Digital business and IBM – IoT (Internet of Things) to lead Persistent Systems next wave of growth.
Persistent Systems is the first IT Company which started operations at Software Technology Park (STP), Pune and first company to export from STP in India. Microsoft became the customer of the company during its first year of operations and relationship which continuous still has been the key strength of the Persistent to acquire customers in its early years. Dr. Anand Deshpande Founder, Chairman&MD of Persistent Systems has been the brain behind company’s evolution in the last two and half decades. Company has pursued different strategy compared to other IT players by focusing on product engineering services. Management’s ability to identify and invest in emerging trends has helped the company to evolve as strong player in the IT industry.
Persistent was among the very few companies to identify the digital disruption in the Industry. From 2009 itself company has started making strategic investments in SMAC (Social, mobile, Analytics and Cloud) technologies. This early investments in digital technologies has helped the company to with stand against current structural down turn faced by many industry players. Company’s business mix can be broadly categorized as Services (72% of revenue) and IP led (28% Revenue) businesses. IP led segment contribution has increased significantly in the last four years from 17% in FY13 to 28% in Q2FY17. From Q1 FY17 company has strategized its business into four key verticals – Services, Digital, Alliance and Accelerite. This helps company to have clear focus on top line as well as bottom line.
Services: Core business of the company
Over the last 25 years, the Company has worked closely with customers to deliver products across all aspects of the product lifecycle. Company provides customers product engineering services, joint product development with revenue-share models and sell with and professional services based partnerships. This is very sticky business as the products need continuous upgrade every time. It has decade long relationship with large customers like Microsoft, IBM, Salesforce, Intel, Appian and etc. The relationship with global industry leaders helped the company to foresee the key trends. Company provides product engineering services to more than 300+ customers.
Digital: Next major wave of the IT Industry
To succeed, enterprises must become software-driven. They must transform their processes and set-up infrastructure and systems which can be deployed at speed and scale. As part of this business, company’s focus has been on building pre-built solutions upfront and trying to drive transformational experiences in the enterprises that it is working with. A large part of the unit’s work has been in working with company’s digital platform partners like Salesforce, Appian, Oracle, Apigee, and increasingly bigger ones like Google and Amazon probably in the next few quarters.
To partner with enterprises, company has chosen couple of verticals like healthcare, telecom and media, financial services where it has built domain knowledge over the years. A lot of these customers are looking for a long-term strategic partner who can come and help them innovate and help them create new revenue models or help them change the cost structure. With go to market strategy with its customers and strong technical capabilities, Persistent is well positioned to capture the opportunity that arises from these digital technologies. The revenue from these digital component has stood at 15% for Q2FY17 and this is expected to increase to 20% in coming two years.
Alliance: Billion dollar opportunity from IBM Watson IoT alliance
Alliance business is predominantly lead by the business that company has across all parts of IBM. In March 2016, IBM has made alliance with Persistent to take over the engineering responsibility for its IBM Watson product suite. This spans many IBM products and technologies including the cognitive technologies in IBM Watson, Watson IoT and BlueMix as well as IBM products for Continuous Engineering and Lifecycle Management; and a number of business management and functional applications in the IBM portfolio. This alliance strengthens company’s relationship with IBM, its largest customer.
As IBM Watson is the among the top global leaders in Artificial Intelligence, Internet of Things and cognitive technologies, persistent will leverage this platform to capture the billion dollar opportunities that arises from these technologies. The vision for these products is compelling as “things” will reconfigure themselves in the field, and will monitor, measure and share their parameters with the global cloud in real-time. With sophisticated algorithms that are part of the Watson analytics platform, customers will be able to optimize the performance of these devices in the context of millions of other objects (things) in the field.
Company made revenue share agreement with IBM for its IoT alliance. Management expects this alliance to add 15% additional growth in FY17 on the base of FY16 revenues. There will be a margin pressure as major investments in this business are front loaded. Company is building separate team for this alliance by which employee costs will increase substantially. The initial revenue contribution from this segment would be around $50m per annum. The revenue contribution from this segment is around 29% for Q2 FY17, which will increase substantially in the coming years.
Accelerite: Own Product Solutions
Persistent Systems has established Accelerite as the product brand for the Company. Accelerite is a provider of cloud solutions, endpoint management and mobility to some of largest enterprises in the world. Company provides services for many products that over time become non-strategic to customers. Accelerite compliments the leadership of Persistent in product development services, with a business model to take-over such non-strategic products. Accelerite is positioned as a Silicon Valley based Product Company. This is unique and different from outsourcing by a services firm, or a private equity take-over, motivated by financial engineering and not product engineering. During FY16, products brand made two strategically important acquisitions — Aepona from Intel and CloudPlatform from Citrix. These two products, along with the Radia End-Point client management product which it acquired from HP a couple of years back, are the mainstay of the Accelerite business and IP portfolio. The revenue contribution from this segment is 8.8% in Q2 FY17. The inorganic opportunities will drive the growth for this segment.
While majority of the industry players suffering from lack of growth, Persistent Systems has set the right stage for its next leg of growth. The same can be seen from its superior growth rates in the latest quarterly results. We believe that Persistent will be among the top companies in the next industry up cycle.