After several false starts Computacenter Plc is making progress in growing its IT services business, which is key to the company’s future success given the declining margins in its traditional product reselling activities.
Simon Walsh, managing director of services, said the company is experiencing unprecedented high levels of activity in areas such as data center consolidation, relocation, and virtualization services. We are taking on some very big projects such as one to consolidate a client’s infrastructure from 18,000 servers down to 2,000, he said. This will enable them to free up space and add new applications to support new business areas.
The company turned in an improved performance in the first six months of 2006. Net profit rose to 8.1m pounds ($15.2m) from 2.1m pounds ($4.0m) in the year-ago period, on revenue of 1.1bn pounds ($2.1bn).
The star performer was the company’s Technology Solutions division, which provides consulting and systems integration services, and grew sales by 12.2% to 59.3m pounds ($111m) in the first half. However, the company’s larger support and managed services division reported revenue growth of only 1.9% to 208.8m pounds ($391.3m).
Despite its legacy as a product reseller, Walsh said it is Computacenter’s services team that often gets its foot in the door first on major accounts. He gave the example of the company’s 70m pound ($134m), five-year deal announced in 2003 with financial services company Abbey to manage 35,000 seats. Abbey was originally a services client and we have subsequently won product pull-through on the back of that. A lot of our product supply contracts have come on the back of services wins, he said.
Walsh said Computacenter is benefiting from the current trend towards multi-sourcing, where clients opt to engage with a number of best-of-breed IT services suppliers, rather than outsource to a single vendor under a broad-scope deal.
Clients are separating their back office processes from their applications development and their infrastructure, and the number of mega-deals is in decline, he said. He gave an example of a project where Computacenter is managing a client’s computer infrastructure, but is sub-contracting applications work to Indian services supplier Wipro Technologies.
Computacenter has taken on more than 1,700 staff from its clients’ IT departments in the last five years as part of managed services deals. Walsh said the company now has 3,500 services employees based in the UK, plus a further 2,500 in Germany and 600 in France.
The company also recently opened a new facility in Spain, with 200 staff in Barcelona providing helpdesk support to Computacenter’s clients across all its major regions. It also has helpdesk facilities in Milton Keynes in the UK, and in Erfurt in the former East Germany.
Walsh said that Computacenter’s main competitor is Fujitsu Services, the EMEA-based services arm of the Japanese technology giant, which made sales of 2.3bn pounds ($4.4bn) in its most recent financial year. He said: We are basically similar in scope and scale. Perhaps the main difference is that we have tended to focus on the private sector, whereas they are stronger in government.
Computacenter is attempting to take a more proactive approach to supporting its clients’ IT infrastructure through an initiative it calls its Shared Services Factory. It has invested 30m pounds ($57m) in creating a library of reusable tools built up from past projects to help IT departments address potential glitches before they occur.
Walsh said: A big failure of the IT services market has been that while vendors have been able to meet service level agreements and reduce prices, the two areas where they have not delivered are innovation and proactivity. We want to stop making IT services delivery seem such a dark art.