TECH DEVELOPMENTS: With SAP's release of its Q1 2010 earnings, it is clear that those who saw an irresistible shift from licensed software to software-as-a-service (SaaS) are a bit premature in their obituaries for the licensed software model. SAP's license revenues increased by 11% in euros, and by 18% when its euro revenues are converted into dollars at the average exchange rates in Q1 2010 and Q1 2009. Oracle's license revenues for its fiscal quarter ending February 2010 rose by 13% in US dollars (and 7% in euros). Among other vendors, Lawson reported a 28% increase in its license revenues (in dollars), and Epicor reported 23%.
These growth rates partly reflect how badly licensed software (which is treated as capital investment) got hit in the general cutbacks in business corporate investment in 2009, as panicked companies scrambled to conserve cash and avoid having to borrow from shut-down financial markets. However, I think there's more to the recovery than rebound from depressed levels a year ago.
Forrester's surveys of companies about why they don't like software-as-a-service consistently turn up five reasons: 1) inability to customize; 2) difficulty in integration to other systems; 3) security of data and information; 4) worries about pricing models that put clients on a constantly rising escalator; and 5) lack of SaaS products. SaaS vendors are addressing all of these, and there is no question that these barriers are eroding. But they still persist, and mean that the license software model has a high degree of persistence in software categories like core ERP systems (integration and security of core data), industry-focused applications (need for customization), eProcurement products (integration to ERP systems), and contract life cycle management products (security of contract data).
TECH DEVELOPMENTS: Like half a dozen Forrester colleagues, I have been stuck in London since last week due to the Icelandic volcano's disruption of air travel. So, this allows me a UK perspective on IBM's results for Q1 2010. These turned out to be very much what I expected (see "US And Global IT Market Outlook: Q1 2010 -- The Tech Market Recovery Has Begun"). I thought IBM's revenues would grow by mid-single digits; in fact, they grew by 5%. I expected its software revenue growth to be in low double-digits; its hardware revenues to be around 3%-5%; its outsourcing revenues up about the same; and its consulting and SI revenues down by 5% to 10%. Again, actual results came in pretty close: software revenues were up 10.6%; systems and technology revenues up 4.9%; outsourcing (GTS outsourcing) up 6%; and IT consulting and systems integration services (Integrated Technology Services and Global Businesses Services) flat with the year before.
Based on the results we have seen so far from IBM, Oracle (quarter ending February 28), Accenture (quarter ending February 28), and Atos Origin, here's what I think we will see for vendors for the rest of the quarter:
Software will be strong, up 10% or more growth in US dollar revenues for most vendors. Microsoft will do better than this, thanks to strong sales from Windows 7.
Hardware will also be strong, with PC vendors posting 15% growth and server/storage vendors coming in around 5% to 8%.
IT consulting and systems integrations servies will still be down, lagging the upturn in software investment.