Accenture’s battle of many fronts

Even the driest-looking set of quarterly figures can contain hidden gems about the state – and the future direction – of a company.

Global consultancy and IT services giant Accenture has fingers in all manner of IT services pies, as demonstrated by its recent acquisition activity, which has taken in companies ranging from a Brazilian mining consultancy to a video-editing software vendor.

And its latest financial results provide a rare insight into what its businesses across all industries and around the world have been doing in the previous financial quarter.

The most glaring thing is that its clients have reacquired a taste for consultancy on a grand scale. Accenture’s revenues for the fiscal third quarter of 2008 (before reimbursements) were $6.1 billion. Converting all locally generated revenues to dollars, that represents a 20% increase compared with the year-before quarter, or a 12% rise in local currency.

That revenue comprised $3.7 billion for its consulting division and $2.4 billion for its outsourcing division. Both departments saw the same rate of growth as the company as a whole.

The company’s Resources operating group, which serves customers in industries such as energy, utilities, mining and chemicals, took $1 billion during the quarter for the first time, up 22% from the previous year.

According to Accenture COO Steve Rohleder, the rising demand for natural resources (and their escalating price) has triggered an increased appetite for ERP and supply chain management software among companies in that space.

“The mining industry is emerging as a major growth opportunity for us,” he said during the analyst call following publication of the results.

The company’s Financial Services group, keenly scrutinised by investors as fears of a recession escalate, is still faring reasonably well, with revenues growing by 8% at local currencies to reach $1.3 billion.

“Banking clients are coming to us for cost improvement initiatives and to improve customer interaction,” said Rohleder. “Demand continues to be solid throughout Europe and North America.”

The outsourcing division saw its share of customer budget grow, Rohleder reported, as businesses consolidate their outsourcing contracts. “We continue to benefit from the bundled outsourcing trend as clients see the advantage of outsourcing multiple processes, application and infrastructure to a single provider,” he said. He added that the application outsourcing business was especially important for that division’s growth.

When quizzed on the outlook for Accenture’s UK practice, CEO Willam Green revealed that the country is a unique challenge for the company. “Our business in the UK is made up of very large projects,” he explained. The fluctuating requirements of those projects as they cycle through various deployment stages “have more influence on our demand than economic conditions. Some projects employ thousands of people.

“The UK is a tricky supply and demand balancing equation,” he added. But it is events elsewhere on the globe that occupy Green’s mind.

“Leading companies need to compete not against yesterday’s competitors, but tomorrow’s,” he reflected. “And the next generation of multi-nationals [is coming] from emerging markets.”

Low-income SaaS

One company that has prospered from the birth of these multinationals is Oracle – and that showed up in the source of its revenue growth during the company’s closing fiscal quarter of 2008. Its revenues from Asia-Pacific were close to $1 billion in the quarter.

As a whole, the company continued its run of strong growth, reporting revenues up 24% to $7.2 billion. Wall Street analysts had expected the impact of softening economic conditions on finances to be greater, and had predicted quarterly revenues of around $6.7 billion. Even more encouragingly, new software licence sales were up 27%, with database and middleware sales up 23% and applications licences up 36%.

That took Oracle to $22.43 billion in revenues and helped raise its net income to $5.52 billion from $4.27 billion in fiscal 2007.

Oracle’s executive team attributed the continued strong performance to its acquisition-led growth strategy. It has undertaken a series of large takeovers in the past few years, the most recent being its $8.5 billion purchase of middleware competitor BEA.

“Our strategy is resonating with customers,” said company president Charles Philips. “We have tremendous up-sell and cross-sell opportunities.”

One area raised a few analyst eyebrows, though. When CEO Larry Ellison was pressed on the contribution that on-demand software was making to the computing giant’s coffers, he made evident his disappointment with the financial performance of the software-as-a-service industry, predicted by some to be a major cash cow.

“We continue to get better at SaaS and grow the business,” he said. “But it’s not really growing any faster than our overall business.”

“We think that’s going to change over time,” he continued. “But the entire on-demand industry has to get better at making money in selling on-demand software.”

He pointed to the example of, the on-demand CRM provider founded by a former Oracle executive, in which Ellison has a significant investment. “If you look at the leader,, they don’t make very much money and they’ve been at it for almost 10 years,” he said.

Oracle’s on-demand revenues for the full year rose 25% to $694 million.

Further reading

Overseas success for US IT giants
As US companies turn to the emerging economies to drive growth, in Europe Germany is providing interesting new opportunities, while France and the UK remain challenging markets

Profits squeezed in tech sector
SAP and EMC see profits decline. Meanwhile, Indian IT outsources receive a one year exension on their tax holiday

Oracle’s financials disappoint investors looking for a hero
Meanwhile, Red Hat proves the value of open source. Plus, IT companies flee London markets

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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