IBM Says Small Deals Lead Technology Consulting Rebound

By Jessica Davis  |  Print this article Print

According to executives at IBM and Accenture, technology consulting services are starting to feel the rebound, but smaller deals rule.

IT consultants are probably already feeling it: the start of a rebound in business. But there's a difference this time. The rebound is coming mostly in smaller deals rather than in gigantic ones.

That may be because businesses are dipping their feet in with jobs that just can't wait before they dive into a recovery of which the depth is still uncertain.

Case in point—IBM's (NYSE:IBM) and Accenture's (NYSE:CAN) recent comments on their consulting businesses. Talking about its overall quarterly results, IBM said smaller deals are leading the day, both in services and software.

"Smaller deals are a significant portion of our total revenue stream, but I think what we are seeing in smaller deals [has] been more characteristic of a leading indicator," IBM Chief Financial Officer Mark Loughridge told financial analysts during a conference call discussing IBM's quarterly results. "So as we entered the recession those smaller deals produce a little more aggressively than we see them coming back, especially at the end of the quarter."

At the same time larger deals tended to get rolled into the next quarter, Loughridge told analysts.

Accenture Chairman and CEO Bill Green offered a similar story to analysts during his company's quarterly conference call at the end of 2009.

Technology vendors acquired technology consulting companies at a quick pace in 2009, including ACS and Perot Systems. Click here to see how these acquisitions fit into the M&A landscape in 2009.

"The big transformational deals have not become in vogue again yet," Green said, responding to an analyst's question. "People are still putting their foot in the water, up to their ankles, up to their knees. They are doing supply chain strategies, they are doing rationalizations, they are doing all kinds of things, but that big billion-dollar transformational thing that you see in the pipeline, those are a lot harder to come by."

Instead, Green said customers are contracting for a higher volume of smaller jobs.

"These are must-dos for these companies," Green said. "And thanks to the consulting savvy that we have at the top of the business, I think it puts us in a very good position to not only get those things done but also benefit from downstream work that historically comes our way from those."

Financial analyst company Sanford Bernstein noted in a brief report that IBM's total services signings were up 9 percent year over year—well above the analyst's previous expectations.

"Services performance was encouraging, and IBM's results and commentary add credence to a forthcoming recovery in consulting services," Toni Sacconaghi, senior research analyst at Bernstein, said in a report.
Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com

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