Expanded IBM to have 10pc of NZ services market

By ADAM GIFFORD

IBM's proposed US$3.5 billion purchase of PricewaterhouseCoopers' business and technology consulting arm PwC Consulting could push IBM's services revenue in New Zealand past $200 million.

International Data Corporation analyst Mark Cribbens said about $160 million of IBM New Zealand's $341 million revenue last year came from services, while IDC estimates PwC Consulting took in about $40 million.

"The combined company will have about 10 per cent of the New Zealand IT services market," Cribbens said.

"This will consolidate IBM's position as number 2 behind EDS in this market, and provide a significant lead on the new Hewlett Packard which is estimated to have managed services revenues of between $80 and $90 million for 2001."

The IBM-PwC deal, which has to be approved by regulators and PwC partners, was driven by the need of a resurgent IBM for more consulting firepower and by pressure coming on the major accounting firms in the wake of the Enron and WorldCom collapses to fully separate their consulting and audit roles.

PricewaterhouseCoopers had intended to float off its consulting arm under the new name Monday some time this month, but the current slump on Wall Street had it scurrying around for a buyer.

It will regret not clinching a deal in late 2000 with Hewlett Packard, which had considered paying up to US$15 billion for the consulting firm.

Going on its expected 2002 revenues of US$7 billion, the price it is getting is considerably less than the US$5-7 billion it might have expected based on what the market is paying for shares in listed rivals Accenture and KPMG Consulting.

PwC Consulting's presence here has been shrinking in recent years as the major IT projects which are the life blood of large consulting firms dried up.

While it refuses to reveal customer names, major clients here include Inland Revenue, Land Information New Zealand and Fonterra.

Competitor Accenture, the consulting firm spun out of accounting firm Anderson, gave up on the New Zealand market completely in May and closed its offices with the loss of 100 jobs.

PwC Consulting is believed to has about 80 staff here, while IBM's consulting and services division accounts for about 400 of its 700 staff.

Across the Tasman, PwC consultants are steeling themselves for job losses, with IBM expected to cull many of the managers and partners. IBM has about 9000 staff in Australia, the majority in services.

PwC Consulting Asia Pacific chief operating officer Andrew Stevens said the PwC staff will be merged into the Business Innovation Services division of IBM Global Services, creating an organisation with 30,000 people across the Asia Pacific region.

He said some redundancies are likely.

"We have to look at synergies in the business," Stevens said.

"The acquisition is about intellectual capital which is in nothing but our people."

He said PwC Consulting had the largest SAP and Peoplesoft practices in Australasia and was a preferred implementation partner for Oracle.

"We believe this will transform the professional services industry in every geography."

IBM Global Services general manager for Australia and New Zealand, Brendon Riley, said the merged organisations would attempt to combine their consulting, industry, business process and technology capabilities, "to deliver superior value to customers seeking to build their local, regional and global competitiveness."

IDC's Cribbens said the main impact here will be boosting IBM's ability to deliver advice on high end business strategy.

"The leap between IT and business, that will be the main benefit," Cribbens said.