CSC for sale - part of services consolidation trend

CSC for sale - part of services consolidation trend

An increasingly tough IT services market has forced CSC to raise a 'for sale' sign with Gartner claiming the move is part of a broader consolidation trend impacting the Australian market.

Pointing to Commander's recent takeover of Volante, Gartner research vice president Jim Longwood said CSC has been struggling to boost revenue and attract more customers.

"CSC's solutions rely too much on custom services which are costly to deliver," Longwood said, pointing to a wave of consolidation in the local market including Telstra's acquisition of Kaz and the Optus buyout of AlphaWest.

Longwood said outsourcing providers will increasingly institute standardized services as they try to generate better profits from their deals and to survive as competition for business gets even tougher.

He said it is good news for customers as it is more cost effective and reflects the move away from mega deals to best-of-breed sourcing.

While CSC has a strong base of government and Defence customers, including the Australian Department of Defence and the Department of Immigration, Longwood said the company has achieved little growth from new industries.

Put simply, CSC has not won any big, new outsourcing deals for at least a year, and Sears terminated its $1.6 billion contract early.

CSC Australia was unavailable to comment, but a statement on the company's Web site states: "The CSC board of directors has decided to explore strategic alternatives to enhance shareholder value, including a potential sale of the company."

Mergers and acquisitions, Longwood said, have become a standard part of the services landscape.

He warned that service providers will also try to renegotiate their contract in mid-term if it is struggling to make its profit margin with a client.

"Buyers of outsourced services risk facing wavering levels of service if their provider is either the acquirer or acquired, users need to actively discuss their risk issues when their provider is in this scenario," he said.

As the standardization push gains momentum, Gartner predicts more than 50 percent of new outsourcing deals will include IT utility service components, more than 70 percent of software-as-a-service offerings will target business line managers rather than IT and by 2015, 30 percent of all professional IT service jobs may be delivered from emerging markets such as India and China, rather than developed countries.

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