Ovum on: Atos Origin Fires on More Cylinders
by Phil Codling, principal analyst at Ovum
Paris-based IT services firm Atos Origin has announced its results for the first half of the year. Revenues from continuing operations were up 6.8% on an organic basis at Ђ2.7 billion, with the operating margin at 4.5% (compared to 4.2% in the same period of 2007). The company saw better growth in its managed operations and systems integration lines of service (at 7.4% at 7.5% respectively) than in its consulting business (where revenues shrank by 1.6%). The UK was the best-performing of the firm's major geographies, with 12.1% growth.
"These results tell us a couple of significant things about Atos Origin and the broader market. Firstly, they underline the company's gradual return to form. Over the last two years, Atos Origin has improved its rate of organic revenue growth versus the previous quarter in all but one quarter (4Q07), and the first two quarters of 2008 were no exception. This underlines just how badly the company performed in 2006, but it also shows that its more disciplined approach to winning and delivering IT services business (under the framework of its '303' transformation programme) has borne fruit."
"Specifically, Atos Origin has become more effective in its sales activities. It is trying to be more selective in its bidding (which should help margins) but is achieving improved volumes too (book-to-bill ratio in 1H was 98%, compared to just 89% in 1H last year). Initiatives such as a push to train salespeople via its ' Sales University' appear to be paying dividends. More generally, the company is trying to make itself more competitive (for example, by increasing its use of offshore resources) and this too appears to be helping sales."
"We think there's plenty more room for Atos Origin to improve, nonetheless. Its margins are heading in the right direction, but at a snail's pace. We wouldn't be surprised to see the increased emphasis on offshoring accompanied by a renewed focus on onshore cost-cutting, for example. Productivity and efficiency could surely be improved too. On a call with analysts this morning, CEO Philippe Germond shared some data on the company's use of subcontractors. In 1H, Atos Origin found it had to use 1,000 more subcontractors than planned, which added Ђ9 million to the cost base in the half. This reflected higher volumes of work but also difficulties in recruiting."
"While focusing on recruiting key skills and increasing its availability in lower-cost locations, the company will also need to continue to try to standardise and streamline its service delivery wherever it can. Its initiatives in this area to date, plus its IT emphasis on a more international, cross-border approach to business, bode well. IT services is evolving, and the determinants of success increasingly involve repeatable assets and processes."
"As for the broader market, Atos Origin's results provide yet more evidence that much of IT services is weathering the current economic storm rather well. Even in consulting, Atos Origin has managed to improve its growth performance (compared to the 11.1% fall in revenues seen in the second half of last year and the 6.5% fall in 1H). Meanwhile, its growth in managed operations and systems integration (which includes a good chunk of applications management) confirms that outsourcing in Europe remains relatively buoyant. With the current business climate offering vendors plenty of opportunities to broach the topic of cost-saving outsourcing services with clients, the outlook in outsourcing continues to look good too."
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