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A chink of light in an otherwise gloomy tech market
In this edition of TechMarketView’s ‘View from the Chief Analyst’, Georgina O’Toole looks back over the last month of TechMarketView analysis – in UKHotViews, UKHotViewsExtra, and reports – to identify some of the most prominent trends we are seeing in the UK tech market.
This month, Georgina highlights a chink of sunlight in an otherwise gloomy reporting period. While the dominant Q1 24 message from suppliers was of a growth slowdown, one industry stood out: the Manufacturing Sector. It proved a fertile hunting ground for a wide range of suppliers.
And with increased activity, has come increased investment in the form of acquisitions, partnerships, and portfolio development. For many, the excitement is around Industry 4.0, which makes TechMarketView’s recent Quantum Computing research an essential read.
Coming out of recession
Last week it was reported that the UK economy has emerged from recession. According to the Office for National Statistics (ONS), in the first three months of the year – between January and March – the economy grew by 0.6%.
It’s a small recovery, but a recovery, nonetheless. However, our most recent analysis of the financial results of tech suppliers over the same period struggles to paint a positive picture. Tech suppliers have continued to cite tough trading conditions, with customers continuing to tighten the purse strings on discretionary spend. Globally, the dominant trend across the software and IT services suppliers that we track was of slowing year-on-year growth in the first quarter of the year.
While Capgemini management optimistically predicted that the market dip had bottomed out (see here), many other players were more cautionary, with several refusing to be drawn on giving a forward view.
In the UK, our early full year analysis of the market in 2023 indicates growth will have been about half of that seen in 2022, and that the slowdown has continued into the first three months of 2024. Not only that, but this year’s market performance will be further negatively impacted by the impact of the General Election. Already, we have seen a slowdown in Public Sector spending, with a reluctance to make big policy-related investment decisions, and H2 is set to be more deeply hit.
Manufacturing a fertile hunting ground
Notably, amongst the muted global performances of the leading tech suppliers, one sector stood out as a growth driver: Manufacturing. Suppliers including Telefonica Tech (“positive performance”), HCLTech (+10% in Services), TechMahindra (+7%), LTIMindTree (+15%), and Infosys (“double-digit growth”) all shone a spotlight on the sector. For some it was their best performing vertical by far.
In the UK, around 10% of UK software and IT services spend comes from the Manufacturing sector. Our recent conversations with the UK management of other tech companies, including Capgemini, Atos, Mastek, NTT DATA, Hitachi Digital Services, and Fujitsu also point to heightened activity in the Manufacturing sector, in a wide range of areas including Manufacturing for Pharmaceuticals, for Automotive, and for Defence.
Atos, for example, has entered into a partnership with the Medicines Manufacturing and Innovation Centre, and is supporting it in several of its “Grand Challenges”. It is speeding up innovation by allowing the organisation to simulate the factory conditions that common across all Pharmaceutical Companies.
Meanwhile, Fujitsu is targeting the Defence manufacturers, all of which need to speed up their manufacturing processes, by positioning its Smart Manufacturing capabilities (part of its Uvance portfolio). Indeed, this month saw Fujitsu – alongside partner, ServiceNow – announce a new joint innovation centre (The Fujitsu-ServiceNow Innovation Center) that will focus on automating legacy systems and complex business processes. With Manufacturing its first target market, it will seek to create solutions for Engineering Management and Supply Chain Management (SCM) operations (see ServiceNow and Fujitsu launch joint innovation centre | TechMarketView).
In the Software space, the major software companies also seem to be delivering strong growth in the sector. Mid-sized cloud enterprise software provider, IFS, reported on its “best Q1” at the end of April. Focusing on six industry sectors – including Aerospace and Defence, Energy & Utilities, and Manufacturing – has led it to differentiate by bringing a range of capabilities onto a single platform. Its Enterprise Asset Management (EAM) solution is a particular growth area, benefiting from developments in Digital Twins and the Industrial Internet of Things (IIoT). By addressing Cloud ERP, the sector can begin to shift towards Industry 4.0 with the aim of becoming globally competitive.
Industry 4.0: the next phase
Industry 4.0 – the next phase in the digitisation of the Manufacturing industry – has come into sharp focus over the last month. In our September 2023 report, we estimated that 50% of spend in the sector was set to be ploughed into new technology underpinning Industry 4.0 innovation.
While the first phase of Industry 4.0 will be strengthening the digital and data foundations, the last month has seen numerous developments that suggest suppliers are gearing up for an accelerative change over the next few years, with more investment in areas such as robotic process automation, data analytics, and IoT. Indeed, in our UK Manufacturing Market Trends & Forecasts report, we highlighted (see here) that the sector was transforming from a reactive and conservative industry to one that is primed to explore the benefits of new technologies.
We have witnessed suppliers acquiring, partnering, or investing to support the development of their Manufacturing Sector propositions. Just three weeks ago, Infosys acquired engineering R&D specialist, in-tech GmbH (see here). This followed on from similar acquisitions by Capgemini (Altran in August 2020) and Accenture (umlaut in June 2021). The aim of these acquisitions is to target the digital transformation of industrial companies. Meanwhile, both CGI and Accenture entered into 5G partnerships looking to capitalise on the growing Industry 4.0 opportunity – with Nokia and Virgin Media O2 respectively.
Others have a more advantageous starting position in the Industry 4.0/IIoT space due to the heritage of their businesses. We’ve already mentioned Fujitsu; another example is Hitachi Digital Services (HDS). IoT has become a real ‘calling card’ for HDS, as it builds on its manufacturing and automotive heritage. We have heard from UK management that IoT is offering the business a good entry point into clients. One area of work is in factory floor optimisation, as large automotive and steel/metal plants look to operate at maximum capacity. This involves the rollout of Edge devices that feed data into factory control systems and offer cloud native developments around factory floor optimisation.
Also this month, we saw NTT DATA further push the benefits of consolidating its multiple businesses outside Japan under NTT Ltd and employ its “power to connect” capabilities. It has recently highlighted its investment in an All-Photonics Network (APN) driven by “hyper low-latency connections” between its datacentres in the UK (see here). The ability to join up geographically distributed IT infrastructure into a functioning equivalent of a single datacentre, will support a growing number of use cases, including IOT and predictive maintenance in Manufacturing. In addition, only a couple of months ago, at MWC Barcelona, NTT DATA was showcasing a range of value propositions created by combining 5G/Private 5G and advanced technologies like AI or Digital Twins, building on its experience in the telco field.
Quantum set to further disrupt the sector
The trends we have seen over the last month in Manufacturing, indicate a growing number of opportunities in the sector. Which is why it’s also worth me finishing this month’s ‘A View from…’ by highlighting recent research from TechMarketView’s, Simon Baxter, as crucial reading.
With AI top of mind in the current climate of GenAI excitement, it might be easy to forget about – or at least underestimate – the potential impact of Quantum Computing. In the Manufacturing Sector, there is an incredibly wide range of use cases.
In his report, Quantum acceleration is on the horizon, Simon highlights that “Quantum Computing has the potential to develop breakthrough products and services that will disrupt and redefine Manufacturing”. As the Manufacturing Sector explores the potential of emerging technologies to tackle its most prominent challenges, Simon’s report highlights that there are already numerous use cases being explored by manufacturers in areas including Automotive, Aircraft, and Robotic Warehouse Transportation. The recent trends in the sector suggest organisations in the Manufacturing Sector will be among the first to accelerate their Quantum investment in the years ahead.
Notably, the Manufacturing sector has felt the impact of global trends acutely. With the economic climate remaining challenging, big investment projects in 2024 will be aimed at helping the sector remain globally competitive. The shift to Industry 4.0 will become increasingly apparent. For Quantum to start having a major impact might be some time off, but the appetite to implement emerging digital tech – from both suppliers and end users – is clearly growing in the sector.
To build a footprint in Manufacturing, suppliers like Fujitsu, NTT DATA, and Hitachi Digital Services have used their differentiating capabilities – whether a sector heritage, or the capabilities to support connectivity for ‘smart’ factories. Now others are looking to accelerate their growth via either buy or build investment. The Manufacturing tech market is beginning to look a lot more appealing. But is also set to become a lot more competitive.
Posted by Georgina O'Toole at '07:00' - Tagged: partnerships manufacturing acquisitions market+trends marketdata investments smart+factory
Earlier this month, Blackstone completed its acquisition of Civica from Partners Group, providing the company with the resources to pursue its goal of becoming a global GovTech champion (see Blackstone completes Civica acquisition).
Recently published accounts show Civica is entering this new era in its 22-year history in good shape. For the year ended 30 September 2023, Group turnover was up 7.2% to £511.0m (2022: £476.5m); however, revenue from its core software divisions (a better indicator of Civica's prospects) increased by an impressive 16.2% to £463.7m (2022: £398.9m). On a proforma basis (taking into account acquisitions and exchange rates), software revenue was up 10% to £431m (2022: £393m).
For the software business, net revenue was up 15.7% to £420.2m (2022: £363.3m), EBITDAE was up 16.0% to £130.8m (2022: £112.8m), and EBITDAE as a % of net revenue was 31.1% (2022: 31.0%). On a proforma basis, UK and Ireland (UKI) software revenue was up 10% to £319m (2022: £289m), representing 74% of total proforma software revenue for the year.
Under Blackstone's ownership, we do not expect to see any radical departure from Civica's strategy of recent years, but it will have a more customer-centric approach. At the heart of the business is its vision of becoming a global GovTech champion, and this feeds into its mission, which it defines as, "we make software that delivers critical services to citizens around the world". It will also stick to its core markets of local government, health, education, and central government, where there remains significant white space for Civica to target.
There remains significant opportunity for international growth, and we expect to see Civica's activities outside of the UK accelerate under the new ownership. The Group has completed more than 35 acquisitions in the last 10 years, and M&A will remain a strategic focus in 2024 and beyond.
Working in partnership with Blackstone, we expect the company to build on its existing public sector foundations in the UK, Australia and New Zealand (and somewhat smaller foundations in North America) to scale into a global (rather than 'multi-local') GovTech business serving citizens internationally.
TechMarketView subscribers, including UKHotViews Premium subscribers, can learn more about this new era for Civica in our expanded UKHotViewsExtra article here.
If you aren't a subscriber – or aren't sure if your organisation has a corporate subscription – please contact Deb Seth to find out more.
Posted by Dale Peters at '08:25' - Tagged: results software digital public+sector govtech
RM plc has secured a significant expansion to its longstanding partnership with The International Baccalaureate (IB). The new arrangement will see the Abingdon-headquartered EdTech business support IB’s drive towards digital assessment.
RM has been working with the non-profit education foundation for 15 years, supporting its transition to e-marking. IB is now looking to push its digital transformation further by transitioning its Diploma Programme (DP) and Career-related Programme (CP) to digital assessment.
Talking to TechMarketView, Dr Matthew Glanville, Head of Assessment Principles and Practice at IB, said IB were looking to better reflect the way students interact with the world and that digital assessment presents a huge opportunity to do this whilst also improving access and enhancing inclusion for those with special educational needs.
Although the terms of the arrangement have not been revealed, the length and scale of engagement suggests this is one of the largest assessment contracts RM has won to date.
RM CEO, Mark Cook, said the partnership is perfectly aligned to where he wants the business to go, particularly its aims to develop a Global Accreditation Platform (see RM draws a line under turbulent times and sets sights on growth). It should also provide the good opportunity for RM to demonstrate its capability on an international stage, with 51% of IB schools in the Americas, 28% in EMEA and 21% in Asia-Pacific. The curriculum offered by IB is also growing rapidly in popularity, as demonstrated by 37% growth in the number of IB programmes being delivered over the last five-years.
As we reported in March, there is a new confidence and positivity within RM. It has been a challenging few years, but it looks like the worst is behind it. The IB partnership should act as a launchpad for growth in the digital assessment market. Other awarding bodies and education departments will be following IB’s progress with interest, which should lead to further opportunities for RM. We can also expect RM to increase the range of services it offers to help organisations break down some of the barriers to digital transformation of assessment e.g. access to appropriate infrastructure. The future is looking brighter for one of the original EdTech pioneers.
TechMarketView subscribers, including UKHotViews Premium subscribers, can read more about RM's partnership with IB in our expanded UKHotViewsExtra article here.
Posted by Dale Peters at '09:45' - Tagged: contract education schools assessment edtech partnership digital+transformation
We are delighted to announce that we’ll be holding our 2024 TechMarketView Evening Autumn Reception on Thursday 26 September.
Join us from 18.30-21.30 at Mall Galleries on The Mall, London, to mingle with your peers and friends in the tech sector over drinks and canapés and discuss the latest trends in the tech market with the TechMarketView team and guests.
During the evening you’ll also have the opportunity to enjoy a Private Viewing of the Royal Society of Marine Artists annual exhibition at Mall Galleries and help us celebrate our first year post MBO. This open exhibition is widely recognised as a showcase for the best in contemporary marine art, with selected work by non-members hung alongside the work of current members.
Please save the date in your diary - further information and booking details will be available shortly and we don’t want you to miss it!
Posted by TMV Team at '07:00'
