IT Services Forecaster - Everest Group Services Forecaster - C3Q... · Sources of exhibits herein are based on company reports and DeepDive ... Recent growth vs. history ... Cognizant

See Appendix of this report for our important Disclosures and Terms of Readership.Sources of exhibits herein are based on company reports and DeepDive | Everest Group research, unless otherwise noted. EGR-2017-14-PD-2084

IT Services Forecaster™Preview Deck

February 2017

Proprietary & Confidential. © 2017, DeepDive Equity Research | Everest Global, Inc. EGR-2017-14-PD-2084

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Introduction and research methodology

1 Multi-pronged research includes our studies of: buyer behavior, contract signings, financial patterns, pricing trends, disruptive forces, and service provider views and

strategies.

Introduction

The IT services industry is experiencing heightened change, while industry executives and investors wrestle with the “black box” nature of

the industry, facing shortcomings in answering basic yet critical questions, including:

How fast are the industry’s key segments actually growing? How much growth is from currency and acquisition impacts?

Who is gaining and losing market share?

Where is acceleration/deceleration occurring? What are the drivers?

To help address these topics, DeepDive | Everest Group has developed (and is continuing to refine) a team and systematic

methodology to:

1. Examine detailed industry growth trends in organic, constant currency terms

2. Forecast industry and market segment growth rates

3. Measure performance vs. peers for major IT services players

Methodology

Collect data Segment Remove noise Forecast Benchmark

Update detailed

models of Service

Providers’ (SP)

financial results

Dissect revenues

into 19 market

segments

Analyze and account

for the growth impacts

of currency moves

and acquisitions

Coalesce multi-

pronged research1

into growth forecasts

for industry and

market segments

Track performance

trends of key IT

services players

against peers and

within market

segments


Quarterly report examining real growth and drivers for the IT services

industry, 19 underlying market segments (i.e., verticals, regions, service

types, and digital vs. traditional), and 20 major service providers.

Growth Trends

Report

Report conveying our 1-year and 3-year forecasts for the industry and 19

market segments, along with key drivers of acceleration and deceleration.Growth Forecast

Report

Company-specific dashboards to benchmark and convey how key service

providers are performing against relevant peer groups. Company-Specific

Benchmarks

Outputs of our IT Services Forecaster researchOur IT Services Forecaster materials provide insights into the true growth of IT services industry, its market

segments, and its major players


Our segmentation approachOur research is tracking and forecasting “real” growth across 19 market segments

1 “Others” segment includes smaller verticals (e.g., Transport, Services, Leisure) that are not covered in other verticals

Note: Growth figures herein are in organic, constant currency terms (unless otherwise noted), as our primary aim is to convey growth trends excluding noise stemming

from currency and acquisition impacts

Source: DeepDive | Everest Group (2017)

Services

Consulting & Systems Integration

Application Outsourcing

Infrastructure Outsourcing

Business Process Outsourcing

Engineering Services

Products & Platforms

Verticals

Banking, Financial Services & Insurance

Healthcare & Life Sciences

Technology, Media & Telecom

Public Sector

Manufacturing, Distribution, & Retail

Energy, Resources, and Utilities

Geographies

Americas

Europe

Asia Pacific

Rest of World

IT Services Segmentation

Others(1)

Reported

Constant currency (CC)

Organic

Organic CC

Growth

(YoY, QoQ, Forecasts)Industry

Segment-

specific

Company-

specific

Growth Outputs

Digital vs. Traditional


Demystifying the IT services landscape DeepDive Equity Research and Everest Group have joined forces to distinctively analyze the real health of the IT services

industry and its underlying segments

Track growth results

and remove noise

Translate into forecasts

by market segment

Conduct research on

growth drivers

Real growth

Constant currency, organic growth

benchmarks for IT services industry in

aggregate, as well as constituent market

segments – i.e., by service type, vertical,

and region, and by provider categories on a

quarterly basis

Growth forecasts

Projections of growth for the industry and

market segments

Buyer behavior

Tracking (via surveys, interviews,

interactive group sessions) of buyers’

perceptions/patterns and demand outlook

Profitability trends

Analysis of margins, returns, pricing,

accounting, and operational metrics to

understand underlying profitability trends

Benchmarks / scorecards

Evaluations of the earnings results of IT

services firms; Comparisons of the overall

and segment-level growth rates of key firms

to relevant peer groups

Contract signings

Analysis of contract signings trends,

leveraging our proprietary Transactions

Intelligence™ database

Financial patterns

Analysis of underlying growth and financial

patterns of service providers

Disruptive forces

Research on disruptive industry forces

(e.g., automation, cloud, new entrants)

Pricing insights

Analysis of pricing trends to project the

impacts on growth and profitability

Service provider views and strategies

Tracking of competitive trends and

strategies of service providers

Profitability forecasts

Projections of profitability for key players

and market segments


Service Providers (SPs) being trackedOur research currently tracks 20 of the largest publicly-traded IT services businesses, which collectively

account for over $200 billion in annual IT services revenues

Note: We track IBM Global Services as two separate services business – i.e., IBM Global Technology Services (GTS) and IBM Global Business Services (GBS)

System Integration Heritage

Infrastructure Heritage

Applications Heritage

Midsized

GBS

GTS

http://www.wipro.com/index.htm

http://www.wipro.com/index.htm


Overall Industry: Recent growth vs. historyThe industry’s latest organic CC growth of 3.1% Y/Y reflects sequential (i.e., Q/Q) deceleration of 1.0

percentage point and one-year deceleration of 0.8 percentage point.

2.6% 2.5% 2.5%

3.2%

2.6%3.0%

3.9%

3.3%

4.5%4.1%

3.1%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

C1Q14 C2Q14 C3Q14 C4Q14 C1Q15 C2Q15 C3Q15 C4Q15 C1Q16 C2Q16 C3Q16

Y/Y revenue growth in

organic constant currencyY/Y growth in reported revenues

IT services industry1 Y/Y revenue growth

0.8 percentage point of Y/Y deceleration

1.0 percentage

point of Q/Q

deceleration

1 We’ve analyzed the growth results of 20 major services businesses as a proxy for industry growth

Source: DeepDive | Everest Group (2017), Company Reports


0.6% 0.4%

-0.3% -0.8% -1.0%-1.4% -2.2%

Healthcare &Lifesciences

Tech, media &Telecom

Mfg, Distribution& Retail

Energy,Resources &

Utilities

Public SectorOthers2BFSI1

Verticals

-0.3%-1.3%

-1.5% -1.7%

SI HeritagePeer Group

Infra HeritagePeer Group

MidsizedPeer Group

Apps HeritagePeer Group

Service

Provider

Groups

Sequential change in growth by segmentsSequential growth deceleration occurred in: All of 4 service provider groups, 5 of 7 verticals, 4 of 6 service types, and 2 of 4 regions

Sequential change in Y/Y growth in organic, CC

0.5% 0.2%

-0.6% -0.8%-1.2%

EngineeringServices

BPO AppOutsourcing

Consulting &SI

InfraOutsourcing

Products &Platforms

-12.6%

Service

Types

2.2% 0.6%

-1.8%-3.3%

Rest of the World Americas Asia Pacific Europe

Regions

1 BFSI – Banking, Financial Services & Insurance;

2 Others: include smaller verticals not covered in other major segments – Transport, Services, Leisure etc.


Acceleration Deceleration


23.1%

17.2%14.5%

9.7% 9.4% 8.8%7.3% 7.0% 7.0%

4.1% 3.6% 3.1% 2.4% 2.1% 1.8% 0.9%

-2.5% -3.0%-4.9%

-6.4% -6.7%

EP

AM

Virtu

sa

Luxo

ft

Co

gniz

an

t

HC

L

Info

sys

Acce

ntu

re

Gen

pact

TC

S

Te

ch

Mah

indra

Wip

ro

To

tal In

dustr

y

CG

I

Ca

pge

min

i

Ato

s

IBM

GT

S

IBM

GB

S

HP

E-E

S

Synte

l

CS

C

Un

isys

Y/Y growth in organic, CC

Sequen-

tial

change in

Y/Y

growth

-4.3

ppts.

-2.2

ppts.

-7.0

ppts.

-0.4

ppt.

1.7

ppts.

-3.2

ppts.

-1.1

ppts.

2.0

ppts.

-3.1

ppts.

-0.9

ppt.

-1.9

ppts.

-1.0

ppt.

2.2

ppts.

-1.7

ppts.

-0.2

ppt.

0.0

ppt.

0.7

ppt.

-4.0

ppts.

-7.3

ppts.

-2.2

ppts.

-0.6

ppt.

Annual

change in

Y/Y

growth

-6.1

ppts.

-7.3

ppts.

-14.7

ppts.

-9.0

ppts.

-4.1

ppts.

-4.7

ppts.

-2.4

ppts.

0.0

ppt.

-4.6

ppts.

4.2

ppts.

-4.0

ppts.

-0.8

ppt.

5.5

ppts.

0.6

ppt.

1.2

ppts.

-0.1

ppt.

2.5

ppts.

0.0

ppt.

-17.5

ppts.

0.8

ppts.

-7.7

ppts.

>100 Bps above Industry -100 Bps to +100 Bps vs. Industry >100 Bps below Industry

20 Major Service Businesses: Growth and change in growth



EPAM

Virtusa

Luxoft

Cognizant

HCL

Infosys

Accenture

Genpact

TCS

Tech Mahindra

Wipro

Total Industry

CGI

Capgemini

Atos

IBM GTS

IBM GBS

HPE-ES

Syntel

CSC

Unisys

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

-8% 0% 8% 16% 24%

Y/Y growth in organic CC (3Q 2016)

Seq

uen

tial

ch

an

ge i

n Y

/Y g

row

th

Share gainShare loss

Acce

lera

tion

Decele

ratio

n20 Major Service Businesses: 3Q16 leaders vs. laggards



1 Accenture (using F4Q16 ending August 2016), IBM-GBS, CGI, Capgemini


SI Heritage Peer Group: Latest growth vs. recent historyThe SI Peer Group grew by 3.3%, reflecting sequential deceleration of 0.3 percentage point

0.9% 1.5%

2.4%2.9% 2.7% 2.7% 2.7%

2.2%

4.3%3.6%

3.3%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%


Y/Y growth in organic, CC Y/Y growth in reported revs

Systems Integration Heritage Peer Group1 Y/Y revenue growth (last 11 quarters)


Infrastructure Heritage Peer Group: Latest growth vs. recent historyAfter the prior two quarters were aided by easy growth comparisons, the Infrastructure Heritage Group’s Y/Y

growth dropped back to negative territory

1 IBM-GTS, HPE-ES, CSC, Atos, Unisys

2 For HPE-ES, using F3Q (quarter ending July) in the calculations


-1.5% -1.8%-2.4% -2.3%

-3.8%-3.2%

-1.0% -0.6%

0.4% 0.3%

-1.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%


Infrastructure Heritage Peer Group1 Y/Y revenue growth (last 11 quarters)



12.9%

11.5%10.4%

12.3% 12.3%13.2% 13.1%

10.6% 9.9%9.5%

7.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%



Applications Heritage Peer Group: Latest growth vs. recent historyGrowth of the Applications Heritage Peer Group weakened for the fifth consecutive quarter to reach 7.8%

Applications Heritage Peer Group1 Y/Y revenue growth (last 11 quarters)

1 TCS, Cognizant, Infosys, Wipro, HCL



13.4%12.2%

14.3%15.1%

12.5% 12.0%

8.8% 8.9%9.7%

8.7%

7.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%



Midsized Peer Group: Latest growth vs. recent historyGrowth in the midsized group declined by 1.5 percentage points sequentially to reach 7.2%

Mid-sized Peer Group1 Y/Y revenue growth (last 11 quarters)

1 Genpact, EPAM, Tech Mahindra, Syntel, Luxoft, Virtusa



Revisions to our growth forecastsDue to changes in demand drivers that seem unnoticed on Wall Street, we are revising our NTM

industry growth forecast of X% down to Y%.

3.1%

Latest Industry Growth

3.0%2.8%

Prior Revised

1.9% 1.9%

Prior Revised

NTM* Forecast Following 2-Yrs Forecast

* NTM denotes Next 12 months


About Deep Dive Equity Research

Headed by perennial #1 stock analyst Rod Bourgeois, DeepDive Equity Research provides in-

depth research on enterprise tech sector shifts and stock-specific controversies, with a

particular focus on IT services stocks. DeepDive’s differentiated research approach entails

unsurpassed industry expertise, proprietary pattern recognition of stock and fundamental

tendencies, access to significant industry network, and refined financial modeling and metrics

analyses. Stocks/businesses tracked by DeepDive include Accenture, Cognizant, Infosys,

CSC, Genpact, CGI, IBM Global Services, HP Services, Xerox Services, Unisys, TCS, Wipro,

HCL, EPAM, Capgemini, Atos, Luxoft, Virtusa, Syntel, Tech Mahindra, EXL, WNS, ADP,

Paychex, and CSRA. See www.DDEresearch.com for more information.

About Everest Group

Everest Group is a consulting and research firm focused on strategic IT, business services, and

sourcing. We are trusted advisors to senior executives of leading enterprises, providers, and

investors. Our firm helps clients improve operational and financial performance through a

hands-on process that supports them in making well-informed decisions that deliver high-

impact results and achieve sustained value. Our insight and guidance empowers clients to

improve organizational efficiency, effectiveness, agility, and responsiveness. What sets Everest

Group apart is the integration of deep sourcing knowledge, problem-solving skills and original

research. Details and in-depth content are available at www.everestgrp.com.

DeepDive | Everest Group Collaboration

DeepDive Equity Research and Everest Group have formed a research partnership. The two

firms are collaborating to develop unique IT services data sets, forecast industry growth rates,

conduct primary research, extend our intelligence on IT services contract signings, and analyze

industry shifts caused by enterprise technology changes.

More Information

Rod Bourgeois, [email protected]

Jimit Arora, [email protected]

http://www.dderesearch.com/

http://www.everestgrp.com/




Disclosure Appendix and Terms of Readership (page 1 of 3)

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I, Rod Bourgeois, hereby certify that the views expressed in the foregoing research report accurately reflect my personal views about the subject

securities and issuer(s) as of the date of this report. I further certify that no part of my compensation was, is or will be directly, or indirectly, related to the

specific recommendations or views contained in this report

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Neither I, Rod Bourgeois, nor a member of my household has purchased the security (ies) which is/are the subject of this research report. Neither I, nor a

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Excluding possible holdings in stock market index funds or mutual funds, DeepDive Equity Research LLC and Rod Bourgeois have no long or short

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Risks to Investment Conclusions

There are fundamental risks to our overarching IT services industry views, which are somewhat cautious relative to views commonly conveyed on the

Street: Cyclical improvements could drive demand upside. Share gains by individual stocks could offset industry headwinds. Firms able to distinctively

capitalize on digital demand can achieve growth upside

Also, beginning in October 2015, we contended Cognizant’s growth expectations for 2016 were too high. Now, the main risk to this view is that

Cognizant’s 2016 growth expectations have implicitly dropped to below the formal consensus estimates. Similarly, in July 2016, we made a negative call

about INFY’s ability to achieve its growth estimates and guidance. After subsequent reductions in INFY’s growth outlook and valuation, INFY now faces

lower expectations

Important Disclosures

DeepDive Equity Research is an independent research firm and is not a registered investment advisor and is not acting as a broker dealer under any

federal or state securities laws.

DeepDive Equity Research is a member of IRC Securities’ Research Prime Services Platform. IRC Securities is a FINRA member broker-dealer

registered with the Securities and Exchange Commission and certain states that is focused on supporting the independent research industry. Certain

personnel of DeepDive Equity Research, (i.e., Rod Bourgeois, Head of Research & Consulting) are registered representatives of IRC Securities. As

registered representatives and independent contractors of IRC Securities, such personnel may receive commissions paid to or shared with IRC Securities

from securities firms that may share commissions with IRC Securities in accordance with applicable SEC and FINRA requirements

As registered representatives of IRC Securities, our analysts must follow IRC Securities’ Written Supervisory Procedures. Notable compliance policies

include (1) prohibition of insider trading or the facilitation thereof, (2) maintaining client confidentiality, (3) archival of electronic communications, and (4)

appropriate use of electronic communications, amongst other compliance related policies

DeepDive Equity Research does not have the same conflicts that traditional sell-side research organizations have because DeepDive Equity Research

(1) does not conduct investment-banking activities, (2) does not manage any investment funds, and (3) our clients are institutional investors and industry

professionals

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Disclosures concerning Everest Group

Everest Group has not analyzed, or otherwise opined upon, the securities of any company mentioned in this report or provided information reasonably

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Documents

IT Services Forecaster - Everest Group Services Forecaster - C3Q... · Sources of exhibits herein are based on company reports and DeepDive ... Recent growth vs. history ... Cognizant