IT Industry News – September 2016

A Little History of September in previous years

Five years ago, in September 2011, Broadcom paid $3.7 billion for NetLogic. Google was busy, buying restaurant reviewer Zagat plus acquiring 1,000 patents from IBM. Ottawa’s Zarlink was bought by Microsemi for $525 million. SAP bought Crossgate, Twitter bought Julpan and CSC bought Indian software testing company AppLabs, and Hitachi Data Systems continued the consolidation in the storage industry with the acquisition of BlueArc. September 2012 was a quiet month in M&A deals. Infosys increased its management consultancy capability with the $330 million purchase of Lodestone. Lenovo bought Stoneware, a software company focused on the cloud, and Ericsson bought ConceptWave. A couple of interesting investment moves saw Microsoft invest in Klout and Silicon Valley VC Chameth Palihapitiya invest in Xtreme Labs. Three years ago, in September 2013, Blackberry announced a quarterly loss of almost $1 million and laid off 4,500 people. Microsoft bought Nokia’s devices and services unit for more than $7 billion. eBay paid $800 million for payment platform Braintree; Synnex bought IBM’s customer care division for $505 million; Rogers added to its data centre capacity with the $161 million purchase of Pivot Data Centres; Extreme Networks bought Entersys Networks for $180 million; and Manitoba Telephone Systems bought Epic Information Systems. September 2014 saw some big deals announced, including Microsoft’s $2.5 billion purchase of gaming company Minecraft, Lenovo’s $2.1 billion purchase of IBM’s x86 server business and Cognizant’s $2.7 billion purchase of healthcare company, Trizetto Corp. Hootsuite had an injection of cash and bought two companies, social telephony company Zeetl and social media marketing platform Brightkit. Google also made two acquisitions: biotech company Lift Labs and desktop polling company Polar. There were plenty more deals announced, including Yahoo’s $8 million purchase of cloud-based document hosting company Bookpad; Cisco’s purchase of private cloud company Metacloud; SAP’s purchase of expense software company Concur; Blackberry’s purchase of virtual identity software startup Movirtu and Red Hat’s purchase of mobile app company FeedHenry. Last year, in September 2015, there was a fair bit of M&A activity but no blockbuster deals. Microsoft was very active, closing three deals: Adxstudio which provides web-based solutions for Dynamics CRM; app developer Double Labs; and cloud security firm Adallom. Accenture picked up the cloud services company Cloud Sherpas; IBM added cloud software startup StrongLoop; Netsuite paid $200 million for cloud-based marketing company Bronto Software; and Blackberry paid $425 million for competitor Good Technology. Hardware company Konica Minolta bought IT Weapons; Qualcomm bought medical device and data management company Capsule Technologie; Networking and storage company Barracuda Networks bought online backup and disaster recovery company Intronis; and Compugen bought some of the assets of another Canadian company Metafore.

Which brings us back to the present

September 2016 was a slow month for M&A but there were a couple of large deals. Tech Data paid $2.6 billion for the technology solutions group of Avnet, and HP made the biggest printer acquisition to date, paying $1.05 billion for Samsung’s printer business. Other deals saw Google pay $625 million for Apogee, and restaurant company Subway bought online order taking software company Avanti Commerce. One investment that caught our eye in the staffing world saw Accenture invest in crowdtesting company Applause.

Economic news was generally positive around the world with a few exceptions, Brazil being the most obvious having had 17 straight months of job losses. The US was fairly positive in most indicators despite the upcoming election and their “interesting” potential presidents. The Canadian outlook seemed generally positive, of course these reports were prior to announcements of carbon taxes. The economy certainly doesn’t “feel” positive.

Yahoo had some more bad press, this time for a security breach that happened two years ago affecting 500 million accounts and Blackberry announced that it was getting out of the hardware business.

A couple of studies looking at emerging technologies saw increasing investment in big data analytics and IoT in the manufacturing sector and a suggestion that robots might only replace 6% of jobs in the future.

In this Issue:

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


> GENERAL INTEREST

General

Business leaders in manufacturing are continuing to invest in technologies like big data analytics and IoT as a means to solve business problems, according to a recent report from Honeywell. The report showed that 67% of respondents were planning on investing in these areas, even as they lower spending elsewhere. The survey was titled Data’s Big Impact on Manufacturing: A Study of Executive Opinions, and was a joint effort between Honeywell Process Solutions (HPS) and KRC Research.

The impending “robot revolution” has brought questions about what jobs, if any, will be replaced by bots, and when it will happen, TechRepublic reports. While some have posited that robots will replace nearly all jobs, and free up humans to work on more creative endeavors, others have been more reserved in their predictions. A new report for Forrester Research claims that, by 2021, “intelligent agents and related robots” will only have eliminated 6% of jobs.

The job indicators in Canada

According to an OfficeTeam survey, 20% of Canadian HR managers interviewed said their organization typically increase hiring in the fourth quarter. Of those, 95% of respondents indicated they bring on staff at year-end to address upticks in business, 94% add new positions, and 89% fill vacated positions. The survey also found 6% of Canadian companies generally decrease hiring in the fourth quarter, and 74% cited no general pattern/depends on hiring needs at the moment.

The Canadian staffing index rose in August after a trend of moderate year-over-year declines. The index, which measures staffing activity in Canada, rose to a reading of 110, up 8% from August 2015 and 7% from July.

Canada’s economy added 26,000 new jobs in August, but the jobless rate inched up to 7% as more people entered the labor force looking for work. According to Statistics Canada data, there were more than 52,000 new full time jobs created during the month, more than enough to offset a loss of 26,000 part-time jobs.

Canadian economic growth will snap back after a second-quarter contraction and will get further lift in 2017 from rising energy prices, low interest rates, and federal stimulus, according to the Economic Outlook report by RBC Economics. Canadian GDP growth is expected to accelerate to 1.8% in 2017, up from 1.3% in 2016. The RBC forecast calls for real GDP growth of 3.7% (annualized) in the third quarter of 2016 as rebuilding takes place in Alberta, followed by a slower 1.9% gain in the fourth quarter. “The Alberta wildfires and sharp pullback in oil sands production in May took the Canadian economy on a brief detour into negative growth,” said Craig Wright, senior VP and chief economist at RBC. “Yet the recovery should spur a similarly sharp rebound in growth in the latter half of this year and we anticipate that momentum will carry over into next year.” RBC expects the economies of Alberta, Saskatchewan, and Newfoundland and Labrador to contract further this year as the oil-producing provinces continue to struggle with low revenue and private-sector restraint, according to RBC. Some of the recent weakness in Alberta from the wildfires in Fort McMurray should start to reverse in the second half of 2016.

The job indicators in the US

More than one in four US companies plan to increase hiring in the fourth quarter, according to research released by staffing firm OfficeTeam.

The Conference Board’s US leading economic index points to moderate growth in 2016. Even though the LEI edged down in August it still suggests moderate growth in the months ahead. The index fell 0.2% in August to a reading of 124.1 (2010 = 100), following a 0.5% increase in July and a 0.2% increase in June. “While the U.S. LEI declined in August, its trend still points to moderate economic growth in the months ahead,” said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board. “Although strengths and weaknesses among the leading indicators are roughly balanced, positive contributions from the financial indicators were more than offset by weakening of nonfinancial indicators, such as leading indicators of labor markets, suggesting some risks to growth persist.”

The US Conference Board’s consumer confidence index reached its highest level in September since the end of the recession with a reading of 104.1 (1985=100), up from a reading of 101.8 in August. “Consumer confidence increased in September for a second consecutive month and is now at its highest level since the recession,” said Lynn Franco, director of economic indicators at The Conference Board.

Human resources professionals expect relatively few job cuts in the second half of this year, but they are less confident in the job market than a year ago, according to a survey of 502 HR professionals in the US by the Society for Human Resource Management. Only 7% of HR professionals expect job cuts at their organizations in the second half, unchanged from the second half of last year. Still, they were less confident in the job market for the second half. “While 58% of respondents had some level of confidence in the US job market, this is down from last year,” said Jen Schramm, SHRM’s manager of workforce trends. “However, most say that their organizations’ finances are in good shape and few are expecting job cuts in their organizations as we round out 2016.” In the second half of last year, 69% of HR professionals reported some level of confidence in the job market.

US real gross domestic product grew at an annual rate of 1.4% in the second quarter, according to the third estimate of GDP growth released by the US Commerce Department. The new estimate is up from the second estimate, which pegged growth at 1.1%. In the first quarter, real GDP edged up 0.8%.

Business investment was still soft in the April-to-June period, but the weakness was less pronounced, MarketWatch reported, noting this could be a good harbinger for the just-about-to-end third quarter, whose rate of growth appears to have been much stronger. Economists polled by MarketWatch estimate growth will climb to a 3% pace in the third quarter. The Atlanta Fed’s GDPNow forecast — which is based on a model tied to economic indicators — calls for 2.8% growth.

The Conference Board’s US Employment Trends Index fell in August to a reading of 128.02 from July’s upwardly revised reading of 128.44. The August reading, which followed increases in both June and July, is up 0.8% from the same month a year ago. “The Employment Trends Index is consistent with moderating job growth in the second half of 2016,” said Gad Levanon, chief economist, North America, at The Conference Board. “With the ongoing massive retirement of baby boomers, even moderate job growth is enough to continue to tighten the US labor market.”

The US Department of Labor on reported the US added 151,000 jobs in August and lost 3,100 temp jobs.

Economic activity in the manufacturing sector contracted in August following five consecutive months of expansion, according to the Institute for Supply Management’s purchasing managers index for US manufacturing. August’s index reading was 49.4, down from July’s reading of 52.6%. Readings below 50.0, generally, indicate contracting. The employment portion of the index fell to a reading of 48.3 in August from 49.4 in July. The report suggests that manufacturers continue to struggle as businesses spend less on machinery, computers and other large equipment. Auto sales have also leveled off this year after reaching a record level in 2015.

Economists surveyed by the National Association for Business Economics lowered their growth projections for the US economy in 2016. However, they expect the economy to grow two more years. “Four-fifths of panelists participating in NABE’s September Outlook Survey expect the next US business cycle peak to occur in 2018 or later,” according to NABE President-elect Stuart Mackintosh, executive director, Group of Thirty. “NABE forecasters expect the Fed to raise its interest-rate target by another quarter of one percent later in 2016 and one-half of one percent in 2017.”

Top US business leaders are somewhat more pessimistic about the outlook for the economy in the next six months, partly due to uncertainty about the 2016 presidential election, MarketWatch reports. The Business Roundtable, a lobby group for the largest companies in the US, said its survey of top executives found the group’s economic outlook fell in the third quarter and remains well below its historic average. Business leaders trimmed their projections for sales and hiring and have no plans to boost investment. The group’s economic outlook index dropped to 69.6 from 73.5. The long-term average is 79.6.

The job indicators outside North America

Employers in the UK say they need to hire more staff to meet demand despite a drop in business confidence after the EU Referendum, according to the latest JobsOutlook survey by the Recruitment & Employment Confederation (REC). The survey of 602 employers also shows that business confidence has weakened month on month since the EU referendum. In August, 34% of respondents said that economic conditions are “getting worse”, compared to 22% in July and 13% in June.

Brazil’s economy shed a net 33,953 payroll jobs in August, according to the Labor Ministry. The country has now seen 17 straight months of job losses. The nearly 34,000 jobs that were cut was a decrease from last year as Brazilian companies cut 86,543 jobs in August 2015. The number was also a decrease from last month, which saw 94,724 payroll jobs shed. The number of formal jobs lost in the first eight months of the year now total to 651,288. According to Reuters, Brazil’s economy is expected to shrink more than 3% for a second straight year in 2016, with over 11 million workers officially considered unemployed.

The euro area (EA19) seasonally-adjusted unemployment rate was 10.1% in August 2016, down from 10.7% in August 2015. This remains the lowest rate recorded in the euro area since July 2011. The EU28 unemployment rate was 8.6% in August 2016, down from 9.3% in August 2015. This remains the lowest rate recorded in the EU28 since March 2009. These figures are published by Eurostat, the statistical office of the European Union. Among the Member States, the lowest unemployment rates in August 2016 were recorded in the Czech Republic (3.9%) and Germany (4.2%). The highest unemployment rates were observed in Greece (23.4% in June 2016) and Spain (19.5%).

Mexico manufacturing PMI data released by Markit showed a marginal improvement in the operating conditions of the Mexican manufacturing sector during August, EconoTimes reports. Seasonally adjusted, the headline PMI recorded a level of 50.9 in August, up from 50.6 in July. There was a net increase in staffing levels for the 25th month in succession, although the rate of expansion was again marginal.

Employment figures for the year of 2015 for Germany reached a new record with a total of 43 million new workers and 2.2% of those workers were in temporary employment according to the Federal Employers’ Association of Personnel Service Providers (BAP). BAP states that in the context of strong labor market figures for 2015, the proportion of temporary employment in the overall labor market remains low. While total employment has grown steadily since 2010, temporary work growth had paused and saw declines in 2012 and 2013, with 2015 growing back to 2.2%, the same number as 2011.

The seasonally adjusted unemployment rate in Australia decreased by 0.1% to 5.6% in August compared to the previous month, its lowest rate in three years according to figures from the Australian Bureau of Statistics. The data showed that the number of unemployed decreased by 3,900 in August 2016 compared to July 2016. Meanwhile the number of full-time workers increased by 11,500.

The unemployment rate in the Netherlands has declined to 5.8% (521,000) in August compared to 6.0% in July according to the CBS (Statistics Netherlands). According to CBS, it is because fewer workers are losing their jobs and the rate of which the unemployed are finding a job remains high.


> COMPANY NEWS

Yahoo revealed that a “state-sponsored actor” stole personal information from at least 500 million user accounts in late 2014. “The account information may have included names, email addresses, telephone numbers, dates of birth, hashed passwords (the vast majority with bcrypt) and, in some cases, encrypted or unencrypted security questions and answers,”. However, it’s unlikely the stolen information included payment card data or bank account information, as neither was stored on the affected system.

BlackBerry will exit the hardware business internally and leave development of future smartphones to its partners. Previously, the company had said that if BlackBerry’s hardware business was not profitable within its current fiscal year, it would exit. The news that it will be out of the hardware game comes as BlackBerry releases its Q2 2017 financial earnings.


> MERGER & ACQUISITION ACTIVITY

Tech Data Pays $2.6 billion for Avnet’s Technology Solutions Group

In what is arguably one of the biggest IT distribution deals in industry history, Tech Data has acquired the technology solutions group of Avnet for $2.6 billion. With Avnet in the fold, Tech Data will be sporting value-based data centre infrastructure, software, and services to that mix, which will include Hewlett-Packard Enterprise and IBM software making the company a much bigger rival to Ingram Micro than ever before. Ingram currently is at $41 billion in worldwide revenue, while Tech Data is just over $26 billion. When you add the $9.6 billion from Avnet Technology Solutions, suddenly Tech Data is a $36 billion player that now has a presence in Asia Pacific; something the Clearwater, Fla.-based distributor was lacking.

HP Pays $1.05 Billion for Samsung’s Printer Business

HP Inc. made the biggest printer acquisition in history, spending a little over $1 billion ($1.05 billion) to acquire the printer business from Samsung Electronics. HP expects the buy to advance HP’s market presence in the A3 sector also known as the copier market. Currently HP is the worldwide market leader in printing and imaging with 40 per cent market share. And, they have been the leader for the past 30 years. HP is betting that printing and copier markets are colliding. HP is at best a minor player today in the copier market that is currently valued at $55 billion.

Google Paying $625 million for Apogee

Google will soon have a new technology aimed at attracting enterprise customers away from its much larger cloud competitors, Amazon Web Services and Microsoft Azure. It’s a market area the cloud company has been trying to break into for some time, but its success has been limited. The upcoming acquisition of API management vendor Apigee may help to boost its presence in the enterprise market, though.
Google signed a definitive agreement to purchase Apigee for US$625 million. It’s a significant acquisition that could put Google in a much stronger position to onboard enterprises to the Google Cloud Platform.
Apigee is also enterprise-focused, so the acquisition will put Google in a much stronger position as it aims to compete in the space against its major competitors.

Subway Buys Avanti Commerce

Restaurant chain Subway is delving into new business territory with the acquisition of a division of Vancouver-based online order-taking platform Avanti Commerce. The 20-person team, formerly known as Cardent Software, will join the Subway Digital Group, a division with a mission to deliver personalized digital service to its customers. Avanti was founded in 2012 and advertises that it can service restaurants located anywhere in the world with its e-commerce platform. Aside from Subway, Taco Del Mar is another restaurant chain using its service.

Accenture Makes Minority Investment in ‘Crowdtesting’ Firm

“Crowdtesting” firm Applause closed a $35 million funding round led by Credit Suisse and Accenture, bringing total funding to date for Applause to $115 million. Accenture also announced an alliance with Applause. Applause uses a crowdsourcong approach and has a crowd community of more than 250,000 assurance testers around the world. Applause is based in Boston, launched in August 2008 and has test projects for companies that include Google, Microsoft, Rolex and Shutterfly.