Ralph Finos Consulting

Look for the following to confirm our 2010 forecast of +8.2% and 2011 forecast of +6.2%:

The Model is all in for Q3 2010.  We’re still on a course to meet the forecast below for 2010 & 2011:

 


HP Results


HP’s results were a mixed bag, with ESS, IPG, and Services directionally on target, Software coming in much better (flat vs. 2009), and PSG being much weaker than we thought.  While the accuracy of the individual components varied, the gross was within 1%.  Here’s what we thought vs. what happened (Red is Hot!, Blue is bad).

Profits

Profits for Q310 were up +30% over last year.  While 19%pts of that growth was due to revenue increases, 11%pts was a function of improving margins.  Q410 will be the best Quarter ever for IT profits.  RIM and Apple continue to absorb more of the profit dollars from IT Services and Software.  Microprocessor profits are coming back.

With 85% of the model now in (HP is all that’s left), we’re still on a course to meet the forecast for 2010 we’ve been holding to for the past 4 months.


The indicators are solid.  67% (120 reports) of indicators have come in ahead of the estimate, although the last 30 have been a little bumpier.  Cisco and Dell weakness is dampening the 2011 Hardware outlook.  So, we’re looking the following:

On a detail product basis, we’re expecting:

HP Expectations

HP is the single largest factor in our model, so their results could impact our model.  Here’s what the Model expects from them this period.

With >50% of the model now in, we’re still on a course to meet or beat the forecast for 2010 we’ve been holding to for the past 4 months or so.


The indicators are solid. 70% (90 reports) of indicators came in ahead of the estimate.  So, we’re standing by the bullish as-reported 2010 WW IT Spending growth below:


Hardware: +13.7%
Software: +8.0%
Services: +1.8%
All Spend: +8.2%



Vendor Results so Far
Here’s what we thought would happen and what we got.  Red means they’re running hot and Blue means they are running cold!  Microsoft and Apple drive the bus!

Company	Q310 Revenue Expectation	Expected Growth Rate	10/4 Note	Actuals by 11/4
Apple      Mac     Peripherals      iPhones      SW & Other	$4.637B $483M $7.231B $677M	+16.5% +10.7% +57% +4%	Rates of growth slowing as 2009 compares get tougher	Up 22% Up 22% Up 92% Up only 2%
CA	$1.102B	+2.8%		Up 3.5%
EMC	$3.406B	+12.5%	Excluding  VMWare	Up 16%
IBM      Software      Service      Hardware	$5.243B $14.286B $3.762B	+2.5% +0.5% -4.0%	Without PLM business Looking for an upside surprise They should beat this	Up only 1% Down -1.6% Up 10.4%
Juniper	$1.069B	+27%		Up only 23%
Lexmark	$1.078B	+12.5%		Up only 6%
Microsoft SW     Client     Server     MBDS	$12.917B $4.542B $3.680B $4.838B	+73% +7.2% +9.9%	SW only Off of very weak Q309	Up 33% Up 83% Up 15% Up 16%
VMWare	$692M	+41%	The locomotive keeps gaining steam	Up 46%.  Someone had better get out there and lay some more track!

 
Q42010 Outlook

Buoyed by strong handheld sales, our Q42010 growth estimate looks like +6.1% YoY.  HW will be +11% for Q4, Software +4%, and Services +3%

2011 Outlook

Our 2011 WW IT Spending growth forecast edged up to +6.3%.

·         Hardware + 7.6%
·         Software + 5.6%
·         Services +5.0%

With ~15% of the model now in, we’re on a course to beat the forecast for 2010 we’ve been holding to for the past 3 months or so.

The indicators are solid. 88% (8 of 9) of indicators came in ahead of the estimate.  So, we’re standing by the bullish as-reported 2010 WW IT Spending growth below:

·         Hardware: +13.7%

·         Software: +8.0%

·         Services: +1.8%

·         All Spend: +8.1%

Accenture was the most important news – finally beating an estimate.  Perhaps we’ve reached the Services inflection point.  Paychex had good results on the HRS side.  Progress and Tibco did well as did Adobe.

Q32010 Outlook

These positive results bolster our Q32010 WW IT Spending growth forecast projection of +8.8% over Q32009:

• Hardware + 12.7% (+12.9% sequential)
• Software + 11.3% (-6.1% sequential)
• Services +1.2% (+1.7% sequential)
  

Our Q42010 growth estimate of +3.9% YoY is looking light right now, but its too early to tell.

On Deck

Here’s who to watch.  The compares are tougher vs. 3 months ago.

2011 Outlook

Its too early to adjust our 2011 WW IT Spending growth forecast of +5.5%.  But if the pace of growth we’ve seen so far in Q3 is maintained, then we may have to adjust these upwards as well.

·         Hardware + 6.2%

·         Software + 6.0%

·         Services +4.3%

>90% of the model is now in, so we can do a final tally.  The indicators are solid. 67% (vs. 66% at this time last quarter) of vendors or business units met or beat the midpoint of their guidance or our statistical forecast for Q2.  Even given “unusual uncertainty” most 2010 revisions were upward.   So, we’re standing by the bullish as-reported 2010 WW IT Spending growth of +7-9% growth that we’ve been forecasting all year:

·         Hardware: +13.7%

·         Software: +8.0%

·         Services: +1.8%

·         All Spend: +8.1%

On average, currency was a negligible YoY factor in Q2.

Here’s what I forecasted and here’s what happened.  The net is a continued bullish outlook for Hardware.  Red means they’re running hotter than predicted, blue running slower.

Solutions Area Growth in 2010

Risk and Compliance, BI, Security, Health care, and SCM are looking to be the growth leaders in 2010.  We’re waiting for the 2011 (??) global recovery for industrial solutions to pick up.  Infrastructure-related and business services are dragging.

Q22010 Profits up 36% YoY

IT Vendor Profits surged to all time quarterly highs - +36% over a terrible Q22009.  Intel and AMD boosted the MPU profit share and Consumer Hardware continued to grow its share of IT Industry profits.  PCs and Printers continue on their inexorable death spiral.  Software continues to soften, a trend that first showed up 2 years ago.

Q32010 Outlook

We’re forecasting Q32010 WW IT Spending to be +8.8%:

·         Hardware + 12.7% (+12.9% sequential)

·         Software + 11.3% (-6.1% sequential)

·         Services +1.2% (+1.7% sequential)

Q42010 growth returns to earth at +3.9%.

2011 Outlook

2011 WW IT Spending growth looks like +5.5%:

·         Hardware + 6.2%

·         Software + 6.0%

·         Services +4.3%

>50% of the model is now in and we’re still beating the numbers – albeit not as dramatically as last time.  68% (vs. 73% when we last reported) of vendors or business units have met or beat the midpoint of their guidance or our statistical forecast for Q2.  So we’re standing by our bullish 2010 WW IT Spending forecast of last time:



       Hardware: +13.7%
       Software: +8.4%
       Services: +1.8%
       All Spend: +8.2%

44% of the model is now in and we’re beating the numbers.  32 of 44 (73%) vendors or business units have met or beat the midpoint of their guidance or our statistical forecast for Q2.  So we still like our bullish 2010 WW IT Spending forecast even more:

·         Hardware: +13.7% (up from +12.7% last time)

·         Software: +8.4% (up from +6.5%)

·         Services: +1.8 (down from +2.1%)

·         All Spend: +8.2% (up from 7.3%)

On average, currency has been a negligible YoY factor in this quarter so far.

Here’s what moved the meter.  Hardware was better all around.  Microsoft’s results trumped the lousy IBM and CA results. Informatica (+10.6% of our estimate), Sybase (+2.5%), VMWare (+1.0% of estimate), Compuware (+1.0%), Avid (+0.6%), and Manhattan Associates (direct hit) all helped to tick the Software number higher.  Services took another hit - mainly IBM, but Wipro & Infosys were also short.

 Red means the results show the model is heating up!  Blue is cooling down!

SAP ($3,687M), Lexmark ($964M), Symantec ($1,557M), and McAfee ($510M) are up next week as are a host of solutions and BPO providers.


Until HP, Dell, Cisco, Fujitsu, and CSC report there isn’t going to be much that can move the meter.  So we’ll check back in in August.

It’s early, but so far, 9 of 14 (64%) vendors or business units have met or beat their forecast for Q2.  So we’re still bullish on our 2010 WW IT Spending forecast:

·         Hardware: +12.7%

·         Software: +6.5%

·         Services: +2.1%

·         All Spend: +7.3%

Here’s what we have for those on deck.  Remember that Q209 was in the trough of the downturn, so solid growth would be expected from everyone for Q210.  Currency will be a slight sequential dampener (it was worse in Q209).  If these guys hit their numbers, then we’re on course for the 2010 forecast above.  If they fall short… so much for the 2H tech rally!

Some harbingers of where we’re heading…
 

Results overall were good.  Red indicates they are running ahead of expectations.  Blue means they’re running cold.  Software was positive with good stories all around.  RIM disappointed…again… but +20% growth is great, especially with Apple announcing new products weekly.  Accenture showed more of the same for Services. 

We hit the Oracle numbers pretty well, given the uncertainty of the how they are handling Sun revenues.

So, these results do not materially change the standing 2010 forecast based on the Q1 finals:

·         Hardware: +12.7%

·         Software: +6.5%

·         Services: +2.1%

·         All Spend: +7.3%


Currency will be a factor and the net is likely to be a downward movement.  But right now, we like these numbers.

See you in mid-July!

Well, we nailed the as-reported Q12010 growth rate, but Q2 is going to be stickier.  The vendors with March-May Fiscal Quarters (~15% of the overall model) will get ~+3% currency tailwind.  The rest (if currencies remain stable through the rest of June) should see a ~0% currency impact.  Given that the model has +3% baked in for all of 2010, we’re pulling the model back to +8.4% for as-reported Q22010.


We have real problems if currency stays where it is now throughout Q32010 and Q42010.  That’ll equate to a >-10% headwind for as-reported Q3 and Q42010.  So, we’re going to be putting the brakes on the model going forward.


But given all that, let’s see how the lead-off vendors are going to look.  Palm is too difficult to estimate. Get out your scorecard!

Overview

Overview

With 113 Q12010 earnings reports in, we’ve got a pretty good bead on WW 2010 IT Spending.   We’re looking for:

66% of 113 vendors/business units Q110 financial reports met or beat the mid-point of their revenue guidance or the Spending Model’s prediction for revenue.  Currency tailwind helped this quarter (as it did last quarter).  We estimate that as many as 1/3 of those who met or beat the Q1 revenue estimate would have fallen short without the currency help, so we’re not too impressed.

As for the Hardware number, approximately half the 2010 growth will come from Apple and RIMM.

Leaders Coming to Bat

HP, Dell, and CSC are the remaining vendors who can possibly move the meter appreciably in any direction.  We’re looking for the following:

Q2 2010 Outlook

Q1 will likely be the last quarter with any appreciable currency impact for the foreseeable future.  On the other hand, the Q2 2010 comparison vs. Q2 2009 will be advantageous, given the rut we were in a year ago.  So now we’ll see if this market rebound has any real legs to it. 

The model has Q22010 coming in at +11.9% over Q2 2009.  With the change in the currency picture, we’re expecting something closer to 10% or less by the time all the results are in.

Leading Growth Sectors in 2010

Hardware will be driving the growth train in 2010.  Solutions overall will bounce back from -4% in 2009 to +6% in 2010. A handful of Solution areas will lead the way with double digit growth in 2010 - CRM, SCM, Health Care, Business Intelligence and Analytics, UCC, and Security.  Compute-intensive BPO will rebound from -5.7% in 2009 to +2.4% in 2010 – reflecting the weak real economy overall.

We’re looking for the following from IBM and Apple

The Intel news and AMD news was very good for Hardware.  IBM and Apple are important drivers of the HW, SW, and Services models.  Expectations for Apple are high.  We’re looking for some good news from IBM Services – but just making the forecasted numbers above may be all we can hope for.

The results for the early  (Dec-Feb) Q12010 reports were a little disappointing, but the results did not move the model appreciably, so we’re still holding to our +9.0% as-reported growth for 2010.

Overall, the 2010 model and I both continue to be rationally optimistic.  Here's how everyone did vs. the model estimates.

Accenture and Adobe were more of the same.  Oracle, Red Hat, and RIM were a little disappointing.  In the net, the vendors came in ~1% light, not enough to move the overall model.  So, we’re holding our own at +9.0% for 2010 growth.  However, if the results of the next round of vendors drag, then the model may be overshooting.

On a positive note, Lawson continues to accelerate, including 27% growth in new licenses (correlating well with Oracle’s +20% in New App Licenses).  So ERM is coming back.

There are reasons to be wary.  RIM’s CEO “doth protest too much” that the shortfall was a 1X event.  Palm did an incomprehensible restatement this quarter, so its hard to gauge anything from them.  Apple might shed some light on handheld and hardware growth.   Oracle with Sun is just too hard to calibrate right now.  Once the dust settles, we might need to recalibrate our robust HW growth rate expectation for 2010 of +12.4%, but right now there’s no reason to change our view.

Well, let’s get this party started!  Sort of…  YoY As-reported compares this quarter shou