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Summary

Atos has announced its annual results for FY2015. During the year, it completed the integration of Bull, finalized the acquisition of Xerox ITO, and bought the Unify communications business from Siemens. It achieved its 2015 objective of organic growth by a whisker, but comfortably hit its operating margin and free cash flow targets – important milestones on the provider's quest to achieve global tier-1 status.

Can Atos emulate its UK success elsewhere?

Atos achieved 0.4% organic revenue growth in FY2015 to end the year at €10.7bn ($11.8bn). It achieved its targets of an 8.0–8.5% operating margin and free cash flow of circa €420m ($463m), ending the year at 8.3% and €450m ($496m), respectively. The French-headquartered vendor sustained revenues in its core Managed Services business (aka IT outsourcing) by focusing on cross-selling its end-to-end and Canopy-branded cloud offerings to large clients. Large contracts (€100m+) have become increasingly important to providers like Atos that are heavily focused on infrastructure services.

Geographically, Atos is still very dependent on the UK market (27% of Managed Services revenues in 2015; 18% of overall revenues). The UK business unit achieved healthy revenue growth in 2015 (5.5%) and has been building up its commercial sector business, in the face of declining UK government opportunities. Elsewhere in Europe, revenue declined in Germany, Benelux, and the Nordics region. Indigenous providers are increasingly losing out as offshore competitors buy their way into continental Europe.

Atos desperately wants to be a global tier-1 service provider, and to achieve that it needs to boost its presence in North America. It completed the acquisition of Xerox ITO in 2015, but the integration is still in progress, so it's too early to judge the impact in the 2015 results. The ITO unit had been a lame duck for Xerox, but it's a better fit for Atos. Atos has infrastructure, private cloud, SAP HANA, and big data offerings, which should appeal to Xerox ITO's existing enterprise customers (which include customers of Xerox's BPO services).

The challenge for outsiders in the North American market is to develop brand awareness. That's difficult to do without a major differentiator, such as innovative IP, software, or a big price advantage. Atos does what it does well enough, but isn't sufficiently differentiated from its ITO competitors to stand out in the North American market. Without that differentiator, it'll need to rely on established partners including VMware, Xerox, and Siemens, as well as finding new ones, to get it in front of customers. Given its competitive positioning, Atos can't afford to rely on endless acquisitions to buy its way into the tier-1 global services provider market.

Appendix

Further reading

"Atos goes for US growth with Xerox ITO acquisition," IT0019-003404 (December 2014)

Author

Ian Brown, Senior Analyst, IT Services

ian.brown@ovum.com

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