Pure services companies: Three clear trends

Every quarter we take a snapshot of fifty of the largest technology services providers in the world, including Accenture, HP, IBM, Infosys, and Xerox.  Bo DiMuccio, my partner in crime, and I analyze the public data to better understand the following trends:

  • How are the revenues, profits, and margins for these technology services providers holding up?
  • Are any specific companies or company types doing better than others?
  • How are services margins trending compared to the same quarter one year ago?

On Thursday, we host a public webcast to review the analysis on The Service 50. To sign up, simply visit:

http://webcasts.tpsaonline.com/event/xd7b857205  

In the webcast, we will dissect the performance trends for all fifty companies. We will also breakout the performance of pure services companies like Accenture, hardware companies like HP, and software companies like Oracle. As Bo and I reviewed the data this past week, we were slightly surprised by the relatively strong performance of the pure services providers.

By the end of 2008, the global downturn was in full swing. However, our quarterly analysis of The Service 50 data showed that technology services providers were weathering the storm relatively unscathed. Especially companies with a blended portfolio of products and services. IBM’s is the poster child for this trend. The image below maps IBM’s calendar Q4 performance in Q4 2005, Q4 2007, and Q4 2008.

IBM Calendar Q4 2008

IBM Calendar Q4 2008

The trends on revenue, operating income, and services margins are all up and to the right for IBM. In fact, the strength of Q4 2008 compared to Q4 2007 is amazing based on the overall deterioration of the global economy.    The question driving our analysis for Q1 2009 is simple: Can tech services companies keep the streak alive? I have already commented on recent earnings releases of EMC and HP, but the results of a few companies does not define an overall trend.

Well, the data is in. And the Q1 2009 trends are very clear. To hear the complete story, listen to The Service 50 webcast. However, for a sneak peak, we can take a look at how the pure services providers like Accenture weathered the opening quarter of this year. Below, is a snapshot from The Service 50 webcast deck:

Pure Services Companies: Q1 2009

Pure Services Companies: Q1 2009

This table shows three clear trends for the pure services providers in Q1 2009:

  1. Top line revenues are finally under pressure. Almost every one of the pure services providers we track experienced a downturn in top line revenues. The companies above captured 90% of the revenues they did compared to one year ago.
  2. Despite the emerging pressure on top line revenues, a majority of these pure services providers held or increased their services margins. This is no small feat in a tough economy when pricing pressure has to be significant.  For example, Fiserv increased their margins by eight points compared to the same time a year ago.
  3. Finally, a majority of these services provides held or improved their operating incomes. Once again, no small feat in this economy. Look at the profit improvements for Accenture, ACS, and CSC.

This data is a glimmer of hope for tech services. After more than surviving 2008, this data shows that the demand for technology services has not evaporated with our 401ks and, unlike those 401ks, there is actually money to be made here. To see how the hardware and software providers weathered Q1, tune in on Thursday.

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