Consultants’ upswing

Not since the bullish days of the dot-com boom has the world of consultancy services been so buoyant. Indeed, IT consultants in the UK enjoyed a 17% jump in wages during 2006, according to the Association of Technology Staffing Companies, as the large services houses once again scrambled for quality staff.

Given the demand for consulting expertise, it is not wholly surprising that global outsourcing and consultancy giant Accenture is currently on a roll. For its fiscal third quarter ending 31 May, it posted an impressive 15% year-on-year revenue increase, chalking up $5.08 billion in revenues – 60% from consulting sales.

Furthermore, bookings logged in the quarter, which hit an impressive $6.22 billion, included $3.5 billion in consulting fees. Overall, consulting net revenues for the quarter were up 16% on the same period for 2006, sneaking just in front of the company’s strong outsourcing division, which grew by 15%.

Seeking to capitalise on the renaissance in consulting further, Accenture’s CEO Bill Green has unveiled plans to dramatically expand the business. Under a three-year expansion plan, Accenture will invest a cool $250 million into the consultancy arm to develop more tools, processes and training for the services lines, while the workforce, which it plans to double, is expected to reach around 26,000 by 2010.

According to Green, the expansion plan serves as a direct response to increased client demand. But even he admits to being surprised at the division’s “roaring” comeback during the fiscal third quarter, saying the strong ratio of consulting to outsourcing revenues seen in the quarter was a lot better than anticipated.

This is not to suggest that the company’s outsourcing arm has been flagging. According to Green, Accenture’s offshore headcount continues to grow steadily and is on target to hit 35,000 employees in India by the end of the fiscal year, an impressive total that would place the organisation second only to outsourcing titan IBM within the global services major-league.

Elsewhere, more boutique consultancies have also benefited from the resurgence in demand.

UK-based Detica posted strong growth for its second half of 2007, ending 31 March, with revenues up 51% on the same period a year ago to £87.8 million ($166.8m). Net income also rose but not at the same pace: it was up 13% to £6.3 million ($12m). The company continues to absorb the costs of its recent acquisitions, as well as incurring a chunky £1.1 million ($2.1m) exceptional charge associated with integrating its troubled Internet content security subsidiary StreamShield into the core business.

Detica’s £34.7 million ($66m) acquisition of capital markets specialist consultancy MA Partners in September 2006 is already starting to pay-off, however. Several deals won during the half-year period – in particular Detica’s £16.6 million ($31.5m), seven-year contract with the UK Financial Services Authority to aid the watchdog’s monitoring of compliance with the new Markets in Financial Instruments Directive (MiFID) regulations – have proved Detica’s enhanced competence in the highly profitable financial services space.

Less positive, however, was Detica’s annual staff attrition rate, which has grown to 18% from 14% in 2006 – underscoring the challenges of attracting and retaining staff in a booming consulting market.

Software surge

Meanwhile, the world’s second largest software company, Oracle, continued its run of strong results, reporting year-on-year revenue growth of 20% to $5.83 billion for its fiscal fourth quarter 2007 ending 31 May. For the sixth consecutive quarter, profits growth was above the 20% line, jumping from $1.3 to $1.6 billion.

The sales of new software licences were up  17% to $2.48 billion, while revenue from updates and product support rose 21% to $2.27 billion.

But digging deeper into those numbers, there were some worrying trends for the company. Application licence growth, which had average 55% in the first three quarters of the company’s financial year, fell back to 13% (or 10% at constant currency rates).  CEO Larry Ellison played down this apparent slowdown, saying it was as a result of a “very, very tough comparison – it’s simply a matter of spectacular growth [of 83%] a year ago.”

In contrast, new licence revenue from database and middleware software grew by 18% (15% at constant currency), on par with the pace in the year-ago quarter and faster than any of the other fiscal 2007 periods.

However, there were eye-popping differences between how well these two divisions fared in Oracle’s three global regions. Applications licence growth in the Americas region fell back to 5%, in Asia/Pacific it actually fell by 1% (or down 4% at constant currency), while in European it jumped to 42%. Database licence growth was consistent with the overall levels in the Americas and EMEA, but was a less impressive 10% in Asia/Pacific (7% at constant currency).

At least some of that geographical fluctuation is down to the company’s revenue being buoyed by acquisition – some of its acquired businesses have been much stronger in different regions than others.

The company predicts that its next quarter, historically the company’s leanest, would see revenue growth of between 18% and 21%.

Information Age M&A Report: June 2007

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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