Atos: outsourcer struggles to see by means of the cloud

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Know-how and progress are synonymous for many traders right this moment. Legacy outsourcers are an exception to that rule. Their capacity to maneuver IT operations to low-cost economies as soon as gave them an edge. Now prospects are extra concerned with shifting information to the cloud than jobs to Bengaluru.

France’s Atos has warned that outcomes this yr shall be decrease as that development accelerates. Gross sales will go nowhere. Decrease margins imply working earnings ought to shrink at the very least a tenth. No shock, its share worth fell as much as 17 per cent.

Atos is dealing with the identical drawback as different erstwhile computing titans; what to do when aggressive benefit evaporates. Chief govt Elie Girard plans a restructuring that can give attention to digitisation, the cloud, safety and decarbonisation. His dilemma is balancing the rising half of Atos’s current enterprise with shrinking legacy operations.

Scale appeared like one answer. A scrapped try to purchase DXC Know-how of the US firstly of the yr was adopted by revelations of accounting discrepancies in April.

The mooted $10bn deal would have greater than doubled the workforce to 250,000. However traders reacted badly to the prospect of a defensive transaction. Value chopping solely will get you to this point when each companies have comparable issues.

Setbacks have pushed Atos shares to their lowest stage since 2015, down 30 per cent this yr. The present 7 occasions ahead earnings a number of wallows close to the underside of the historic vary. The distinction with native computing rival Capgemini couldn’t be starker; its shares have gained 30 per cent this yr and commerce at 20 occasions ahead earnings. 

Two charts. The first shows current and estimated sales for Atos and Capgemini, 2015 to 2025. Second chart shows Share prices rebased for Atos and Capgemini, 2019 - 2021

Capgemini’s €3.6bn acquisition of engineering consultancy Altran final yr has erased fears that its legacy exposures will create a progress deficit. A tilt in direction of related trade is anticipated to supply loads of new alternatives. 

To have any probability of regaining favour Atos should forge a path again to progress that features some dangerous diversification. Negligible web money owed — the identical as anticipated ebitda this yr — imply it has the firepower for acquisitions. In any other case a enterprise expert in reassigning workflows from incumbents could endure the identical destiny itself.

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