MCN Direct Newswire

Vol. 3 No. 7, 16 February 2004

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This issue news

1. CSC upbeat at close of third quarter
2. BBC selects shortlist for £2bn contract
3. EDS pushes sale of software unit
4. BearingPoint builds in India
5. LogicaCMG secures £23m Ofcom deal
6. Further information - feedback/pass on to a colleague/remove from mailing list

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1. CSC UPBEAT AT CLOSE OF THIRD QUARTER

CSC is celebrating the close of its fiscal 2004 third quarter with significant financial gains and an £80 million contract extension at retailer Bhs.

The contract builds on a relationship that started in 1993 when CSC won its first large UK IT outsourcing award from Bhs. Under the extended deal, CSC will continue to support desktops, servers and point-of-sale terminals across Bhs' 165 stores, providing end-to-end services for infrastructure and applications.

Ian Allkins, commercial director of Bhs, commented: "After a thorough review of our IT operations and requirements we were satisfied that extending our existing long-term relationship with CSC would provide the best solution."

The contract buoys CSC's presence in the UK - where it recently won a £900 million regional contract under the NHS' National Programme for IT - which is making a significant contribution to its global revenue.

For the third quarter to 2 January, CSC reported total global net profit up 21% to $128.4 million (£68 million), on revenue rising 30% to $3.6 billion. Its European revenue rose 23% to $933.2 million (6% at constant currency rates), with non-European international revenue up 13% at $309.8 million (down 4% in constant currency).

US commercial revenue dropped 5% to $921.9 million, with CSC's US federal activities driving up 84% to $1.5 billion on the strength of last year's acquisition of Dyncorp.

Commenting on the results, CSC chairman and CEO Van Honeycutt said: "The market for global commercial outsourcing services continues to be firm. We anticipate demand to vary depending on geographic market conditions and specific customer needs, with Europe remaining quite robust.

"The strength of our commercial outsourcing business in Europe during the quarter more than offset reduced activity in consulting and systems integration services. The softness in demand for shorter-term project work and discretionary spending continues to linger, especially in Europe."

Looking forward, Honeycutt forecast 20-23% growth in fourth-quarter revenue.

2. BBC SELECTS SHORTLIST FOR £2BN CONTRACT

The BBC has shortlisted eight bidders for a contract involving a £2 billion, 10-year IT outsourcing deal and the purchase of BBC Technology (MDN Direct 2-45).

The Corporation said it received "really positive feedback from the market about the deal" and named CSC, Fujitsu, EDS, Capita, Accenture, IBM, LogicaCMG and HP as the contenders for the next stage of the bidding process. It will reduce the shortlist to three in April, before awarding the contract in September and getting going before the close of the year.

John Varney, chief technology officer at the BBC, said: "During the next phase of the process there will be a rigorous evaluation of not only the technology expertise and operations of these bidders, but their culture and fit with the BBC - this is a crucial part of our negotiations."

As well as walking away with a £2 billion outsourcing contract, the winner will take on BBC Technology, a company founded in March 2001 to provide products and services for the BBC as well as other broadcasters, platform and content owners, and government organisations. The company employs 1,400 staff and last year reported a profit of £6.8 million on turnover of £220 million, though it failed to get far in the external market with only 10% of revenue generated out-of-house.

The BBC expects to raise £100-150 million from the sale of BBC Technology, which will be ploughed back into buying outsourced services. The BBC has identified potential annual savings of at least £20 million through IT outsourcing.

3. EDS PUSHES SALE OF SOFTWARE UNIT

EDS has seen "significant interest from several parties" in buying its software subsidiary UGS PLM Solutions.

EDS believes the value of a private sale of UGS PLM will be more than double the unit's 2003 revenue of $900 million, although analysts consider this over-ambitious and suggest a more cautious 1.5-times revenue.

EDS would not identify the interested parties but analysts suggest they are likely to be large private equity groups.

EDS chairman and CEO Michael Jordan said the sale of the product lifecycle management software business would complete the divestiture of most non-core business, in line with the strategy he set a year ago in an effort to turn the company around.

EDS first declared its intention to decrease its holding in UGS PLM in October 2003, when it said it was considering an initial public offering or the sale of a minority stake in the business (MDN Direct 2-39).

In the wake of poor financial results (MDN Direct 3-6), EDS escalated its intention and is currently considering the private sale of 100% of UGS PLM, as well as the sale of a minority stake or an IPO. A majority sale rather than an IPO would certainly be in EDS' interests as it would avoid the costs associated with an offering and put money straight into the company's depleted coffers.

4. BEARINGPOINT BUILDS IN INDIA

BearingPoint has expanded its presence in India by taking a piggy-back ride with Covansys, a US-based consultancy and pioneer of offshore outsourcing which has three existing centres in India.

Covansys has been selected by BearingPoint to develop and operate the consultancy's first global development centre in India as part of its AnyShore outsourcing solution. BearingPoint already has about 200 people working through subcontractors in India, but chose Covansys to give it an immediate kick-start in a fully operational centre.

The centre in Chennai mirrors BearingPoint's global development centre in Shanghai, China, and will be staffed by 2,000 BearingPoint employees over the next two years. It offers services including software development, ERP implementation, application integration, application management and business process outsourcing.

Craig Franklin, executive vice president of BearingPoint and head of its global technology services unit, commented: "The new centre provides us with a greater foothold in India. We can now rely less on subcontractors to complete engagements and pass on those savings to clients by using a single service delivery model."

5. LOGICACMG SECURES £23M OFCOM DEAL

LogicaCMG has won a £23 million, two-year contract from the UK's new communications industry regulator, Ofcom.

Under the terms of the deal, LogicaCMG will build on previous work with the now defunct regulator, the Radiocommunications Agency, to develop a desktop platform for Ofcom and provide a managed information systems service. The service will integrate the resources of five previous communications regulators and cover issues including regulatory frameworks, spectrum management, trading systems and licensing.

This is the latest in a string of contract wins that play to LogicaCMG's strengths in specific market niches (MDN Direct 3-6, 3-5) and give the company 'bite-sized' pieces of revenue with a better chance of healthy profit margins than those expected on some of the mega-contracts signed in the public sector.

Ofcom appears to have driven a tough deal, however, with LogicaCMG UK public sector managing director Kevin Gorman commenting: "In addition to ensuring the seamless transfer of IT systems into Ofcom's headquarters, we have worked closely with the regulator to design a new partnership model ensuring maximum value for money for Ofcom."

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