Atos

Hey Atos, I am disappointed

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As an Atos investor you should be disappointed. The good news is that it is probably a temporary feeling; at least that is what I am telling myself every day since Atos announced they will split the company. 

Unfortunately, ‘telling’ is not what Atos is doing; most of the communications is either vague or not telling at all. 

I can obviously deduct information from circumstantial evidence, and being a former employee helps in understanding and interpret these data tidbits. 

So why do I care? The obvious reason is that I hold some Atos shares. I show this in my footnote with every blog posting. But the other reason is curiosity about how this split-up of one of the biggest IT firms in the world, or at least Europe, will play out.  

It has been a nail-biter when you look at the senior leadership’s spectacle of promotions, demotions, new hires, failures, and new names rising to fame. Mix this with a (un)healthy suspicion of political maneuvering and we have gotten ourselves a very wild journey in the past 24 months. 

We saw activist shareholder takeover bids. We have been shown interesting investment plans from allies that are then dropped unexpectedly. And opinions by outsiders that have been both insightful and sometimes unexpectedly missing the point. 

I believe there is enough information and, with some imagination, plenty of boardroom drama to create a European version of Succession when this is all over. 

Nevertheless, the latest quarterly financial information gives us hope that the ship is sailing in the right revenue-direction; once again evidence to support the question if the split of this great company is really necessary. 

There must be people in the boardroom that are also thinking about this, and possibly already putting this on the agenda. I’d love to talk to them and to encourage them to speak up. I found it suspicious that Atos recently announced several changes to the board. Why would you do that if you also announced the company will end in its current form in the next couple of months? My human side, with a need for conspiracy theories, kicked in. 

To be clear, I have no information that would support any such a theory, but I can see why my mind is trying to fill in the blanks. There are so many, and it would serve Atos and my curiosity, if their communications team would be more forthcoming on the ongoing processes. Something more than the boring and not very insightful strategic transformation updates we got at the Q1 2023 results press release please. 

(BTW I know you all work hard and congrats to all employees on the turnaround until now)

Disclaimer: Paul, who is the author of this blog post, holds at time of writing a small amount of stocks in Atos SE. All information in this blog post is believed to be public information, enriched with the authors personal opinion. No confidential information is being shared.

Atos SE FAQ: 3 reasons why Atos is splitting up (and 1 why not)

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Why would you want to split a company with +/- 11 bn Euro revenue and +/- 112.000 employees? It is not a small undertaking and for sure not a decision a leadership team would take lightly. What are, in my opinion, the key reasons behind this decision?

split the money
image by http://taxrebate.org.uk/

As a regular analyst and commentator on Atos’ strategy, and the IT Services industry in general, I speak often with 3rd party advisors, investment firms and other interested parties. These conversations address a wide spectrum of topics, ranging from financials, competitors, and unique selling points, all the way to how to build the right sales or delivery teams.

There are however some questions that frequently pop-up in these conversations. So, I thought I might spend some time answering them in a new series of blog posts.

Today we will look at 5 reasons why Atos is going to split the company in 2 new public companies.

On June 14, 2022 Atos announced a plan to study “a possible separation into two publicly listed companies to unlock value and implement an ambitious transformation plan“. And in the communications on the third quarter results, confirmed that “The separation project is well on track to be completed in H2 2023 as initially planned“.

1. Declining revenue and margins in IT infrastructure services

Mostly due to the rise of public cloud providers such as Amazon, Microsoft and Google, a lot of software is moving to the cloud. This results in a steep decline in the cost of running these applications. In the public cloud the infrastructure can be shared. Management can be highly automated. And locations can be transparent allowing for even more flexibility in costs. Cloud computing also takes away the need for local, privately owned, data centers. And companies are embracing cloud computing en masse. In 2018 Gartner predicted that “Around 10% of enterprise-generated data is created and processed outside a traditional centralized data center or cloud. By 2025, Gartner predicts this figure will reach 75%”.

Atos’ problem is that a significant portion of their IT services revenue and assets are still not cloud-based. Atos owns and operates still many datacenters and needs customers to fill those with hardware and software.

This “move to the cloud” is not only a problem for Atos. In recent history also IBM decided to split off their IT Infrastructure Services in a newly formed company Kyndryl. And in April 2017, HP performed a similar action when it split-merged their infrastructure services with CSC.

2. Create a clearer strategy

The one company that Atos is today is a bit of a collection of IT topics that not necessarily work together. In some cases, they might even be competitive. This makes it harder to create a single strategy across all offerings of the company. By splitting the company in two, the two components can focus on their respective strengths without (negatively) impact the other. E.g., the part that offers infrastructure services can focus on customers that have a need for local and/or physical datacenters.

3. Workforce challenges

There is a very big difference between the attributes of a workforce oriented on traditional Infrastructure Outsourcing Business, versus the more innovative oriented business of Digital and Data Analytic services. While the workforce for the services provided in infrastructure come most of the time from the customers of Atos that outsource their business to Atos, the growth business in Digital is dependent on recruiting new talents.

When the traditional outsourcing services are dwindling, and the Digital Services are growing, Atos’ needs to hire and/or educate more and more people in a market that is already short on potential candidates. At the same time a growing part of the workforce, that is most of the time local (meaning ‘not in off-shore countries’), is generally not immediately fit to move into this new technical territory.

Recruiting new staff, both off-shore and local, will be easier if the profile of the company is not about traditional services, but instead radiates innovation and ‘cool’ technologies.

… and why should Atos not split the company?

Ever since I have been made aware of the strategy of Tesla, I believe firmly that ‘verticalization’ is a very strong asset for any company. If Atos can bring in verticalization in its offerings, it could build some very strong offerings.

Atos can combine their scale, their own hardware, software, services, and consulting skills into a mix that allows customers to work with them, instead of Atos being a contractor if separate IT services. Today Atos has all these assets under one roof and that sets the company apart even from their biggest competitors. I consider this to be a huge opportunity. And it can be implemented gradually, with a focus on the most profitable business topics first. And I think that such a program would cost less that the investment that Atos is currently raising to pay for the split.

It seems to me that previous Atos leadership teams, most notably their former CEO Thierry Breton, understood this. And it is a shame that recent leadership by Elie Girard and later Rodolphe Belmer, were unable to build on his legacy and vision.

Disclaimer: Paul, who is the author of this blog post, holds at time of writing a small amount of stocks in Atos SE. All information in this blog post is believed to be public information, enriched with the authors personal opinion. No confidential information is being shared.

Atos SE FAQ: 1. Which Assets is Atos selling?

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As a regular analyst and commentator on Atos SE strategy, and the IT Services industry in general, I speak with 3rd party advisors, investment firms and other interested parties. These conversations address a wide spectrum of topics, ranging from financials, competitors and unique selling points, all the way to how to build the right sales or delivery teams.

Atos Logo
Image is copyright of Atos SE

There are however some questions that frequently pop-up in these conversations. So i thought I might spend some time answering them in a new series of blog posts.

Today we will address the topic of Atos selling assets.

On June 14, 2022 Atos organised a Capital Markets Day and presented a storyline about their strategy for the future of the company. In that presentation the company announced their plans to split the company in 2 parts. This is obviously a very ambitious plan, which is I believe a result of a thorough market review and taking conclusions from serious market situation consequences for companies like Atos.

The presentation shown at that event, shows on slide 22 that Atos will sell 700 million euro of Non-Core Assets by 2023. The recurring question in my conversations with clients and interested parties since then has been; what are the None-Core Assets that Atos is planning to sell?

It is my understanding that the first asset that Atos sold as part of this strategy was their remaining stake in Wordline.

This was announced on June 14, 2022.

“As a result of the placement and derivative transaction, Atos has raised net proceeds of ca. €220 million” (link)

The second intended sale of a non-core asset was announced on November 17, 2022. At that date Atos put out a press release informing us of entering into exclusive negotiations to sell Atos Italia S.p.A.

Atos, a global leader in digital transformation, today announces that it has entered into exclusive negotiations with Lutech S.p.A. (“Lutech”), an Italian provider of IT services and solutions, for the sale of its Italian operations (“Atos Italia”) with a 100% cash consideration. (link)

The size of the 2nd sale of a None-Core Asset is not fully disclosed. And Atos says that with this sell they would achieve 2/3 of the intended 700 million euro divestment program. So with the 220 million from selling their remaining stake in Worldline, we can now guestimate the size of this Atos Italia deal to be around 240 million euro.

The third part of the divestment program to raise the announced 700 million euro, is yet to be disclosed. There might be even more parts following.

However, according to Diane Galbe (senior vice president in charge of strategy and mergers and acquisitions at Atos), confirmed in an article in the Financial Post that “…Atos was still seeking a buyer for some of its Unified Communications & Collaboration (UCC) legacy activities.“. This can then be the 3rd leg under their divestment program, or maybe more legs will be needed.

We will have to wait and see how this plays out. But it seems Atos is well underway to secure financing of their ambitious plans for 2023.

Disclaimer: Paul, who is the author of this blog post, holds at time of writing a small amount of stocks in Atos SE. All information in this blog post is believed to be public information, enriched with the authors personal opinion. No confidential information is being shared.

The Journey to Managed Enterprise IoT – Part 3 – Beyond the use case

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<This blog was previously published at the Atos Thought Leadership website – it was written by Philip Griffiths>

In the 1st blog in the series, an overview was shared of the journey to managed enterprise IoT, which we divide into three levels of maturity. In my second post you will learn more about the first level: Enabling the use case.

Once you have determined the IoT use case you need to ensure that the solution is secure, accurate and predictable – i.e. it delivers sustainable value – in the face of increasing quality of devices, edges, continuous data flows, and technologies. This is enabled through ‘non-functional requirements’ (NFRs) and spans both execution qualities and evolution qualities. This is going ‘beyond the use case’.

By focusing on ‘how’ the use case is delivered, instead of ‘what’, you can realize the following benefits:

  • Quality: If your products and services cannot extract value, the data, and opportunities, it is lost.
  • Risk: Complex IoT use cases can put business continuity at risk; reduce it through strong NFRs.
  • Productivity: A use case has little value if it stops working after 6 months or in peak load periods.
  • Future-proofing: Your system should be built for low cost and simple improvements / evolution.

Realizing this require you to define, discuss, document, and design your NFRs as you enable the use case and beyond it. Extending the timeline from the previous post, the following activities take around 12-24 months:

  1. Project: Design solution, install and implement IoT solution from core to edge, integrate into your existing business systems as well as ensure system security – including building ecosystem of partners.
  2. Business Platform: Scale-up and industrialize the use case to a full platform, do further roll-outs, integrate into your existing business and enhance parts of the system to delivery sustainable value.

Below is a non-exhaustive list of topics and example questions to be considered for NFRs:

NFR Topic Example Questions
Execution Availability Does your E2E use case need an operational uptime of 99.99% or 95%?
Continuity What are you E2E RTO/RPO? What are the business impact / cost of your use cases being down for 1 or 60 minutes? How does this impact backup or disaster recovery? How do you enable HA, backup or disaster recovery in a distributed architecture?
Manageability How will you update millions of devices? When and how to push new functionality? How to handle a million+ devices all calling home sick? Will you have 24×7 operations?
Interoperability  How will data be handled across different silos? Do your platforms work together?
Performance How quickly do you need to access the data? Does it need to be processed at edge?
Resilience How will the system do backups and ensure service continuity? How will you ensure high uptime of distributed architecture? How will errors be handled ‘gracefully’?
Security How will data from connected objects be trusted? How will you ensure security in new and high risk environments? How will you reduce attack surface? How will you ensure internal and external compliance, auditability as well as alignment to standards?
Usability How will you reduce the head count of managing such E2E complexity? How will you optimize latency issues to improve real-time outcomes and / or use experience?
Evolution Maintainability How will defects be corrected? Will the system and components have self-healing? How will uptime be ensured without sending people / parts onsite?
Modularity Will your system be built on principles of separate independent functionality?
Scalability Will it scale up/down to meet peak demands?

 By focusing on ‘how’ you enable value from and not just ‘what’ the use case is you will derive much greater long term value for your business. To do this, you need to define, discuss, document and design them into the use case from the start. If you are not already doing this I suggest you look at facilitating it as soon as possible.

I have spoken to many clients who have rolled out IoT solutions which are ‘the future of the businesses’. It is therefore unfortunate when they stop working effectively or if the operations team only know of problems when they are informed by the customer. It is normally at this point that they ask for expertise on going ‘beyond the use case’.  A few common outcomes are re-building the app, creating a new platform, facilitating rapid scalability or enabling an operations team with E2E monitoring; either way, it costs time and money that were not predicted in the business case.

The journey to managed enterprise IoT

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<This blog was previously published at the Atos Thought Leadership website>

A lot has been said about the data-driven economy we live in and its effects on the people, processes, places and products of all businesses, but how many companies actually use their data efficiently? Every organisation should not only be driven by data or the Internet of Things (IoT – a term we will use to cover gathering, processing and extracting value from data), but also ensure that it delivers measureable outcomes into their core business processes. Few can claim to be at this level of maturity and, if you are not one of them, our overview of the journey to managed enterprise IoT can help put you on the right path.

A true data-driven strategy can deliver benefits that range from tightly integrating customer care into product usage and performance to being able to remotely monitor and improve product (or service) performance to enabling new revenue streams.

We can divide the journey towards Managed enterprise IoT into three levels of maturity (that will be further explained with their own separate blogs) including the six sequential activities shown in the picture below:

  • Enabling the use case: exploring and solving business operational problems in minimum time to value with easily understandable business impact on people, process, places and products. 
     >> Benefits: Project – Business operations managing each use case
  • Beyond the use case: ensuring predictability for delivering value – i.e. high quality (from fewer errors), resiliency (higher availability and stability) and security. 
     >> Benefits: Program / Portfolio – Business operations across all use cases
  • Managed Enterprise IoT: simplifying the complexity of IoT, which is now business critical, to be both agile and predictable as well as being proactive, prescriptive and automated to deliver positive and measurable benefits for your whole enterprise. 
     >> Benefits: Enterprise – IoT underpins whole business

Businesses are made up of people, processes, places, and products which need to create value – the fundamentals of business that have not changed with a data-driven economy. As businesses derive more and more of their revenue from data (and IoT), they are required to resolve its inherent challenges – enabling business value, managing the quantity of things and data, dealing with the complexity of the ecosystem and reducing security and privacy risks.

This is critical to enabling benefits for companies, to their customers, shareholders and the wider data-driven economy – the outcome of Managed enterprise IoT. Rather than taking big leaps from one maturity level to another, put in place a road-map at the start of your journey to Managed enterprise IoT (particularly as forward planning will save lots of time and effort later).

The companies I work with often ask, “Should we manufacture a solution in-house or purchase it from an external supplier?” These are my high level recommendations:

  • Nothing exists in a bubble; consider your long term strategy and competencies (taking into account value and performance). Approximately, core ones should be made, marginal bought, supporting could be either – core is defined as high value and high performance, marginal as low and low respectively.
  • Do not think that you can only make or buy; you can customize a solution that fits your needs. Build a level of extraction (i.e. non-native) above the layer at which you buy; this will enable you to commoditize everything below it, to future proof and ensure cost reductions and quality improvements.
  • Open source gives you access to a larger pool of innovation and can be a low cost way to experiment (enterprise versions offer greater predictability).

In the next post, I will explain the 1st level of maturity of this journey towards Managed enterprise IoT: ‘Enabling the use case’.

I would like to add a special thanks to Philip Griffiths (@ThePGriffiths). Philip was until recently, the strategic partner manager for the ATOS IoT practice and took the initiative to write this blog-series you are reading now.

 

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