Spark opens the books on its IT and managed services business

Spark opens the books on its IT and managed services business

IT and managed services accounted for roughly a third of total group revenues.

Credit: Supplied

Major telco Spark this morning briefed investors on its IT and managed services business, shining light on the group's previously opaque financials.

The presentation revealed IT and managed services accounted for roughly a third of total group revenues, or around $1.1 billion.

Broken down, cloud revenue was $225 million, security $37 million, service management $158 million, procurement and partners $407 million, collaboration $65 million and managed data and networks $212 million.

Asked whether Spark would invest more in data centres in the future given the shift to cloud services, Spark said that would depend on the outcomes from an infrastructure review which had already been announced and was expected to report in August.

However, customer director Grant McBeath said not all workloads would move to public cloud and customers would continue to require hybrid capabilities. Spark, therefore, would remain "agnostic".

Tessa Tierney, product director, said despite existing and emerging competition, government was a particular market of strength for Spark and the company was confident of maintaining that.

The IT and managed services market revenue was valued at a total of around $6 billion, Spark said, and was expected to grow at compound annual rate of 4 per cent to 6 per cent through to 2023 as businesses rapidly digitised and shifted to the cloud, spurred in part by the impacts of COVID-19.

Spark, however, expected its own IT and managed services revenues to grow at a 5 per cent to 10 per cent over the same period, "supporting top line revenue growth and creating long term value for shareholders".

"Spark is uniquely positioned in the market to deliver end to end products and services, leveraging market leading capability across cloud, security and service management," Spark told investors.

"Spark’s growing IT and managed services offering is supported by a highly valuable infrastructure asset portfolio, which is unique in the NZ market, difficult for competitors to replicate, and a potential driver of additional future value."

Among the assets the company said set it apart from competitors were the scale of the company's relationships, the strength of its brand, its valuable infrastructure portfolio, exposure to growing market segments and the supportive global and local trend towards business digitisation.

Spark's analysis of its IT and managed services market share by segment.Credit: Supplied
Spark's analysis of its IT and managed services market share by segment.

Spark said businesses were digitising at pace before COVID-19 but this trend had accelerated. By 2025, 80 per cent of enterprises globally will migrate entirely away from on-premise digital storage, moving to colocation or cloud.

Demand for managed and professional services was also growing as customers look to trusted advisors who could support their transitions.

"We expect the majority of market growth will come from the cloud market, with strong growth in both public cloud and the services that support customers’ digital transformations," Spark told shareholders.

"There will be pricing pressure across IaaS [infrastructure-as-a-service] and co-location, but this will be offset by opportunities for continued revenue growth across this portfolio as the majority of New Zealand businesses are yet to transition to the cloud, with only 25 per cent to 30 per cent having currently moved."

Legacy managed data markets would decline as customers moved to new and cheaper technologies, but growth in networking was expected to offset that.

Spark said it was the only domestic operator who could provide end to end IT and managed services that incorporated connectivity and mobility. 

"We are best placed to help businesses manage this transformation to the cloud and to continue providing managed and professional services on the other side of it," the telco said.

"We differentiate by bringing together the best of our services, utilising our infrastructure assets, and partner offers, combining these with a local service layer that is not replicated."

Investments in 5G, edge compute, network slicing and IoT would also create new use cases and revenue and margin growth opportunities.

While the organic growth pipeline and demand for cloud services was attracting hyperscale cloud operators such as Microsoft and AWS to the New Zealand market, Spark said it could manage that risk through focusing on its end to end product and service portfolio beyond cloud to enable the delivery of smart solutions.

It would also provide support and services onshore where its customers live, work and do business.

Spark was also partnering with hyperscalers to bring customers the best of public and private cloud through hybrid offerings.

The company was also collaborating with NZ businesses to design and deliver next generation technology innovation and supporting the digital transformation of SMEs to get their businesses online.

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