IT's Tough in Managed Services

7:50 AM Competition is even tougher for the major vendors in the IT outsourcing services space

August 6, 2012

2 Min Read
IT's Tough in Managed Services

7:50 AM -- The telecom managed services sector is entering a delicate phase as the likes of Alcatel-Lucent (NYSE: ALU) and Nokia Networks re-evaluate lower-margin/loss-making deals and concentrate on the ones that add to the bottom as well as the top line. (See Alcatel-Lucent Could Exit 25% of Services Deals and NSN's Rajeev Suri: Restructuring, Research & Resilience .)

The deals that are of less worth are those that involve a lot of basic maintenance and parts management. The deals the major telecom equipment vendors are most interested in now are the higher-margin IT systems management and IT transformation deals that include systems integration and consultancy elements: One of the reasons Ericsson AB (Nasdaq: ERIC) acquired Telcordia was to boost its chances of landing such deals and it's had some success. (See Fastweb Picks Ericsson for IT Managed Services, Ericsson Gets IT, Ericsson's SPIT Vision and Ericsson + Telcordia: What the Analysts Say.)

The trouble is, those IT outsourcing deals are a lot harder to win: A broader range of large IT services companies are also competing for those deals, making it a much more competitive market.

A case in point is a deal just awarded by Saudi Arabia mobile operator Etihad Etisalat Co. (Mobily) , which has outsourced its IT operations to IBM in a five-year deal valued at 1.05 billion Saudi Riyals (US$280 million). The deal with IBM will, according to a submission to the Saudi stock exchange by Mobily, "lead to several technical advantages in final product quality, and in managing and securing the applications and ensuring business continuity."

Other companies competing in this sector include big names such as Accenture , Capgemini , HP Inc. (NYSE: HPQ), Tech Mahindra Ltd. and Wipro Ltd. (NYSE: WIT).

Winning services deals and broadening the revenues mix and capabilities has lessened the reliance of major network infrastructure vendors on sales of equipment but generating decent margins from those services is an altogether tougher task.

— Ray Le Maistre, International Managing Editor, Light Reading

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