Public sector cuts do Atos year-end results no favours

Service giant's year-end results show need for global delivery model, say analysts

Shrinking UK public sector contracts contributed to the mixed year-end results announced today by IT services giant Atos Origin.

And Atos still has some mountains to climb, say industry analysts, not least in moving from nationally based to global delivery models, and in integrating Siemens IT Solutions and Services (SIS), which the firm agreed to acquire on 1 February.

The group's overall operating margin of €337m was up to 6.7 per cent of revenue in 2010, compared with 5.7 per cent in 2009. But that was on revenues of €5,021m, a decline of 3.5 per cent on last year.

"Atos is turning the corner, but fairly slowly," IDC analyst Douglas Hayward told Computing.

In the UK, Atos' operating margin remained around nine per cent at €77m on revenues declining 3.5 per cent to €904m.

That could have been worse, said the company in a statement, but in the fourth quarter, UK revenue actually inched up one per cent.

Revenue for managed services was down five per cent compared to 2009 to €1,847m.

Two-thirds of this the company blamed on a planned reduction of activity with Arcandor, the German company that holds a majority stake in Thomas Cook and which filed for bankruptcy protection in May 2009.

The other culprit was the UK public sector spending moratorium.

"Atos' presence in the UK public sector is pretty much focused on doing critical day-to-day stuff that's not discretionary, so the core operation looks pretty stable," said Hayward. "The question is whether Atos can get back to up-selling and cross-selling new services to the UK public sector on the back of the existing outsourcing deals."

Despite its new management team, Atos as a group is still held back by a national approach to service delivery, said Hayward.

"Our big criticism is that Atos is too stove-piped by country, which hampers its ability to support global customers."

The group should follow the example of its competitors and its own UK operation to focus on vertical markets, he added.

"Companies that organise their people into industry-focused units do better in our view because they focus more closely on industry-specific pain points and they know their customers better."

As part of the year-end results announcement Atos laid out its plans for integrating SIS. The plans got the thumbs-up from analysts but delivery will be crucial.

"This is a real test for [chief executive] Thierry Breton and his team, and he can't afford to get it wrong," said Hayward. "His predecessors did a relatively poor job of integrating previous acquisitions – such as Sema and KPMG Consulting."