A radical last minute merger and spin-out between two of the technology sector’s veteran outsourcing players, HP Enterprise Services and CSC, is certain to be followed by more merger and acquisition activity in the IT services sector says research and analyst firm Gartner.
The deal, which has a major impact on both company’s substantial government and public sector footprint, could increase and round out the critical mass of services on offer to government customers Gartner says, providing the merger goes to plan.
Jim Longwood, Gartner’s Vice President for IT Services Sourcing and Vendor Management, told Government News the yet to be approved merger will benefit larger scale customers “in terms of operational and cost efficiencies and improved access to a better knowledge base.”
However, Mr Longwood cautioned that not everyone will be pleased.
“The merged entity will be better equipped to service smaller, mid-size and larger clients but the smaller clients may become disenfranchised by the combined entities new deal sweet spot and business focus,” Mr Longwood said.
Even so, he believes the merger will ultimately help put the new company in position where it’s better able to help clients deal with “the ongoing digital disruption that is going on in the market and focus on other disruptions coming through via social, mobility, analytics and cloud.”
At a broader level, the research firm is also predicting a continuing shakeout in the services sector as key participants make similar plays.
“With traditional service provision becoming a contracting market, further consolidation, particularly at the smaller end of the market, is inevitable,” Mr Longwood said.
“We see the likes of NTT Data expanding globally by incremental acquisitions and similarly for the larger Indian providers. Some of the smaller Indian firms also becoming takeover targets as per the recent acquisition of Igate by Capgemini.”
Gartner estimates that in terms of market share for the Asia Pacific region, excluding Japan, the HP Enterprise Services and CSC merger will now place the new entity at number four in terms of professional services revenue.
IBM, Samsung SDS and Deloitte are put ahead of the new entity, while Accenture and TCS are put behind it according to Gartner’s market share estimation.
“Acquisitions and divestitures will a feature prominently in the professional services market for some time to come, Mr Longwood said.
He also sees continued encroachment from so-called non-traditional IT services players that are continuing to take business.
“The disruptive impact of non-traditional services, along with entry of many new players like AWS, Google, Microsoft and VMware into the cloud services market and large volumes of small and niche focused service providers, has provided challenges for all traditional IT service providers,” Mr Longwood said.
The effect of that is that traditional providers now need to balance growth in the new services areas but also guard against the “cannibalisation of the traditional services” as emerging offerings “come to the fore”.
For most of the mainstream traditional managed service providers including CSC, HPE and IBM, this has led to decreasing market share in high single to low double digits in the past two years in constant currency terms with currency fluctuations exacerbating this trend in Asia Pacific,” Mr Longwood said.
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