Computer Services & IT Consulting Industry Outlook TPI’s Data Points Are Positive: Cowen

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Computer Services & IT Consulting
Industry Outlook  
TPI’s Data Points Are Positive For Outperform
Rated Accenture And CTSH



Conclusion: In its quarterly index call, TPI highlighted three key trends which
are likely to continue benefiting Outperform-rated Accenture (ACN $45.75) and
Cognizant Technology (CTSH $67.08). These key trends include: (1) The ongoing
unbundling and restructuring of mega deals, impacting legacy players such as
CSC and HP/EDS, while benefiting Accenture and CTSH; (2) The continued and
significant market share gains by the Indian vendors, as per TPI this group is
expected to compete on an expanding portion of TCV during the next five years.
The offshore based work as a % of total contract value’s market share increased
to 20% 2010 YTD, up from 16% in 2008, and 18% in 2009; (3) Pricing concessions
on mega deal restructuring work has been rational, which is very encouraging
for the likes of IBM, which has a large but subsiding exposure to this area.
■  Indian vendors are continuing to increase market share.
According to TPI, the Indian vendors’ TCV market share increased to 20%
2010 YTD, up from 16% in 2009, and 18% in 2008. TPI also noted that this is
a broad based market share increase, across all geographies and verticals,
and is not just related to new scope acquisitions.
■  Contract restructurings and un-bundling of mega deals drive
2010. Q3’10 contract restructurings at $6.8B increased 90% and 69% Q-Q
and YOY, and YTD at $18.9B increased 56% YOY. The strong Q3’10
restructurings activity followed a strong Q1’10, and six of 2010’s nine megadeals
were restructurings. As 2010 is becoming a restructurings year, TPI is
expecting a continued strong restructurings activity.
■  Pricing concessions on mega deal restructuring work has been
rational. TPI is expecting continued pricing concessions in mega deals
restructurings. While many CIOs are expected to focus on costs cutting,
early indications showing 2011 budget increases in the low single digit
range.