IT Industry News – October 2017

A Little History of previous year’s Octobers

Five years ago in October 2012, news was dominated by Hurricane Sandy and the US presidential election.  The big deal of the month was a $1.5 billion merger of two US cell carriers, T-Mobile and MetroPCS. There were also a number of smaller deals, with EMC beefing up in the security area (Silver Tail), Telus expanding its medical solutions portfolio (Kinlogix Medical) and Avnet improving its IBM capabilities (BrightStar and BSP). In the social networking world, Yelp bought its European competitor Qype in a $50 million deal. In October 2013, Oracle announced two acquisitions, both cloud based companies: Big Machines and Compendium. Other “names” out shopping included Avaya buying the software division of ITNavigator for its call centre and social media monitoring software; Rackspace bought ZeroVM, a tech company with a software solution for the cloud; Intuit bought consulting company Level Up Analytics, primarily to acquire its talent; VMWare bought “desktop as a service” company Desktone; Netsuite bought human capital software company TribeHR; and Telus enhanced its mobile offering with the purchase of Public Mobile. Three years ago, in October 2014 we saw a new trend with two public companies both choosing to split into smaller entities. HP announced it was creating a business service focused Hewlett-Packard Enterprise and personal computing & printer company HP Inc. Symantec also chose to split into two independent public companies, one focused on business and consumer security products, the other on its information management portfolio. Other interesting news saw IBM pay $1.5 billion to GlobalFoundries so it would take away its money-losing semiconductor manufacturing business. NEST bought competitor Revolv; EMC bought three cloud companies — The Cloudscaling Group, Maginatics and Spanning Cloud Apps — and in Korea, Kakao and Daum merged to form a $2.9 billion internet entity. October 2015 brought some big deals with the biggest seeing Dell offer $26 billion to buy storage company EMC. Interestingly an EMC subsidiary, VMWare was also out shopping, picking up a small email startup, Boxer. In another deal involving “big bucks”, Western Digital paid $19 billion for storage competitor Sandisk. IBM were also writing a big cheque, paying $2 billion in a big data/internet of things play for The Weather Network (minus the TV operations), and IBM also picked up a storage company, Cleversafe. Cisco paid $522.5 million for cybersecurity firm Lancope; LogMeIn paid $110 million for LastPass; Trend Micro paid $350 million for next generation intrusion prevention systems company HP Tippingpoint; Red Hat picked up deployment task execution and automation company Ansible; Vasco Data Security paid $85 million for solution provider Silanis; and Apple bought a speech processing startup, VocalIQ. As industries converged, it was interesting to see Securitas pay $350 million for Diebold’s US Electronic Security business. October 2016 saw Qualcomm pay $47 billion for NXP Semiconductor. The only other sizable deal saw Wipro pay $500 million for IT cloud consulting company Appirio. Google picked up Toronto-based video marketing startup FameBit and Pivot Technology Solutions picked up Ottawa-based Teramach.

Which brings us back to the present

October 2017 continues a recent trend of reduced big ticket M&A activity, although there was certainly some action. Not yet a done deal, but Broadcom is chasing Qualcomm pretty hard and if it goes through it will be the biggest tech deal yet.  The latest rejected offer was north of $100 billion (some reports said $130 billion), but watch that space. In the meantime, Cisco is shelling out $1.9 billion for Broadsoft which improves Cisco’s software capabilities. The final significant deal saw Telus beef up its service provider capability with a $250 million purchase of Xavient.

The other company in the news was Amazon (a) because of its much publicized search for a site for its second headquarters which has 239 cities around the world excited at their prospects; (b) because they also announced a second presence in Vancouver, bringing another 1,000 jobs and (c) for its growing influence in the AI world, announcing a research center in Germany.

The economy continues to have many positive signs, although Hurricane’s Harvey, Irma and to a lesser extent Maria caused some temporary negative impact to employment numbers in the US. The general consensus seems to be that things will pick up again now, with some sectors even benefiting from the clean-up work. Canada’s numbers were again good with Canada adding more than 300,000 jobs in the last year.

In this Issue:

> General Interest
> Company News
> Merger & Acquisition Activity
> Primary Sources


> GENERAL INTEREST

General

Consumer tech spending is expected to increase only 1% to $96.8 billion in the fourth quarter, according to the Consumer Technology Association, the trade group that puts on the annual Consumer Electronics Show.

Gartner Group says that traditional promotions such as back-to-school sales no longer make an impact on the market as the PC sector continues to decline even further. Worldwide PC shipments dropped 3.6% from the third quarter of 2016, the 12th consecutive quarter of declining PC shipments.

IT budgets are expected to stabilize — and in many cases, grow — around the globe in 2018, leading to a boost in IT staffing, according to the 2018 State of IT report released by Spiceworks, a network that includes millions of IT professionals. Larger companies forecast the biggest boost in staffing, with more than 60% of companies with 500-plus employees expecting to increase IT staff while 70% of large enterprises, 5,000-plus, report plans to hire more IT professionals in 2018.

The economy – Canada

Statistics Canada reported that Canada added 10,000 jobs in September from August as gains in full-time work offset a loss of part-time jobs. The number of full-time jobs rose by 112,000 in September while part-time jobs fell by 102,000. Compared to the same month a year ago, Canadian employment rose by 319,700 jobs in September; full-time employment rose 2.0% year-over-year and part-time jobs edged up 0.9%. Total employment in Canada rose to more than 18.4 million in September. The unemployment rate remained at 6.2%, matching the low of October 2008.

Calgary and Edmonton will post the strongest GDP growth this year — 4.6% and 3.9% respectively — among the 13 major metropolitan areas covered by The Conference Board of Canada’s Metropolitan Outlook: Autumn 2017. In Calgary, renewed investment and increased drilling are spurring growth in the primary and utilities and manufacturing sectors, while the construction industry is slowly recovering. However, with oil prices expected to rise only gradually, Calgary’s real GDP growth is expected to slow to 2.1% next year.

The Canadian staffing index, which measures staffing activity in Canada, fell 4% in September from August to a reading of 109. However, on a year-over-year basis, the index was up 1% in September.

The economy – US

Economic activity in the manufacturing sector expanded in September at a faster pace than August, according to the Institute for Supply Management’s purchasing managers index for US manufacturing. September’s index reading was 60.8, up from August’s reading of 58.8. Any reading above 50% generally indicates improving conditions.

US private-sector employment rose by 135,000 jobs in September from August, according to the ADP national employment report. But September’s gain fell far short of the 228,000 increase in August, which was revised downward from 237,000. “This is in part due to Hurricane’s Harvey and Irma which significantly impacted smaller retailers. In addition, the continued slowdown we have seen in small business hiring could be due to a lack of competitive compensation to attract skilled talent.”

Economic activity in the US nonmanufacturing sector expanded in September at a faster rate than in August, according to the Institute for Supply Management’s nonmanufacturing index. ISM’s nonmanufacturing index rose in September to a reading of 59.8 from August’s reading of 55.3.

The Conference Board’s US Employment Trends Index edged down in September following a larger drop in August. Hurricanes Harvey and Irma caused the slowdown, but the index is expected to pick up. The Employment Trends Index is based on eight labor market indicators, and September’s small decline in the index was mostly the result of a large increase in the initial claims for unemployment insurance component. Separately, the US Department of Labor reported the US lost 33,000 jobs in September but temp jobs rose by 5,900.

US IT and engineering job growth decelerated in September after a modest uptick in August, according to the TechServe Alliance. The “blip” is attributed to the Hurricanes that hit two states that are economic powerhouses.

The Conference Board’s US Leading Economic Index edged down 0.2% in September to a reading of 128.6 (2010 = 100), following increases of 0.4% in August and 0.3% in July. Despite September’s decline, the trend in the US LEI remains consistent with continuing solid growth in the US economy for the second half of the year

The American Staffing Association’s staffing index edged up a reading of 98.61 in the week of Oct. 9 to Oct. 16.

US real gross domestic product grew at an annual rate of 3.0% in the third quarter, according to the “advance” estimate of GDP growth by the US Commerce Department. In the first quarter, real GDP advanced 3.1%. This is the first time the economy has grown at or above a 3% annual rate for two consecutive quarters since the middle of 2014.

The US Conference Board’s consumer confidence index increased in October after a marginal improvement in September. The index rose to a reading of 125.9 (1985=100) from 120.6 in September. Consumer confidence increased to its highest level in almost 17 years after remaining relatively flat in September.

The economy – Outside North America

Global CEO confidence fell for the second consecutive quarter in the third quarter after increasing to prerecession highs in the first quarter, according to The Conference Board’s measure of CEO confidence. In the third quarter, the measure declined to a level of 59, down from 61 in the second quarter.

The euro area (EA19) seasonally-adjusted unemployment rate stood at 9.1% in August 2017, stable compared to July 2017 and down from 9.9% in August 2016. This remains the lowest rate recorded in the euro area since February 2009. Figures also show that the EU28 unemployment rate was 7.6% in August 2017, down from 7.7% in July 2017 and from 8.5% in August 2016. This is the lowest rate recorded in the EU28 since November 2008. Among the member states, the lowest unemployment rates in August 2017 were recorded in the Czech Republic (2.9%), Germany (3.6%) and Malta (4.2%). The highest unemployment rates were observed in Greece (21.2% in June 2017) and Spain (17.1%).

The unemployment rate in Japan stood at 2.8% in August, unchanged from the previous year. Meanwhile, a quarterly survey by the Bank of Japan showed that business sentiment rose to its highest level in a decade.

Employer confidence in the UK economy has fallen in September for the third month in a row, according to the latest JobsOutlook survey by the Recruitment & Employment Confederation (REC). An increasing number of businesses think that economic conditions are worsening, with the net balance falling from -3 in August to -7 in September and -9 in the latest report. Employers were asked about the future of economic conditions in the country and 25% said it is getting better while 34% said it is worsening. Employers have expressed concern over Brexit plans and labour shortages.

The number of jobs available in London fell by 13% in September, when compared to last year according to the latest London Employment Monitor from Morgan McKinley. Year-over-year figures also showed that there was a 49% decrease in professionals seeking jobs. General consensus is that Brexit and the uncertainty around its implementation are the driving factor here.

The Singapore economy expanded by 4.6% on a year-over-year basis in the third quarter based on strong manufacturing growth, according to the Ministry of Trade and Industry. This is up from 2.9% growth in the second quarter. Estimates from the Ministry of Manpower in Singapore showed that year-on-year, the seasonally adjusted unemployment rate remained the same at 2.1% in its third quarter ended in September.


> COMPANY NEWS

Amazon is partnering with a German research institute called the Max Planck Society on a far-reaching “strategic collaboration” across the artificial intelligence (AI) realm. Amazon has said that it will build a research center in Tübingen, a university town near Stuttgart in the southwest of Germany, as part of the region’s Cyber Valley initiative.

While we wait for Amazon to make its decision on where it will locate its second global headquarters (from 238 proposals), the company is continuing to expand its presence in Canada. Seattle-based Amazon announced it will double its workforce in Vancouver from 1,000 to 2,000. Amazon also announced a new distribution centre in Calgary, which adds to its existing four in the Toronto area and two in Delta and New Westminster, BC.


> MERGER & ACQUISITION ACTIVITY

Broadcom Offers $130 Billion for Qualcomm

If the Broadcom deal to buy fellow chipmaker Qualcomm goes through, it would make it the biggest tech deal ever at $130 billion. This would make Broadcom the third largest chipmaker in the world, following Intel Corp. and Samsung Electronics Co. At $130 billion, this deal would almost double the current biggest tech deal – the Dell and EMC merger of $67 billion in 2015.

Telus Paying $250 Million for Xavient

Telus announced that it was purchasing Simi Valley, Calif.-based business process and IT services provider Xavient Information Systems for $250 million USD. Founded in 2002, Xavient employs some 1800 people across offices in the United States and India.

Cisco Paying $1.9 Billion for Broadsoft

Networking giant Cisco has announced plans to pay $1.9 billion to acquire Broadsoft, a Maryland-based cloud communications company that creates software for PBX systems, team collaboration, and other related enterprise products.

Compunet Infotech and Cascadia Systems Merge

Compunet InfoTech of Vancouver has joined forces with Cascadia Systems Group, based in Surrey, B.C. This merger agreement essentially brings two Vancouver area solution providers together to offer professional services and cloud across the lower mainland of B.C.

Calligo Buys 3 Peaks

Calligo, a UK-based global cloud solution provider, has purchased 3 Peaks Inc., a well-recognized solution provider in Burlington, Ont. 3 Peaks also has an office in Vancouver. The deal marks a first step in Calligo’s North American expansion strategy.


> PRIMARY SOURCES:

IT World Canada – http://www.itworldcanada.com/
TechRepublic –  http://www.techrepublic.com/
ZDNet – http://www.zdnet.com/
Information Week – http://www.informationweek.com/
Staffing Industry Analysts – http://www.staffingindustry.com/

 


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