Wang Global is oozing self-confidence right now. Despite a fall-off in investor confidence since its March 1998 acquisition of Olivetti’s Olsy services arm, the $3bn network and desktop services vendor says it now has the infrastructure and offerings to beat even some of its larger rivals.
The company has come a long way since its days as Wang Laboratories when it was a leading supplier in the once lucrative minicomputer market. Having survived bankruptcy, the company slowly reinvented itself as an IT services vendor, first in network maintenance and now with a full complement of network services, that also includes design/consultancy and implementation.
It aims to become the world’s leading global networked technology services and solutions company, an ambition which the company believes is achievable given the fragmentation in the wider IT services market. Whether the company can actually achieve this remains to be seen. However, its clearly defined strategy, strong partnerships and global reach should give it a chance to become one of the leading players in its niche. The Olsy acquisition has greatly increased the company’s chances of it achieving its goal. It now has over 20,000 employees in more than 40 countries. Of these, some 12,000 are customer/managed service professionals and another 3,000 are professional services consultants. Geographically, the Americas have the largest number of employees at 9,500, with 8,500 in the EMEA region. Asia/Pacific adds a further 2,000.
The EMEA region is now Wang Global’s main market, generating around $1.8bn, followed by the Americas at $1.1bn, then Asia/Pacific on $400m. Wang Global has over 250 customers with contracts valued at more than $1m a year, making up around 60% of the company’s total revenues. Around 90% of Wang Global’s EMEA revenues are attributable to Olsy.
Wang Global’s philosophy is a simple one: to help migrate mid-sized multinational companies (around 1,000 desktops) away from the heterogeneous – and expensive – network and desktop environments of today to a custom-built solution based on a standardized common operating environment centered on an Intel/Microsoft platform and Cisco networking technologies. Together with a full range of support services, or ‘common support environment’, this streamlining allows Wang Global to claim what it calls a significant reduction in total cost of ownership (TCO) for its customers’ IT.
This mission has also allowed the comapny to streamline its own operations. Rather than needing to enter partnership arrangements, the company has been able to forge only select, and mutually beneficial, partnerships with Dell Computer Corporation (1996), Cisco Systems (May 1997) and Microsoft (March 1998). As well as using only Cisco and Dell hardware to implement its solutions, both exclusively sell Wang Global’s services with their respective products. The company is also building a 2,500 strong team of Microsoft certified consultants (although this partnership is no doubt fueled by Microsoft’s 8% stake in the company) cementing its vested interests in seeing NT installed as the preferred operating system in the mid-sized market where Wang is strongest. However, to make migration possible Wang Global continues to support over 3,500 products from 350 vendors.
On the face of it, Wang Global appears to have positioned itself well strategically in the increasingly competitive IT services market. For one thing, it has resisted the temptation to spread itself too thin by offering an exhaustive range of services to numerous vertical markets and across all technologies. For another, it has chosen to compete in an extremely fragmented sector of IT services in which there is currently no runaway market leader. Although Wang Global currently only has around 1% of this market, according to some analyst estimates, the top 12 players in this market space combined only have an 18% share of the total market. Even market leader IBM Global Services only has around 4% of a market currently valued at $150bn and growing at around 15% per year.
Before the Olsy deal, Wang Laboratories (as it then was) was a $1.3bn operation. Afterwards it had swelled by an extra $2.2bn. But while Olsy gave Wang a global presence and a new name, the integration of a business almost double its size has not been wholly painless. For one thing, Olsy was not known for running a particularly tight operation and had proved expensive to maintain. While Wang Global was itself prepared for the complications, the $380m integration costs involved in absorbing Olsy have eroded the company’s earnings, dragging its stock price down and leaving investors wondering when the deal will have a positive impact on Wang Global’s bottom line.
But the company’s problems may not be restricted to Wall Street. Having chosen to restrict its operations to network and desktop services, Wang Global now faces the prospect of competing head-to-head with other services vendors who may have more to offer. For instance, in addition to the types of service Wang can provide, service giants such as IBM Global Services and EDS can also deliver enterprise services such as datacenter outsourcing and application integration. Wang also has to compete with hardware vendors such as HP and IBM that can leverage their PC and server businesses to generate pull-through service revenues.
Wang Global accepts this but says it has won around 40% of proposals in the last eight quarters and points to continued revenue growth (despite negative charges) over this time. Despite this, it is not going to sit still. Preparations are under way to extend the breadth of its offerings by greatly extending its remote desktop and network services while also adding application services for a range of Microsoft NT-based products, for instance for e-commerce. There are no plans, however, to extend its services to the wider enterprise offerings of the type provided by IBM Global Services.
To facilitate growth it intends to pursue further its established acquisition strategy. The company plans to make some smaller strategic acquisitions to bolster its desktop and networking practices, especially within France and Germany, two territories where Wang Global feels it is currently under-represented. However, the company is taking its time in lining up targets as it feels that prices are currently too high to make acquisitions on an accelerated basis.
In terms of revenue, one company estimate expects Wang Global to be able to maintain growth of around 15%-20% a year over the next two years with a large proportion of this attributable to increasing business from Dell customers requiring additional services. Business attributable to Dell sales is expected to rise 30%-40% per annum for the next two years.
Another company estimate predicts sales of $2bn in the US, $2bn in Europe and $0.5bn in Asia Pacific during the next financial year. By the close of 1999, Wang Global will have completed its planned 3,100 reduction in headcount and fully absorbed the Olsy network and systems integration business. It will also have accounted for the bulk of the integration charges having written off $155m in 1998 and $155m in 1999, leaving $70m to absorb in 2000. The company is also aiming towards returning to the 22%-23% gross margin levels it had been regularly delivering pre-Olsy and believes that will also happen next year.
