Vol. 2 No. 28, 21 July 2003

This issue is sponsored by:

Novient from Solution 6 and The UK Consulting Industry 2002/3

This issue news

1. CSC makes play for SchlumbergerSema business
2. IT services revenue lifts IBM
3. Accenture revenues reflect outsourcing growth
4. CGEY extends global BPO network
5. Inland Revenue narrows field for Aspire project
6. Further information - feedback/forward to a colleague/unsubscribe

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1. CSC MAKES PLAY FOR SCHLUMBERGERSEMA BUSINESS

CSC is in talks with Schlumberger about acquiring selected IT businesses within the oilfield giant's SchlumbergerSema IT services subsidiary.

At the top of CSC's shopping list is SchlumbergerSema's outsourcing operation, which has a number of key clients in the UK, including the Department of the Environment, the Department of Work and Pensions, Consignia and the Association of Train Operating Companies.

Neither company would comment on the discussion, but selling selected businesses would fulfil SchlumbergerSema's aim of focusing on the global energy market, stated last December when it restructured with the loss of 1,600 jobs.

At that time, Schlumberger took a charge of $2.6 million against the Sema acquisition, which it completed in February 2001 for $5.2 billion - a price that analysts suggested was too high for an oilfield services company buying into the IT services sector.

For CSC, the acquisition of any of SchlumbergerSema's IT operations would boost its presence in Europe, particularly in the UK and France. The non-energy sector outsourcing business alone would add about $1 billion to CSC's full-year revenues of $11.3 billion - of which $6 billion came from outsourcing.

2. IT SERVICES REVENUE LIFTS IBM

IBM's Global Services business led the company's financial growth through the second quarter, turning in a 23% increase in revenues to $10.6 billion and ending the quarter with a backlog worth around $112 billion.

IBM chairman and CEO Sam Palmisano said the double-digit growth reinforced IBM's leadership in IT services, aided by last year's acquisition of PwC Consulting. He added: "We believe the industry will continue to evolve where business process insight combined with technology leadership will be what customers want."

As a whole, IBM reported second-quarter net profit of $1.7 billion, on revenues up 10% at $21.6 billion. Hardware sales were down 1% at $6.6 billion, with software up 6% at $3.5 billion. Revenues from the Americas rose 5% to $9.5 billion, while the EMEA region showed a gain of 23% to $6.9 billion, and Asia-Pacific improved 12% to $4.6 billion.

Palmisano said: "We are benefiting from our acquisitions and the restructuring actions we took last year, and we are encouraged by the acceptance of our e-business on demand strategy."

"While it is difficult to predict the certainty of an economic rebound, IBM is in the best position to benefit further from any upturn in the market or the economy overall."

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3. ACCENTURE REVENUES REFLECT OUTSOURCING GROWTH

Accenture has seen its third-quarter net profit rise 15% to $132.1 million, on revenues up 2% to $3.04 billion. Consulting revenues were down 8% year-on-year at $2 billion, but the shortfall was covered by a 35% gain in outsourcing revenues to $944 million. Accenture said outsourcing represented 31% of its total revenues in the quarter to 31 May, up from 23% in last year's comparable quarter.

CEO Joe Forehand commented: "Our performance in the third quarter was satisfactory. New bookings were $5.2 billion, $2.2 billion of which were in consulting. This represents a 6% increase over new bookings in consulting in the third quarter of last year. Consistent with our growth strategy, however, we continue to expand our outsourcing business."

This outsourcing growth took a toll on gross margins, which fell from 41.2% a year ago to 36.3%. The drop resulted from the fact that outsourcing contracts have lower gross margins, particularly during the first year.

By operating group, Accenture showed a major gain of 28% government business revenues to $419 million. The financial services group gained 4% to reach $605 million, resources was up 1% at $511 million, products flat at $679 million and communications and high-tech down 7% at $825 million.

In terms of geographies, EMEA revenues rose 11% to $1.4 billion and Asia-Pacific gained 3% to reach $195 million. The Americas showed a decrease of 5% to $1.5 billion.

Looking forward, the company said it expects 5-10% net revenue growth in the fourth quarter.

* Separately, Accenture has launched an internal investigation into a possible breach of the US Foreign Corrupt Practices Act - which bans bribery of foreign officials while conducting business. The company said the incident under investigation occurred in its Middle East operations and has been voluntarily reported to the US Securities and Exchange Commission and the Department of Justice.

4. CGEY EXTENDS GLOBAL BPO NETWORK

Cap Gemini Ernst & Young (CGEY) has opened business process outsourcing (BPO) service centres in China and Poland.

The Guangzhou centre, near Hong Kong, was formerly part of a 1999 joint venture between CGEY and leading Asian fast-moving consumer goods retailer Dairy Farm International. CGEY has acquired Dairy Farm's 50% holding in the venture along with a $17 million, seven-year BPO contract from the company.

In Poland, CGEY has bought International Paper's Krakow services centre, giving it near-shore facilities for Europe and a multi-year deal to deliver finance and accounting services to the paper and forest group.

The centres have about 250 (China) and 200 (Poland) seats, and add to CGEY's off-shore facilities in Canada, where it has around 450 seats in Toronto acquired last year on the back of a $1 billion BPO contract with Hydro One. In India, CGEY relies on BPO partner Vertex for service delivery, with its own base dedicated to IT outsourcing.

Hubert Giraud, global head of outsourcing at CGEY, said: "With the two new centres, we now offer a truly global choice of onshore, near-shore and offshore business processing facilities, in line with our 'right-shoring' strategy. Forthcoming Polish entry into the EC and continued dynamism across Asia-Pacific will further boost the importance of the newly acquired centres."

* CGEY has made its first job cuts in France since 1993, axing 287 jobs - 2.8% of the French workforce - from its Paris region. The company said 185 mainly senior consultants will be made redundant, with the other cuts among support staff taking voluntary redundancy or moving to other CGEY sites in France.

5. INLAND REVENUE NARROWS FIELD FOR ASPIRE PROJECT

The Inland Revenue has narrowed the field of bidders for its 10-year, multi-million dollar Aspire IT services contract.

The Fusion Alliance - made up of BT Syntegra and BT Global Services, plus CSC and SchlumbergerSema - has been excluded from the preferred bidder list, leaving Cap Gemini Ernst & Young plus Fujitsu competing with the Revenue Professional Services consortium of EDS and Accenture.

The next stage of the contest is the assurance phase, involving due diligence, negotiation, access to senior executives in the department and transition planning.

The final contract winner will be named in December, with the project due to start when existing IT service contracts - predominantly held by EDS and Accenture - expire in July 2004. The Aspire contract will be a public/private partnership and is expected to run for 10 years, with a value of between $480 million and $640 million a year.

Separately, the Government has said it will stop using the private finance initiative (PFI) for IT contracts following a string of problems. In a report on the PFI, the Treasury said design and delivery risk will still be transferred to the private sector in big projects, but that companies will not be expected to finance the whole deal as they do under a PFI.

IT suppliers reacted favourably to the Treasury decision, saying that PFI contracts do not encompass the increasing need for contract flexibility that is better met by public/private partnerships and strategic partnerships with suppliers.

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