System Integrators Gain As IT Seeks to Contain Costs

Revenue and Employees are Up

By John P. Desmond

The software industry continues to grow, and system integration firms are leading the charge, benefitting from a trend of companies cutting IT costs and consolidating data centers, according to the 27th Software 500 ranking of the world's largest software and services companies.

Total 2009 Software 500 revenue is $491.2 billion, an 8.7% increase over last year's total software and services revenue of $451.8 billion.

For the second consecutive year, System Integration Services/IT Consulting outnumbers all other primary business sectors, based on performance in 2008, with 39 companies selecting the category.

The total number of employees in the Software 500 is up a healthy 26% to 3,707,957, compared to 2,953,016 in last year's ranking, which was based on employees in 2007, a year many companies were cutting costs and conserving cash. The big increase in 2009 is primarily due to the addition of Hitachi to the list, with 389,752 employees, and Emerson Electric, with 140,700 employees. Emerson, ranked No. 76, is a manufacturing conglomerate with software and services revenue of $744.1 million.

The top three companies changed this year, but only because Hewlett-Packard Co. acquired EDS. IBM is No. 1 again, its software and services revenue up 9.2% from the previous year to reach $81 billion. Microsoft is No. 2, with revenue up 17% to $52.3 billion. Hewlett-Packard is No. 3, with its revenue up 34% to $25.4 billion.

In employee terms, IBM is by far the largest employer, with 438,080 employees at the end of 2008, the ranking year. Hitachi is second with 389,752 employees, and HP is third with 321,000 employees. (Where the Jobs Are - Top Employees and Employee Growth by Sector)

This year's Software 500 sees 116 companies new (or returning) to the list. The public/private company breakdown is 56% public and 44% private.

Number one in revenue per employee is Innodata Isogen, Inc., ranked No. 236, with $1.7 million per employee. Next is Lighthouse Computer Services, No. 197, which reached $1.3 million per employee. ePlus, Inc., No. 78, takes third place with $1.1 million per employee.

R&D spending as a percentage of revenue is an important indicator of whether a software company is investing in the future and in making life easier for its customers. Leaders in R&D spending include ANTs Software, spending 80% of its $8.3 million on research, and MindTree, spending 61% of its $189 million in revenue on research.

Early-stage companies tend to spend more on R&D to develop products needed to establish a market position, but when well-established companies are contributing a healthy percentage, it's a strong indicator of commitment to keeping pace with technology. Examples include: operating system player Phoenix Technologies, founded in 1979, spending 40% of revenue on R&D; SYSPRO, seller of ERP software founded in 1978, spending 40% on R&D; SAS Institute, business intelligence supplier founded in 1976, spending 24% on R&D; and Oracle Corp., supplier of database and application software founded in 1977, spending 12% on R&D.

Average R&D spending for the 2009 Software 500 is 10.4%.

Acquisitions continued at a fast pace, with Oracle Corp. especially active. Oracle's acquisitions in 2008 included: BEA Systems, in enterprise middleware; Primavera, a project and portfolio management player; Skywire Software and AdminServer in the insurance segment; Advanced Visual Technology in retail; Global Knowledge Software and Haley in business applications; Captovation and Tacit Software in content management; and ClearApp and the e-Test product suite from Empirix in systems management.

Revenue Growth Leaders
Number one among companies growing the fastest at over $1 billion in revenue is the Information Systems segment of Lockheed Martin Corp., which grew its revenue a healthy 76% on the strength of government contract work for defense and other agencies. The company is ranked No. 9 in this year's survey.

Next is McKesson Corp., No. 31, which grew revenue 63% on the strength of its healthcare services offerings. In very recent news, McKesson announced an expansion of its partnership with the Centers for Disease Control and Prevention for distribution of the H1N1 flu vaccine. This effort to distribute the vaccine to up to 90,000 sites this fall is the largest public health initiative in the CDC's history.

Third in growth among companies over $1 billion is Research in Motion, Ltd., No. 53, which grew 49%. The company makes the wireless Blackberry, which is holding its own in the intelligent device market. (See Leaders in Software Revenue Growth Above $100M)

In companies with $100 million to $1 billion in sales, the growth leader is Endeca Technologies, at No. 207, with growth of 631%. The search and information access software player with a hot product started 2008 on a fast pace and never let up, winning some multi-million dollar deals and many new customers.

Second in this category is healthcare software provider iSOFT Group Ltd., showing growth of 383%, due in part to the incorporation of products from its 2007 merger with IBA Health Group into the iSOFT product line and brand. The company launched new products in 2008 and gained a number of new customers.

Third in this category is Google, No. 82, with 268% growth. The company reported software and services revenue of $667 million, about 3% of its total revenue of $21.8 billion. HOV Services Ltd., No. 163, is fourth with growth of 249%. A business process outsourcing provider, the company had several big contract wins in healthcare.

In companies from $50 million to $100 million in revenue, Opera Software, No. 225, developer of the Opera Web browser, is the leader with growth of 66%. Founded as a research project in 1994 inside Norwegian telecom company Telenor, Opera expanded partnerships aggressively in 2008. Next, Fiberlink Communications Corp., No. 255, with its "Mobility as a Service" positioning, saw growth of 64%. Third leader in the category is Longtop Financial Technologies, No. 258, with growth of 61%. Longtop focuses on the IT needs of financial institutions in China; it is the first Chinese software company to be listed on the New York Stock Exchange.

Among companies in the $30 million to $50 million revenue range, Sabrix, No. 308, is the leader with growth of 782%. Offering transaction tax management for companies of all sizes, the company benefitted from companies outsourcing their sales tax and use tax compliance management in 2008. Greenway Medical Technologies, No. 293, is next with growth of 189%. The company provides on-demand services for physician offices, hospitals, and other medical offices. Third leader in the category, Absolute Software Corp., No. 285, grew at a 111% rate. The company aids in the recovery of lost and stolen computers and other intelligent devices.  (See chart.)

The growth leader among companies in the $10 million to $30 million revenue range is IonIdea, No. 405, with 420% growth. Its offerings include strategic consulting, outsourcing, enterprise software engineering, commercial product engineering, and software testing. Next, Environmental Support Solutions, No. 327, grew at a 339% rate. The company provides environmental health, safety, and crisis management software. Third in the category is Statera, No. 309, growing at 150%. Statera's products help map business strategy and goals to IT initiatives. (See Leaders in Software/Services Revenue Growth Below $30M chart)

Among companies in the $5 million to $10 million range, the leader is ANTs Software, No. 459, which grew at a 2,203% clip. The company's products help data centers consolidate hardware and software to lower costs and improve efficiencies. The firm finalized the acquisition of Inventa Technologies, a professional services firm, in June 2008.

Next, Steelwedge Software, No. 468, saw growth of 153%. The firm's products support sales force effectiveness. Third in the category is The Sant Corp., No. 453, showing growth of 85%. The company offers products supporting sales proposals and RFPs; the company's customers report an increase in sales win rates. Next is Iasta, No. 478, growing at 74%. Iasta offers supply management products focused on spend management. and Software/Services Revenue Growth.

Software Company Business Sector Trends
Indicative of the pressure on IT to cut costs, leading systems integration firm HP downsized its internal IT staff by 50% through an aggressive, multi-year effort.

The Infrastructure/Network/Performance Management sector was second most-cited, with 27 firms included.

Business sectors increasing their numbers this year are Software as a Service, Business Process Management, Outsourcing Services, and Financial Applications.

System Integration Services/IT Consulting
Accenture, No. 4, saw 19% revenue growth; its application outsourcing and application development services are gaining.

Among the standouts is Mahindra Satyam, No. 40, headquartered in Qutubullapur Mandal, India, growing at 46%. The firm's first offshore customer was well-respected IT company John Deere & Company in 1991. In 1999, Mahindra was assessed at SEI CMM Level 5, the highest level of process maturity of that model, which is awarded to few organizations. Mahindra set up operations in Guangzhou, China in 2006, acquired UK firm Nitor Global Solutions in 2007, acquired Chicago-based Bridge Strategy Group in 2008, and is now winning business in countries all over the world.

Other growth leaders in the category include: NTT Data, 41%; Tata Consultancy, 39%; 22nd Century Technologies, 37%; and Infosys, 35%.

Vertical Industry/Government Applications
Ranked after category leader Lockheed Martin is Synopsys, No. 50, showing growth of 10% to reach $1.3 billion in revenue.

Highlight performers in the category include DemandTec, No. 251, a retail and consumer product software supplier with 41% growth. The firm's Software-as-a-Service platform spans functional areas of price, promotion, assortment, space, and marketing. Customers include Office Depot, General Mills, RadioShack, Kraft Foods, and Safeway.

Other growth leaders in the category include: Constellation Software, No. 118, 36% growth; Sword Group, No. 127, 23% growth; Tyler Technologies, No. 148, 25% growth; Guidance Software, No. 224, 16% growth; Bullhorn, No. 355, 43% growth; Construction Software Technologies, No. 364, 34% growth; and OmniComm Systems, No. 482, 69% growth.

Infrastructure/Network/Performance Management
Category leader CA, No. 21, saw a 9% increase in revenue.

Notable performers include NetQoS, No. 257, the supplier of network performance management products supporting application service and quality, with 26% growth. The company celebrated its 10th anniversary and won customer No. 1,000 in April 2009. Customers include Carnegie Mellon and Harvard Universities in education, Procter & Gamble and Revlon in manufacturing, IBM Global Services and SAIC among IT service providers, and CBS Television Network and Turner Broadcasting System in media.

Other growth leaders in the category include: Juniper Networks, No. 27, 26%; F5 Networks, No. 85, 24%; MindTree, No. 166, 39%; NetScout Systems, No. 175, 65%; SolarWinds, No. 222, 51%; InfoVista, No. 246, 30%; and AmberPoint, No. 435, 64%.

Outsourcing Services
The category leader is CSC, No. 6, showing 11% growth to reach $16.5 billion.

High achievers in this segment include BPO Management Services, No. 316, with 71% growth. BPO seeks to support back-office functions of mid-market-size companies with applications including human resources, information technology, enterprise content management, and healthcare, all areas where the firm has made acquisitions. The rationale is that the company can lower the cost of these services for its customer companies by spreading the cost over the BPO customer base. BPO was founded in 2005.

Other growth leaders in the category include: HCL Technologies, No. 44, 42%; Sonata Software, No. 113, 78%; Syntel, No. 119, 16%; Headstrong, No. 181, 40%; IBA Group, No. 254, 16%; SaM Solutions, No. 357, 34%; and Innominds Software, No. 462, 35%.

Application Development/Testing/Lifecycle Tools
Category leader Dassault Systemes, No. 42, saw revenues increase 14% to reach approximately $2 billion.

Notables in the segment include DeviceAnywhere, No. 391, whose products focus on testing applications for mobile devices, with 129% growth. The firm's test center provides, on a Software-as-a-Service basis, the ability to connect to more than 2,000 intelligent devices via a global network spanning seven countries. Customers include handset manufacturers Motorola and Nokia, Web companies Facebook and MySpace, media companies HBO and MTV, and platform companies Garmin and Jupiter Systems.

Other growth leaders in the category include: Mastek, No. 153, 23%; EPAM Systems, No. 180, 41%; NetSol Technologies, No. 287, 25%; DefenseWeb Technologies, No. 330, 99%; Unify Corp., No. 353, 75%; iTransition Software Development, No. 409, 59%; Trigent Software, No. 463, 33%; and New Generation Software, No. 493, 30%.

Security Tools/Systems
Category leader Symantec, No. 16, grew at a 13% clip to reach $5.9 billion.

Strong performers in the category include Lumension Security, No. 261, with 30% growth. The company includes IT outsourcing among security threats it protects against. Lumension also offers products for vulnerability management, endpoint protection, data protection, compliance, and IT risk management. Most recently, the firm has extended security to mobile devices running Microsoft Windows, with features including blocking of malware from removable storage and the ability to wipe out all information stored on the device remotely.

Other growth leaders in the category include: Gemalto, No 36, 13%; McAfee, No. 49, 21%; Trend Micro, No. 58, 16%; Websense, No. 131, 40%; F-Secure, No. 177, 25%; ArcSight, No. 213, 45%; Sourcefire, No. 235, 36%; and Fiberlink Communications, No. 255, 64%.

Financial Applications
Fiserv,Inc., No. 24, leads this group with 27% growth to reach $3.9 billion.

Sabrix, No. 308, stands out in this category with 782% growth. The transaction tax management software supplier gained a record number of new customers in 2008, ranging from small startups to companies bringing in hundreds of millions of dollars in revenue. Some of those new customers opted to use Sabrix Tax Management Service, an outsourced sales and use tax service, to keep up with compliance requirements in the slow economy.

Other growth leaders in the category include: Intuit, No. 30, 15%; Fidessa Group, No. 115, 30%; Advent Software, No. 142, 23%; S1 Corp., No. 170, 15%; NetSuite, No. 184, 41%; COA Solutions, No. 204, 17%; and True Automation, No. 439, 66%.

Enterprise Resource Planning (ERP)
Category leader SunGard Data Systems, No. 17, grew 15% to reach $5.5 billion.

No. 103, Epicor Software, was a notable achiever with growth of 8%. Analysts at Gartner put Epicor in the visionary category of its Magic Quadrant for Midmarket and Tier 2-Oriented ERP for product-centric companies. Epicor's customers in manufacturing include Symetrics Industries, Arizona Correctional Industries, Ultra Machining Company, and Blackstone Medical. Epicor is also finding success in the retail sector with customers including Barnes & Noble, Famous Footwear, and Sport Chalet.

Other ERP growth leaders include: The Sage Group, No. 35, 12%; Jack Henry & Associates, No. 84, 13%; IFS, No. 111, 10%; and Fundtech Ltd., No. 196, 16%.

Oct2009, Software Magazine