OVUM. Dominique Raviart

Comment:

Capgemini had signalled one year ago that it wanted to selectively reemphasise its interest in infrastructure management. The company has divested infrastructure services in areas such as hardware maintenance and network services, which it identified as low-margin, and is stressing more complex work such as server management. We think this particular deal roughly follows Capgemini's infrastructure strategy. The company is responsible for the build work of the contract as well as the management of servers and data centres and is leaving the rest to partners. Its main subcontractor is HP, which is taking care of desktop management, help desk and hardware procurement. Other subcontractors include Capgemini's own (staff augmentation) subsidiary Sogeti, BT and SCC.

Capgemini has been lacking in mid-sized outsourcing wins since the end of H1 2006. Bookings were soft and Capgemini has admitted that outsourcing would not drive as much revenue growth for the firm as it had in the past, especially in H2 2007. The company will probably tells us more about new wins on Thursday when it announced its Q1 2007 revenues. Nevertheless, this contract win is good news for Capgemini. The company has not had much outsourcing success in the Netherlands recently, failing to gain any of the contracts from ABN AMRO, Aegon, Delta, Ahold, Rabobank or ING awarded in the past two years, only winning a significant BPO deal with Anglo-Dutch firm Unilever. In the Netherlands as in Germany and even in France, Capgemini is more a project service organisation. So we suppose that Capgemini is happy with any profitable deal that balance its country operations more towards outsourcing and more recurring revenues.

The other side of this announcement is HP. The company has had a quiet 2006 in services and in outsourcing but now seems on a roll with quite a number of mid-sized wins in infrastructure management across Europe. Of course, desktop management and help desk contracts tend to have low margins overall. However, the fact that the client is from the public sector may suggest that HP has found potential for efficiency improvement and margins that are good enough.