IT companies firm Atos plans IBM-style break up

French multinational IT companies firm Atos is planning to separate in two, a lot as IBM spun out its legacy-focused managed infrastructure companies enterprise to type Kyndryl in November 2021.

It’s a Hail Mary transfer for Atos. CEO Rodolphe Belmer, who was introduced in on Jan. 1, 2022, to steer the corporate by means of the most recent in a sequence of transformations, has nominated two deputy CEOs to steer the 2 new companies, and has resigned, efficient by the tip of September.

Clients may have solely simply received used to the final shake-up, in February, which noticed Atos reorganize its actions into three enterprise traces. The most important of the three traces, “tech foundations,” bundles collectively what Atos calls its “mature” companies: information facilities and internet hosting; the digital office; unified communication and collaboration; and enterprise course of outsourcing. This enterprise line accounted for simply over half of all income at Atos in 2021. The opposite two enterprise traces are “digital,” which brings collectively digital transformation and decarbonization companies, and “huge information and safety,” specializing in research-intensive actions in cybersecurity, high-performance and edge computing, and mission-critical methods.

Atos and its clients, which embody lodge chain Accor, electronics provider RS Elements, and telco Telefonica, might choose up some pointers from how IBM dealt with its Kyndryl spin-off, as there are similarities between the 2. Like IBM, Atos has a supercomputing enterprise, operates its personal information facilities, and gives software program, consulting, and IT companies — albeit on a smaller scale. Atos has about one-third as many employees as IBM, which, earlier than the break up that gave rise to Kyndryl, employed 350,000 staff. IBM nonetheless has 282,000 workers, working in 171 nations, whereas Atos employs 111,000, delivering IT companies in 71 nations. These employees are much less productive, too: Whereas IBM reported income of $57 billion in 2021 (or $200,000 per head), income at Atos was simply $12 billion ($108,000 per head).

Legacy losses

IBM was nonetheless broadly worthwhile when it break up, having made a internet revenue of $5.7 billion in 2021, and noticed the transfer as a approach to free its high-growth cloud enterprise from slower-growing legacy and upkeep actions. Atos, although, is in a lot worse form: It misplaced round $3 billion in 2021, and its legacy (or “mature”) actions aren’t simply gradual rising, they’re really shrinking: The tech foundations enterprise line declined in measurement by about 12% final yr, and had a destructive working margin.

Not like IBM, which spun out a enterprise about one-quarter of its general measurement, Atos plans to separate itself into virtually equal halves.

A type of halves will mix the corporate’s faster-growing digital and large information and safety (BDS) enterprise traces, and spin out from its father or mother beneath the title Evidian, which Atos already makes use of for its id and entry administration merchandise. Will probably be led by Philippe Oliva, who joined in April 2022 from Eutelsat (additionally Belmer’s former employer). Previous to that, Oliva spent virtually twenty years with IBM, a lot of it managing cloud and hybrid companies.

The opposite half, consisting of the corporate’s tech foundations enterprise line, will retain the Atos title. To tell apart this smaller, future entity from present-day Atos, the corporate is looking it TFCo for now. It has been led for the reason that February reorganization by Atos veteran Nourdine Bihmane. He’s been with the corporate since 2001, simply after the primary look of the Atos title, though the corporate’s origins go a lot additional again, with a minimum of a part of its enterprise tracing again over a century.

Atos was fashioned by means of the successive mergers of a bunch of European IT companies firms, together with Philips Communications & Processing Companies, BSO/Origin, Cegos, Sliga, and Schlumberger Sema, a few of them based within the Nineteen Sixties or 70s. In 2014 it purchased Bull, a French mainframe and supercomputer based in 1931. Bull was based to compete with IBM, making and promoting tabulating machines patented by their inventor as early as 1919 to rival these of Hollerith, the corporate that might ultimately turn out to be IBM.

If Atos had hoped the plan to separate the corporate in two would goose the share value, it was sorely disenchanted. On June 14, the day of the announcement, it fell about 25%, and has slipped decrease since, suggesting that traders suppose the corporate might be no extra worthwhile or profitable as two elements than as one.

CIO issues

To persuade traders — and the CIOs it serves — Atos must tackle a lot of points.

Continuity of service is more likely to be one: Though the corporate is splitting alongside the traces of a reorganization already carried out in February 2022, the division into two firms will pressure Atos to duplicate central companies similar to billing or the methods workers use to speak with clients.

IBM helped allay buyer fears by naming its spin-off’s senior administration workforce lengthy earlier than it named the brand new firm. Atos selected to call its future CEOs, Bihmane and Oliva, on the identical day it named the long run firms, Atos and Evidian, however lots of the different senior roles may have been settled within the February reorganization. The 2 halves, although, are every going to wish their very own CFO and different senior leaders they didn’t want whereas beneath the identical umbrella.

Discovering efficiencies and new enterprise to return TFCo’s legacy internet hosting and outsourcing companies to development, simply because the world plunges into recession, might be one other problem. It’s been attempting all through the COVID pandemic, however to no avail.

Bihmane has already set out his technique to revive TFCo’s development, profitability, and cashflow by 2026.

Step one, Atos mentioned, might be to rationalize the corporate’s current portfolio of actions, exiting non-strategic companies and “turning round or exiting destructive margin accounts.” Clients must concentrate right here: Even when Atos decides to maintain providing no matter it’s they’re shopping for, CIOs with good offers are more likely to be requested to pay extra or discover one other provider.

The second step is extra more likely to have an effect on TFCo’s 48,000 workers, as the corporate makes an attempt to “reset” its price construction by means of right-shoring (shifting jobs the place they’re least expensive), “addressing the age pyramid” (goodbye skilled however costly staff), “lowering third-party spending” (shedding costly contractors), and “consolidating information facilities and services to drive price financial savings” (eliminating duplicate roles).

Within the third step, “rebound,” Atos plans to pivot to development by creating new choices and investing in gross sales capabilities.

Kyndryl began out with comparable ambitions to rework its legacy actions, however its first full quarter as a stand-alone enterprise was a rocky one. Within the three months to March 21, 2022, it noticed income decline 3% yr on yr at fixed forex (7% in actual phrases), and it forecast that income for the yr to March 31, 2023, would even be 3% decrease than the prior yr. There was a silver lining, although: Kyndryl managed to halve its internet loss for the quarter ending March 31 as in comparison with a yr earlier, and forecast a slight pretax revenue for the subsequent fiscal yr.

Atos forecasts that TFCo income will equally proceed to say no, falling from €5.0 billion ($5.3 billion) in 2022 to a low of €4.1 billion in 2024 and 2025 earlier than returning to development in 2026.

Issues could also be simpler for Evidian, the extra forward-looking a part of the proposed Atos break up. It has been rising organically by 5% yr on yr — a tempo that’s anticipated to extend to 7% post-split — with an working margin of virtually 8%, anticipated to hit 12% by 2026. Its stock-in-trade, cybersecurity, is at all times in demand, and with vitality costs spiraling upward, one other of its actions, advising on lowering IT energy consumption and carbon emissions, is way sought-after.