EDS' Senior Executive Vice President of Applications Services, Charlie Feld, spoke at the JPMorgan 35th Annual Technology Conference, Below are some excerpts from the transcript.

Demand for IT Services - I've seen the cycles go where big spending, big cutbacks, big spending, big cutbacks. I think probably the biggest spending I saw was in the '90s between big ERP projects, big dot-com, e-business spending, and then kind of the Y2K where people spent tens if not hundreds of millions of dollars getting a problem fixed that nobody believed was a problem from the executive committee point of view. But I will tell you, getting money in the '90s as a CIO was not a hard thing to go do, so the reaction of the 2000-2001 to now was to really squeeze down on IT spending. I think we're about at the end of that. That's my opinion, whatever that's worth, because I know where IT budgets are. I think it's been six or seven years of stepping on the air Hose, and if you took the IT spend, on average it's 4 or 5% of what corporate spending is. And if you cut it in half, most companies would still not be able to compete in the 21st century, so their need to invest in fixing their supply chain, fixing their manufacturing, taking the merger part of the M&A and getting companies put together. I believe that there's going to be significant release of spending in this sector again after five or six years of contraction - again, my opinion. How much of that goes to services versus internal spending is a different issue.

Offshore Strategy - I think it's critical. I think it's critical to have really three components. One is a client proximity component where you are part of the client's team, you're on site, you're involved, you understand their environment, you understand their culture, their business problems, and their legacy environments and everything else. Another part that's critical is to have the kind of high quality, low cost that very often you need to be significantly in high-quality, low-cost centers of the world, which there are a few - not just one but a few - and then you need the high-end, consultative piece. So it's kind of a 10-30-60 look that you need to do the kind of modernization work that most enterprises need to get done over time, and I think everybody is heading for that. We're heading more toward Best Shore, you know, the offshore people are heading more toward client proximity, and it's kind of a race to the middle right now in terms of how that works. But to be effective you've got to be in all three of those dimensions.

Business type, Application only or Application + infrastructure - I think the SOA era or this composite solution, the end-to-end building, is going to require that we go back to engineering on the front end and designing things for the run world. So a project may be $50 million but the run of it might be $600 million over five years because of the need for surge capacity, security, privacy, network utilization, because in these messaging infrastructures, and I think if you don't understand infrastructure it's going to be very difficult to design for run, and look a the total cost and also the notion of zero outages, disaster recovery, everything else. So my goal is to take what I would consider hydrogen, which is the application business, and oxygen, which is the infrastructure business, and really think of it more as water, which is what people want, because they will find very quickly that you can't run these modern, self-service, B2B exchanges on thin infrastructures that are aged without modernizing those.

Acquisitions: The question was, is acquisition more important? From an applications point of view, the strategy that I've asked Mike and Ron and Ron Vargo to help me with is more tuck-ins, specific places as opposed to a big bang, mostly for the cultural integration and the fact that where we need to get at is much more in the higher end, consultative portions, the higher end SAP, not the opp opp [phonetic] programmers, and also the consultative portions of manufacturing and the consumer goods and retail. And we're very targeted at segments and therefore looking for more boutique-oriented tuck-ins where you get real experts measured in hundreds, not tens of thousands of people that can come in and do the work and grow those practices where I've supplied the shopping lists for.

Building Reusable assets - The question was the notion of reusability and in the apps space more standard components and so forth. What we're attacking is we're attacking a number of industry segments that our clients are in. So you could take our top hundred clients, do the sort, and it's not transportation, it's airlines, right? For example, in those segments we know a lot about those and, frankly, the middleware, SOA, data model, framework, infrastructure is pretty transferable.

Cost structure in Apps Business - I think the issue, all of them are growing double digit. We've just turned into that range in the apps business as we were declining in '04 and into '05. We've turned that around and we're starting to get up in that range. We've got significant margin point expansion. Most of them are in the high 20s into the 30s. We're not there, so we've got significant expansion. I think as they go to more client proximity and more high-end stuff, that's going to have a dampening effect on their margin as we go to more offshore. So our aspirations are not overtaken in the short term, but we certainly have headroom on both revenue growth and margin expansion.

Source:1

Tags: eds - it+services - apps+support - technology

Prashanth Rai