Specialist
Former executive at Interactive Pty Ltd
Agenda
- Demand tailwinds relative to the industry cycle, highlighting shift to cloud and margin differences
- Project pipeline expectations and cost pressures, including staffing dynamics, customer expectations and key segments – cybersecurity, cloud and transition to public cloud
- Competitive positioning and consolidation opportunities, discussing Fujitsu (TYO: 6702), Optus (SGX: Z74), Datacom and ServiceNow (NYSE: NOW)
Questions
1.
What has changed in the IT service industry over the past decade? In the 2010s and earlier, such companies were highly cyclical. Has change been driven largely by the customer, or from the top down?
2.
What does public cloud do to revenues at the service provider level? It sounds like it makes it less cyclical. What would be the typical mix between project work and managed services or SaaS revenues?
3.
What does a more stable, recurring revenue base allow service providers to do with aspects such as workforce make-up or cost base?
4.
To confirm, are you saying that IT service provider margins are the same for on-prem vs public cloud, despite contracts now being smaller in value and length?
5.
Are there any pitfalls of being too overweight on the managed services or recurring revenue side?
6.
In which areas or business lines has staff turnover been more pronounced? I have seen estimates of c20%.
7.
Would you view start-up IT service providers as being in a different bucket from traditional players?
8.
How would you assess turnover at rainmaker or senior level, rather than in the middle ranks or operational side?
9.
How does attrition affect compensation at the engineering level?
10.
How long does it take for a new hire to get up to speed?
11.
How does staff attrition affect utilisation and revenue, given the 3-6-month ramp-up and c20% turnover? It does affect a given provider’s revenue-generating capacity, at some point.
12.
How long will the industry’s high-attrition dynamic last? What do you think needs to happen for it to end? c20% seems high, and certainly higher the national average of c8%.
13.
What customer types is demand for cloud, transition to public cloud and cybersecurity work coming from? Is it largely large enterprise, or SMEs as well? A lot of growth seems to be from those segments.
14.
Have you seen higher customer churn than usual?
15.
Have you seen customer deferrals, projects getting cut or any downgrading of project scope recently?
16.
Do you see more project deferrals and longer decision-making? What is an average time frame?
17.
What sort of payback are clients expecting on spend? Do they have a target in mind?
18.
What do you think is driving the highly acquisitive behaviour? Is it buying capabilities, people or a client list?
19.
What are your industry revenue expectations in the next 12 months and 3-5 years? Can it escape its past cyclicality?
