IT Industry News – April 2016

April 2016 saw some big deals, the biggest was Bell’s $3.8 billion bid for Manitoba Telephone System, which if approved will change the Canadian telco landscape a little. Other large deals saw a Chinese conglomerate bid $3.6 billion for Lexmark; and Mitel shell out $2 billion for Polycom. Oracle paid $663 million for cloud-based construction software company Textura. Nokia, who were also in the news announcing layoffs and continued to evolve their business model, this time into the wearable tech arena with the $192 million purchase of Withings. Other deals saw Autodesk acquire 3D animation software company Solid Angle; and Dimension Data bought Toronto-based cloud services company Ceryx.

As mentioned earlier, Nokia announced layoffs, expected after last year’s acquisition of Alcatel-Lucent. Also announcing major layoffs of 12,000 staff was Intel, reacting to the decline PC sales.

There were some interesting reports about growth in the emerging markets for robotics and Internet of Things security while there is also a projected decline in general IT spending for 2016. This quarter also saw the first decline in smartphone sales as that market reaches saturation; however, China is expected to grow its technology spend this year.

The US managed to add another 215,000 jobs in March and almost every indicator was positive. Canada also grew its employment by 40,000 jobs but the economic situation is not as rosy as we see South of the border.

IT Industry News

In this Issue:
> General Interest
> Company News
> Merger & Acquisition Activity
> Primary Sources

> GENERAL INTEREST

A new forecast by Research and Markets predicts that several emerging robotics market sectors will result in the $25 billion market today to grow to $123 billion by 2026. Areas of growth include the proliferation of traditional industrial robots into countries currently manufacturing using human labour and also the evolution of industrial robots from dangerous machines that must be fenced off for safety to collaborative robots that sit alongside human workers and contribute safely thanks to developments in sensors, microcontrollers, machine vision, and artificial intelligence. But mobile robots promise to be the biggest driver in the robotics industry.

Worldwide spending on IT is on the slide, according to Gartner’s Worldwide IT spending forecast, but software and IT services continues to grow as more companies move their systems into the cloud. The report suggests that worldwide IT spending for 2016 is set to amount to $3.49 trillion dollars in 2016, a figure which would represent a decline of 0.5 percent from $3.5 trillion last year. It might not sound like much but that represents a total decline in spending of almost $15 billion.  Blame for the drop can at least partially be attributed to the global economy, with governments, businesses and other organisations attempting to spend less due to an uncertain economic outlook.  The main casualty of this frugality is devices, with sales of PCs, smartphones, tablets and other hardware expected to decline 3.7 percent in 2016.

China’s spending on technology goods and services is expected to climb 8 percent to reach $147 billion (USD) this year, driven in large by the public sector and businesses’ digital transformation efforts. While the country’s GDP growth dropped to its lowest in 25 years, to below 7 percent last year, spending on tech would remain robust in 2016, according to Forrester.  The research firm added that local organisations would continue to implement digital transformation initiatives, pushing investments in business technology up by 25 percent this year to $11 billion (USD).

The global smartphone market shrank for the first time in history. According to Strategy Analytics, global smartphone shipments this year have fallen three percent compared with the first quarter of 2015, down from 345 million units to 334.6 million

The Internet of Things security market will hit its stride in 2020, according to Gartner, driven by IoT growth in energy management, the automotive industry, consumer applications, and an increase in malware attacks. With the connected world of the Internet of Things (IoT) on the rise, and expected to be an increasing focus for malware attacks in enterprises, Gartner believes worldwide spending on IoT security will reach $348 million in 2016, up 24% over 2015 spending. By 2020, the market is expected to reach $840.5 million.

The economy – Canada

The RBC Canadian manufacturing purchasing managers’ index rose to a reading of 51.5 in March, up from 49.4 in February and above the 50-point no-change level for the first time in eight months. Although pointing to only a moderate improvement in business conditions, the index was the highest since December 2014.

Canada gained 40,600 jobs in March following three months of little change, according to seasonally adjusted numbers from Statistics Canada.

The Canadian staffing index fell year-over-year in March, continuing a trend of moderate year-over-year declines. The index, which measures staffing activity in Canada, fell to a reading of 104 in March, down 2% from March 2015. The index value of 100 corresponds to the size of the industry in July 2008, when the index began.

The economy – US

The US manufacturing sector expanded in March for the first time in six months, according to the Institute for Supply Management’s purchasing managers index for US manufacturing. March’s index reading was 51.8, up from February’s reading of 49.5. Readings above 50.0 indicate expansion and readings below 50 indicate contraction.

The Conference Board’s US employment trends index fell in March to a reading of 127.48 from February’s downwardly revised reading of 128.54. The March reading is up 1.1% from the same month a year ago.  The Conference Board suggest, “With GDP barely growing at a 2% rate, it’s difficult to see how employment can continue to expand by 200,000 or more jobs per month.”

The US Department of Labor reported the US added 215,000 jobs in March and gained 4,000 temp jobs.

Economic activity in the US nonmanufacturing sector increased in March at a slightly faster pace than February. The Institute for Supply Management’s nonmanufacturing composite index rose to a reading of 54.5 from February’s reading of 53.4. A reading above 50 indicates expansion in the sector.

CEO confidence edged up in the first quarter after declining in the final quarter of last year. The US Conference Board’s measure of CEO confidence rose to a level of 47, up slightly from 45 in the fourth quarter of 2015. A reading of more than 50 reflects more positive than negative responses.

The number of IT jobs in the US edged up 0.2% in March from February to almost 5.1 million, reported TechServe Alliance. Year-over-year, IT employment in the US rose by 3.9% in March.

TechServe Alliance reported the number of US engineering jobs edged down 0.05% in March from February to more than 2.5 million jobs. Year-over-year, the increase was 0.8%, continuing to underperform the overall workforce.

More US workers are satisfied with their jobs than at any time since 2005, according to the annual Employee Job Satisfaction and Engagement Survey from the Society for Human Resource Management. The survey found 88% of employees said they were satisfied overall with their job, including 37% who reported “very satisfied” and 51% who said “somewhat satisfied.” The percentage of satisfied employees has been trending up since 2013.

The Conference Board’s US leading economic index edged up in March, suggesting modest growth in 2016. The index rose 0.2% in March to a reading of 123.4 (2010 = 100), following decreases of 0.1% in February and 0.2% in January.

The US Conference Board’s consumer confidence index fell in April following an increase in March. The index declined moderately to a reading of 94.2 (1985=100), down from a reading of 96.1 in March. Consumers’ outlook for the labor market was also less favorable.

The American Staffing Association’s index measuring employment in the US staffing industry edged up to a reading of 94.62 for the week of April 11 to April 17, the highest value of the year.

US real GDP increased at an annual rate of 0.5% in the first quarter, the slowest rate since the first quarter of 2014, according to an “advance” estimate issued by the US Bureau of Economic Analysis. Real GDP increased 1.4% in the fourth quarter of 2015.


> COMPANY NEWS

Nokia is planning to axe thousands of jobs due to last year’s acquisition of Alcatel-Lucent in order to cut costs and restructure the business. The Espoo, Finland-based firm said on Wednesday that in order to hit a cost-cutting target of 900 million euros by 2018, employee expense must be brought down. While Nokia did not give specific figures on how many employees will lose their jobs internationally, according to Reuters, 1,400 members of staff in Germany and 1,300 in Finland will be axed. In France, 400 jobs will also be slashed — but in line with a deal struck between Nokia and the French government over the Alcatel-Lucent acquisition, 500 posts in research and development will also be created. Nokia is having meetings with work councils and representatives in almost 30 countries, and so it is likely cuts will happen in multiple locations. Nokia also plans to cut costs in real estate, services, procurement, supply chain and manufacturing. At the same time, Nokia is turning towards more lucrative revenue streams for the future, such as 5G networking, the cloud and the Internet of Things (IoT).

Oracle has announced a $200 million commitment of direct and in-kind support for US computer-science education over the next 18 months. The new commitment supports the US administration’s Computer Science for All initiative, announced by President Obama in January, which calls for $4 billion in funding under a five-year plan to improve the quality of computer science educational resources for students from kindergarten to 12th grade across the US. Google, Microsoft, Salesforce, and Code.org have been among the first tech firms to announce support for the initiative.

Intel announced a massive layoff of 12,000 employees — 11% of the company’s total global workforce — as it shifts its focus to high-growth areas like the cloud and connected devices. The chip giant expects the program to deliver $750 million in savings this year and annual run rate savings of $1.4 billion by mid-2017. The reduction will be achieved through worldwide worksite consolidations, a combination of voluntary and involuntary departures, and a reevaluation of programs.


> MERGER & ACQUISITION ACTIVITY

Dimension Data acquires top Canadian solution provider

Dimension Data has acquired the Ceryx Inc. of Toronto for an undisclosed amount. All of Ceryx’s 55 employees are to be retained and the Ceryx brand will be part of Dimension Data’s ITaaS cloud services unit. Ceryx founder and CEO Gus Harsfai will stay to lead this part of Dimension Data’s cloud offering. Ettienne Reinecke, Dimension Data’s Group CTO described Ceryx’s Cloud Control a missing piece to Dimension Data’s portfolio along with the solution provider’s Office 365 integration. Dimension Data did have this offering for private clouds, but Ceryx’s offering was for both private clouds and on-premise environments. Ceryx also provide solutions built around Microsoft’s Messaging and Collaboration suite, Exchange, Sharepoint and Skype for Business. “We did recognize that we needed to find someone to help us expand or raise money and do it ourselves. We found a fit with Dimension Data,” Harsfai said. As for Harsfai, he told CDN that being a 55 person company challenged him in trying to address the market on a global level. Harsfai said through this process he approached the deal in a reverse form of due diligence as he focused on stakeholders such as investors, partners, employees and customers to find a company that is aligned with all of Ceryx stakeholders. “It’s tough to give increased operations to 55 people but to 31,000? We build something here that is valuable and they saw the future through the same lens,” he added. Dimension Data indicated that the deal is part of a much greater investment for the company in Toronto. “We feel that Toronto is in a great geographic position and the city has a great pool of talented, skilled people. This is just part of a deeper investment for Dimension Data in Toronto.”

Mitel pays $2 billion for Polycom

Mitel has agreed to acquire American unified communications (UC) company Polycom for $1.96 billion. The Wall Street Journal reports that the deal, which will see the latter’s brand preserved, was encouraged by activist investor Elliott Management Corp. to “spur consolidation in the telecom equipment industry.” The new company will be based in Ottawa, ON where Mitel is currently headquartered. The new company will have a total of nearly 8,000 staff. Mitel’s current staff number 4,500. The merger has been rumoured for several weeks and was originally valued at around $1 to 1.2 billion. Elliott Management reportedly had shares in both Polycom and Mitel, and wanted to see more consolidation among telecom and videoconferencing vendors, promising to help finance the acquisition. There is speculation as to whether the move to Ottawa is more akin to a merger meant to lower corporate taxes for Polycom, yet Mitel chief executive Rich McBee told the Wall Street Journal that it is very much an acquisition that’s been in the works for years. Polycom shareholders will have majority stake in the new company, at 60 per cent of the shares. The acquisition is seen as a move to better the position the companies in the networking and UC spaces, in which big players include Cisco and Avaya. Polycom will be Mitel’s sixth acquisition in four years. The transaction is expected to close in the third quarter.

Chinese Consortium pays $3.6 billion for Lexmark

Shenzhen-based Apex Technology, whose business is primarily selling printer cartridges and chips, is leading a consortium that will be purchasing Lexmark for $3.6 billion. The consortium also includes PAG Asia Capital, one of Asia’s largest private equity firms and Legend Capital, an associate of Lenovo’s biggest shareholder Legend Holding. Printing companies have struggled in recent years as the enterprise shifts towards digitization. The Wall Street Journal reports that Lexmark’s revenues have been declining since at least 2011, with double-digit drops in 2012 and 2015. Companies such as HP and most recently Xerox have responded by splitting off enterprise services from printing hardware. Lexmark is also no stranger to Apex. The two companies have previously been in dispute over intellectual property, with Lexmark claiming its now-suitor infringed at least 15 patents. This is the second multi-billion dollar sale of a tech giant to Chinese buyers this year. In February, Ingram Micro, the world’s largest distributor sold to HNA Group of China for more than $90 billion.  Lexmark’s headquarters will remain in Lexington, Kentucky.

Autodesk buys Solid Angle

Design software firm Autodesk plans to acquire Solid Angle. Terms of the deal were not disclosed.  Autodesk plans to offer Arnold as a standalone renderer for both Autodesk products and third party applications including Houdini, Katana, and Cinema 4D on Linux, Mac OS X and Windows. Both of Autodesk’s 3D modeling platforms, 3ds Max and Maya, will continue to support other third-party renderers in addition to Arnold. Solid Angle is best known for developing Arnold, an image renderer for 3D animation and other visual effects. The technology has been used in the production of effects-heavy films including “Ex Machina” and “The Martian”, as well as the HBO series Game of Thrones. “Efficient rendering is increasingly critical for 3D content creation and acquiring Solid Angle will allow us to help customers better tackle this computationally intensive part of the creative process,” said Chris Bradshaw, SVP of Autodesk Media and Entertainment. Autodesk has been keenly focused on bolstering its cloud and hardware portfolios over the last few years. In December, Autodesk rolled out Forge, a project aimed at fueling development for cloud-based technologies with a bent on Internet connectivity. At the base of the project is the Forge Platform, a Platform-as-a-Service offering that offer open APIs and SDKs to software developers at small and large organizations alike.

BELL buying Manitoba Telecom in $3.8 billion Deal

The country’s biggest phone company could get bigger if regulators and the government allow BCE Inc. to buy Manitoba’s incumbent phone company, MTS. BCE has offered approximately $3.1 billion for MTS shares and will assume outstanding net debt of approximately $0.8 billion.  To meet competition concerns of regulators, Bell has also struck a deal to sell one-third of MTS’ postpaid wireless subscribers to Telus — its wireless network partner — as well as hand over one-third of MTS’s dealer locations in Manitoba. In a note to investors broker Canaccord Genuity noted this facet would ensure that none of the wireless incumbents in Manitoba would have a 50 per cent market share. It also ensures Telus won’t make a competing bid for MTS, the analysts noted. No price on that part of the deal was announced. If the MTS acquisition is approved, wrote Canaccord, it would “set a significant precedent, as it would reduce Manitoba to a three-player wireless market (Bell, Telus and Rogers) from four.” As a result, the firm thinks the deal would also give Shaw Communications — which last year bought $50 million in Manitoba spectrum from Wind Mobile but hasn’t built a network there yet — a potential exit strategy in wireless should it decide to sell Wind. In addition, Canaccord believes the deal could reduce regulatory opposition to the sale of Quebecor’s non-Quebec spectrum assets. In addition, Bell promised to make a $1-billion, 5-year capital investment commitment to expand the MTS broadband wireless and wireline networks in urban and rural locations. Bell (or Rogers or Telus) getting bigger will attract concerns of the Competition Bureau, the CRTC and the new Innovation (formerly Industry Canada) department. However, telecom analyst Mark Goldberg said in an interview he believes BCE is confident — if only because the deal includes a $120 million penalty if MTS accepts a competing offer. However, he added, BCE may have to sell off more spectrum to appease regulators.

Oracle Pays $663 million for Textura

Oracle said it will buy Textura, which provides contract and payment cloud services for the construction industry, in a deal valued at $663 million. For Oracle, Textura will bolster its engineering and construction cloud platform. Textura processes about $3.4 billion in payments for more than 6,000 projects a month. Textura’s cloud serves as an aggregation point for contractors, developers and subcontractors. There are about 85,000 general and subcontractors in the Textura network. Textura also offers collaboration tools and covers most aspects of a development project. The plan for Oracle is to combine Textura with it Primavera business to form one engineering and construction operating unit. The deal is expected to close in 2016.

Nokia Buys Withings for $192 million

Nokia is to buy French smartwatch and health-monitoring devices company Withings for €170 million ($192 million). “We have said consistently that digital health was an area of strategic interest to Nokia, and we are now taking concrete action to tap the opportunity in this large and important market,” Nokia president and CEO Rajeev Suri said. Withings’s products include activity trackers, weighing scales, thermometers, blood-pressure monitors, and home and baby monitors. These are surrounded by an ecosystem of more than 100 compatible apps. The all-cash deal is expected to close in the third quarter of this year. “With this acquisition, Nokia is strengthening its position in the Internet of Things in a way that leverages the power of our trusted brand, fits with our company purpose of expanding the human possibilities of the connected world, and puts us at the heart of a very large addressable market where we can make a meaningful difference in peoples’ lives,” Suri said. Nokia said healthcare is expected to become one of the industry segments in the Internet of Things. Analysts forecast that mobile health will become the fastest-growing component of healthcare, with a compound annual growth rate of 37 percent between 2015 and 2020. “Withings shares our vision for the future of digital health and their products are smart, well designed and already helping people live healthier lives,” said Ramzi Haidamus, president of Nokia Technologies. “Combining their award-winning products and talented people with the world-class expertise and innovation of Nokia Technologies uniquely positions us to lead the next wave of innovation in digital health.” Withings, founded by Eric Carreel and Cedric Hutchings in 2008, is headquartered in France and has 200 employees across locations in Paris, France; Cambridge, Massachusetts; and Hong Kong.