Fujitsu and Kaz set the trend for more consolidation

Industry players agree Fujitsu’s acquisition of Kaz is a positive move for the services company.

Industry players agree Fujitsu’s acquisition of Kaz is a positive move for the services company and could set the trend for further consolidation this year.

Last week, Fujitsu acquired Telstra IT services subsidiary, Kaz, for $200 million in an effort to expand its customer base, skills and national footprint and make it Australia’s third-largest IT company by revenue.

Data#3 CEO, John Grant, said the acquisition offered a signifcant repositioning for Fujitsu in Canberra, but remained unconvinced it would have a significant affect on the market, customers or competitors.

“It could have some impact over time, but it’s uncertain at the moment,” he said. “It will be up to the new owners to make more mileage out of Kaz than the previous owners did.

“The Kaz business inside Telstra had a pretty uncomfortable life.”

Grant said the cultural fi t of a data company inside a telco organisation had been proven difficult to achieve.

“When Kaz was acquired by Telstra, I think the strategic significance seemed to be very important for a broad range of services, delivered through one organisation and ultimately delivered one bill to the customer. It was very compelling proposition and I think this demonstrates that didn’t work,” he said. Datacom CEO, Michael Browne, saw the Fujitsu/Kaz deal as another level of consolidation in the market. “From a Fujitsu perspective, I can see the value in such an arrangement for them. It gives them a different level of scale and presence in Federal Government,” he said. “I don’t think it’s going to change the competitive landscape from a Datacom perspective.”

Kaz, as a competitive force in the market, had less presence than it did two years ago, Browne said.

“I don’t think it has really removed a competitor, it has just consolidated some existing workload and skill sets,” he said. Browne believed more industry consolidation was yet to come.

“A lot of organisations that are heavily reliant on commodity-type margins are the ones likely feeling a great deal of pressure at the moment,” he said. UXC Business Solutions managing director, Cris Nicolli, added an acquisition of this scale could set the trend for further consolidation.

“I suppose it’s all around the availability of funding, which is not quite as available as it was a year ago,” he said. Nicolli saw the acquisition as a good fi t for Fujitsu, but was disappointed to see an Australian company swallowed up by a multinational. “From a customer perspective, it could be quite good with the combination of two strong companies aligning,” he said. “It presents an opportunity for the Australian IT players like ASG, Oakton and ourselves, because Kaz can no longer claim to be an Australian company. It’s now part of a multinational effectively and it might present clients with a different set of thinking.”

Both Fujitsu and Kaz are IBM partners.

IBM director of global business partners, Andrew Baker, saw the potential to realise some of the great business success it experienced with Kaz under Fujitsu’sleadership. Intermedium head of consulting, Kevin Noonan, pointed out one market Fujitsu had trouble gaining traction was within Federal Government, an area Kaz has been successful in.

“There are some good synergies there. Fujitsu picks up a chunk of market it has been missing out on and Kaz has been languishing of late because really Telstra saw that infrastructure side of the business as non-strategic for it, whereas it’s quite strategic for Fujitsu,” he said.

Despite the slowdown in government spending over the last 12 months, Noonan added the services market in Canberra was the most profi table for IT.

“The challenge for Fujitsu is to see this as a strategic relationship that will pay off in the medium- to long-term,” he said.

Gartner analyst, Rolf Jester, said the acquisition provided some clarity and certainty to Kaz customers on the future of the company.

“The reason it gives them certainty is that Fujitsu is in the business of IT services,” he said. “There’s a good fi t with the Kaz operation – that was uncertain under the Telstra ownership for sometime.

“What you’ve got now is a fairly broad and capable IT services organisation, that has a solid home and investor, strong management and a strategy that, at the international level, has been emphasised as a focus on global IT services.”

Jester said the acquisition represented a healthy competitive environment. “It’s the sort of competition that’s going to keep people on their toes as far as quality of service is concerned and fair pricing,” he said. “For the providers, system integrators and outsourcers, it just strengthens one of their competitors.”