CSC tries vertical markets to beat economic doldrums: Ovum

Stan Beer
Tuesday, 18 November 2008 02:18

IT Industry - Market

Services giant CSC is feeling the economic pinch and has turned to vertical markets as a way to counter the IT spending slump in global markets, according to analyst group Ovum.

Yesterday, the head of Australian enterprise applications provider Technology One attributed its strong fiscal year results to its focus on vertical markets that were minimally impacted by the economy. It appears that CSC is now taking the same tack.

Alexander Simkin, senior analyst at Ovum, says the worsening economy both in the US and in the UK is constraining discretionary IT services spend and this is impacting CSC’s top line.

Revenues from the financial services industry were down 3.2% on the year-ago figure while those from the technology & consumer vertical climbed less than 1%. There was also softness in the automotive industry, though overall manufacturing rose just over 10%, according to Simkin.

However, the star performers were those verticals that are least affected by the economic downturn: healthcare, which was up 32%; chemical, energy & natural resources, up over 8%; and the public sector, which rose almost 5%.

The identified good performers were exactly the same sectors that Technoloy One executive chairman Adrian Di Marco named as the company's key customer base yesterday.

According to Ovum, CSC began verticalisation of its offering as part of its Project Accelerate initiative which kicked off before the credit crunch hit earlier this year and before the repercussions of the crunch started to be felt in the global economy.

"Whether the company’s vertical focus came about by serendipity or design, we expect it to allow the company to rapidly rebalance its portfolio towards recession-resistant sectors," says Mr Simkin in his research note.

"In principle, shifting priorities towards the fastest-growing verticals is facilitated by a deep understanding of the key players within those verticals. We expect CSC to put this principle into practice. The company has taken strides towards increasing its knowledge of its clients’ businesses and the sectors in which those clients operate. As a result, CSC is already preparing for the changing regulatory and competitive environment facing its clients, and is reducing its exposure to client credit risks."

CSC is also expanding its geographic breadth to weather the macroeconomic storm, according to Ovum.

"Demand for certain outsourcing services – particularly around BPO - is increasing as cost control rises in importance for end users. As part of its World Sourcing global delivery model, CSC is boosting its near and offshore capabilities to meet demand for outsourcing while keeping its own costs in check," says Mr Simkin.

"But CSC is not limiting its geographic expansion to sourcing. As we recently reported, the company is increasing its focus on emerging markets as destinations for outsourced services. And the latest earnings announcement indicates why: while revenues for the quarter from EMEA rose 8.4% year-on-year and those from the Americas by 3.5%, CSC’s Asian market grew over 20% in the same period.

"However, globalisation is a double-edged sword, and CSC must expand geographically with care. While emerging markets offer considerable growth potential, there is also the inherent risk of currency fluctuations. This is especially true in these uncertain economic times."