PAC’s Post

Transcript

Hello everyone and welcome to Analyst Hot Takes. My name is Stupar Eliza. And here with me today we have Christophe Chalons, our Chief Analyst. Welcome Christophe. You're welcome. So tell me Christophe, what are the hot topics that you hear about in the market today? I think first of all we have to consider that we have right now massive slowdown of IT spending in the market and it is reflecting in decreasing revenue for or slower growing revenue for the the hardware, the software, the services suppliers because we have to realize that we have behind us two years of exceptional growth. And I would say there are a few reasons for this experimental rules. The first one there was a catch up effect following the bat COVID impacted 2020 and 2nd the COVID gave a boost to digitalization to make businesses more resilient. And 3rd, especially last year the wider crane led to massive price increase following this two years of Warrior and growth. With room for a temporary slowdown. Of I would say somehow uncontrolled investments in the last two years and this is reinforced by the the tough economic environment that we we see everywhere for so forcing companies to make a lot of cost savings. So on the one hand, I see some areas where companies are right now selling money and this is mainly in the areas where they overinvest sales in the last two years. So this impacts a lot everything which is. With digital customer engagement, so front end customer experience is ustrated by the massive slowdown of goals of of sense falls or Adobe on the other also they need to manage better the the cloud consumption. In fact they faced an explosion uncontrolled explosion of the consumption the last three years and the problem is even reinforced by the massive price increase by the hyperscalers, so poor areas where we see a massive. A slowdown of growth, on the other hand we have some acceleration areas and I wouldn't first mention AI with the method of Genii which we need, boosts the growth. And you could say Geneva is somehow democratization of of I7 with sustainability, especially in continental Europe. Because of new regulations, new regulation which will be implemented in 24, so which force companies to improve their reporting and in the second step to optimize the carbon footprint in the IT and also through it. 3rd ASAP with with its announcement of stopping the standard maintenance of the business suite at the end of 27. Also to offer innovation on to S4 cloud customers combined with a very aggressive rise and grow sales initiative. They motivate or we could say they force their customers to accelerate the rest for migration force area is in fact the mid market, the upper mid market in particular. In fact in the last two years we saw many the large companies accelerating the digital transformation while the smaller ones were a bit slower a bit later. So there is a need to catch up there for them and finally given the tough economical environment. And the resulting need for cost saving? We see a boost reboost of the so-called traditional outsourcing model. And so first, we don't outsource. And then, but which one of those topics do you think is particularly relevant and why? I would start with the with Julianne. So it's for sure game changer and we see that investment is area are literally exploding. So we have a factor three to four in 23, factor three to four in 24, a factor of 100 within five years. So it's it's huge However it's a from a very low level especially in Europe. So we estimate that the five largest European markets so France, Germany, the UK. You telling the Neitherlands combine will represent a ���700 million market for generally software services in 24. Just to compare in the US alone one country you're talking about 5 billion and so. So US is much more in advanced. So you could say it's a factor of two years, but it's a much more advanced than in Europe. We see generally in several contexts. So starting with. Marketing, sales, customer care, overall I would say in productivity. So document processing, text, image, video processing, search, document creation and also very promising in it with the code generation on the other, the one hand on security on the other. How is our stellar of uncertainties and risks and risk, for example, the risk of inbreeding and some topic we address in our predictions, but also uncertainties in terms of compliance. And we should not forget also that Genia will not only enable the good ones, it will also enable the hackers and the roads. So this is for me the the first topic I would mention the second cloud. In fact it remains a key enabler of the digital transformation and. By the way, also for Ginia but. What we see is in the short term the focus is more on managing cloud consumption, are using Philips, also analyzing which application, which use cases are really critical and to focus the spending on the walls by comparing with Jenny I SAP Mayor P as a boring topic. However, if you just look at the saps for migration, it's an incredibly larger market. So if we take again the same five countries, France, Germany, UK. Italian islands, we are talking about a ���7 billion market in 24 for the CPS for migration, so tense times 10 times bigger than general. No, I see that. That's a lot. How do you think this will impact buyers and sellers in the upcoming months or even years? Well, on the one hand, the users have to to tackle the topics like Jenny, I like ESD or others for migration. And by the way in these three areas we are missing resources across the geography, so meaning onshore in Europe, in the US, in Japan, but also for offshore. So there is a big issue. There, and it means that the war for talent, for hiring, for keeping developing resources will be very strong in these areas. On the other, given the tough economic environment, the need to to save cause the pressure on budgets and companies will have to prioritize their investments so to postpone some projects, to reduce some project scope, to stretch some projects over a longer time frame. And by the way, this is this will not be limited only to the topics that mentioned before customer engagement and cloud. It will affect also all the IT investments, so they will have to. Wear ties. And this will happen in all industries. I mean, public sector is probably less impacted in most countries, but even these pensions very fast. We just saw that in Germany a few days ago with the announcement of a massive budget freeze in public sector. Admitted. To illustrate this, many companies used to plan a big transformation, a process transformation, Greenfield. As for migration, when going to S4, the lack of time, the lack of money will force many of them to just make a technical migration, what we call a lift and shift. Thank you very much for sharing all these valuable insights with us, Christopher. You're welcome, Lisa.