Analyst Perspectives

Gartner Enters into Agreement to Acquire AMR Research, Inc.

In one of the biggest deals in recent years in the analyst industry, Gartner, Inc. (NYSE: IT) announced on December 1, 2009 that it has agreed to acquire AMR Research, Inc. for approximately $64 million in cash, subject to certain closing adjustments. With projected full year 2009 revenues of approximately $40 million, AMR Research is a leading research and advisory services firm serving supply chain management and IT professionals. The firm is recognized for its research focused on the intersection of business processes and technology for the supply chain professional.

According to Gartner’s press release:

“The acquisition of AMR Research is expected to expand Gartner's suite of research offerings and also complement its consulting and events businesses. Moreover, the addition of AMR Research’s experienced sales team should enhance Gartner's ability to further penetrate the vast market opportunity for syndicated research. The combination is also expected to drive operational efficiencies and cost savings.

Gene Hall, Gartner's chief executive officer, said, "AMR Research is an excellent strategic fit for Gartner. The firm is the market leader for research related to supply chain management, which is inextricably linked to IT and has become a central and growing issue for many organizations. We expect the acquisition to give us immediate presence in this market and the ability to generate substantial synergies by selling AMR Research products to Gartner clients and Gartner products to AMR Research clients. The addition of AMR Research’s team of approximately 40 research analysts and 45 sales executives should enable us to offer expanded resources to our clients and increase our opportunities for growth."

Tony Friscia, AMR Research’s chief executive officer, commented, “Gartner’s scale and worldwide distribution will enable AMR Research to sell its world-class products to a much larger client base than it ever could as an independent company. This transaction is a unique and exciting opportunity for AMR Research.”

Gartner intends to finance the acquisition through the use of cash on hand, as well as borrowings under the Company's existing line of credit. The transaction is subject to customary closing conditions and is expected to close later this month.

Gartner does not expect the acquisition of AMR Research to have a material impact on its 2009 financial results, but does expect it to be significantly accretive to its revenue, earnings and cash flow over time. On a reported GAAP basis, which includes the impact of estimated acquisition and integration related charges, the transaction is expected to be dilutive to income per share by ($0.11) - ($0.09) in 2010 and accretive to income per share by at least $0.01 - $0.04 in 2011. Excluding estimated acquisition and integration related charges, the transaction is expected to be modestly accretive to income per share in 2010 and add at least $0.04 - $0.06 to income per share in 2011. See "Non-GAAP Financial Measures" for a discussion of income per share, excluding estimated acquisition and integration charges. The Company will provide additional information on the transaction on its fourth quarter 2009 earnings conference call.”

Use this link to access the press release on Gartner’s site.

Gartner’s 2010 IT Spending Predictions

Its nearing the end of the 2009, so that means it’s time for Gartner’s 2010 IT Spending predictions! I just received my email from Gartner this morning and have already downloaded the free report. Here’s the messaging from their email:

“As the most severe economic recession in generations gives way to growth, you need to help position your organization to take advantage of a recovering economy. Successful companies are anticipating and innovating rather than reacting and following. And IT investments must support the right initiatives. Want to know what your peers are planning for 2010? Get your complimentary copy of Gartner Perspective: IT Spending 2010. This must-read report will give you the world's most comprehensive perspective on IT spending benchmarks, forecasts, budgeting and more.”

Use this link to go to the registration page for the download.

Forrester Research’s Third-Quarter and Nine-Month Financial Results

Forrester announced their third-quarter and nine-month financial results on October 29, 2009. Total revenue for the quarter were off $5.6 million from the third quarter of last year and net income declined $2.1 million (a 30% decline). For the first nine months, total revenue was down $6.1 million and net income declined $7 million (a 34.8% decline).

Despite the showing, George F. Colony, Forrester's chairman of the board and chief executive officer stated "Given the sluggish economy, we are pleased with Forrester's third-quarter performance. Deferred revenue was down at September 30, 2009, as expected; but client and dollar retention increased from last quarter, and our pro forma net income indicates that our expense control efforts are working. Overall, our results exceeded our guidance. As a result we are tightening our revenue range and raising our pro forma operating margin and diluted earnings per share guidance for the full year of 2009."

Looking ahead, Forrester provided new guidance for the fourth quarter and full-year:

Fourth Quarter 2009 (GAAP)

• Total revenues of approximately $58 million to $61 million.
• Operating margin of approximately 13% to 15%.
• Other income of approximately $500,000.
• An effective tax rate of 40 percent.

Full-Year 2009 (GAAP):

• Total revenues of approximately $230 million to $233 million.
• Operating margin of approximately 13% to 14%.
• Other income of approximately $2.7 million.
• An effective tax rate of 44 percent.
• Diluted earnings per share of approximately $0.80 to $0.87.

I had the opportunity to listen to their earning report the morning of the 29th. Here are some other interesting bits gathered from the presentations:

• 3^rd quarter research services declined 4% and accounted for 68% of total revenue
• 3^rd quarter demand for consulting declined 20%.
• Leadeship board – over 1,000 members
• Events business challenging but profitable for the remainder of the year.
• Contract Value - $183 million – a 15% decline
• Retention rate – up 1% to 72%
• 2512 clients – first increase in client count since Q3 2008
• Customers remain cautious – renewing at lower levels
• Headcount – 960 - down from 974 end of second quarter. 372 research, 315 sales

Nine months:

• Research services increased as a percentage of total revenue – a goal for the firm
• Cash on hand - $208 million – no debt
• Accounts receivable payments improving – less payments beyond 90 days

George Colony comments:

• Economy – The US economy is stabilizing and showing signs of turnaround. Europe is about 6 months behind in turnaround.
• Customers are “cautiously optimistic”.
• Tech Market will grow by 4% in 2010.
• Marketing spending – large companies will reduce budget by 20% in 2009. CMO is in full-blown cost-cutting mode, but spending on new channels is increasing
• Marketing and IT spending will increase modestly in 2010. Don’t expect return to 2008 levels until 2011.
• Forrester’s goal is to increase syndicated research revenue to 70% of total revenue
• Goal has been to keep Forrester’s headcount flat, but will be hiring 10-20 new sales people in the fourth quarter to get a jump on next year’s revenue goals.
• Role-based transition. Events now targeted at roles. As a result, attendance down but satisfaction increasing – up by 8% this year
• Continuing to focus on vertical markets. Key verticals for Forrester include:
• • Financial Services
  • Media & Entertainment
  • Consumer Products
  • Retail
  • Government>
  • Travel
  • Healthcare
  • Manufacturing
• Forrester’s team that is evaluating mergers and acquisitions is very busy. Forrester attributes this to two major reasons:
• • Economy – Financial stress is making companies more willing to deal. Some smaller firms are “running out of cash”.
  • Potential sellers are concerned that US capital gains taxes will increase in 2010, so they are more interested in trying to conclude a deal in 2009.

From the Q&A session:

• 40% of Forrester’s business activity is in fourth quarter>
• Competitive environment – A lot more stress on smaller players. At Gartner and CEB its been “business as usual for the quarter”.

To read the entire earning release, use this link.

To listen to the earnings announcement teleconference, use this link

Forrester Research To Broadcast Third-Quarter Earnings Conference Call Via Internet

Forrester Research, Inc. will broadcast its third-quarter results conference call on the Web at 11:00 a.m. Eastern time on Thursday, October 29, 2009.

The call will be available at www.forrester.com. Investors who want to hear the call should log in to www.forrester.com at least 15 minutes prior to the event's broadcast. Participants may preregister for the call at https://www.theconferencingservice.com/prereg/key.process?key=PAD3HA7TL

Gartner's Magic Quadrant in court

There is a very interesting blog post by Alex Handy on the SD (Software Development) Times web site. The post talks about a lawsuit brought by ZL Technologies against Gartner, claiming that Gartner only included its clients in its Magic Quadrants. The blogger gives a fairly balanced view of the issue, and it’s definitely worth a read.

Another new post on the same subject by Michael Krigsman at ZDNet - Gartner Magic Quadrant lawsuit: Sour grapes or real gripes?

Editor’s note: I personally do not believe that Gartner only includes its clients in the Magic Quadrants. Since being included in a Magic Quadrant is based in part on a company’s ability to execute and support a solution, it will always tend to favor large, well established companies (exactly the type of companies that make up a large portion of Gartner’s customer base). Maybe it’s time for Gartner to come up with a variation on the Magic Quadrant that features up-and-coming firms. This would help the smaller firms and quell some of the incessant debate about Gartner playing favorites…

Gartner analyst rants about his “integrity as an analyst”

Kudos to Gartner, Inc. (NYSE:IT), analyst Thomas Bittman who starts off his October 8^th blog post with “As an analyst at Gartner, I can’t describe how angry I get when I read bloggers spouting as “fact” their opinion that I and my teammates have no integrity. That we can be “bought.” In my 14+ years at Gartner, I have never, ever allowed a vendor to influence my opinion with anything but facts. Period. They have certainly tried to influence me with non-facts. I can say this definitively – it has never worked.”

Thomas’ “Rant” as he calls it is terrific – and much more believable than official statements from Gartner’s “Office of the Ombudsman” (nothing against the Office – I know it serves a valuable purpose). I believe that we need more analysts to step-up and clearly state as individuals that they “can’t be bought”. I particularly liked Thomas’s statement that “at Gartner, getting yelled at by a CEO is a badge of honor. Being proven right as time goes on – priceless.”

To read Thomas’ entire well-written and passionate post, use this link.

Gartner to Report Third Quarter 2009 Financial Results on October 30, 2009

Gartner, Inc. (NYSE:IT), will provide a webcast of its conference call to discuss its news release regarding the Company’s financial results for the third quarter 2009, which will be issued before the market opens on Friday, October 30, 2009.

The call and webcast are scheduled to begin at 10:00 a.m. eastern time on Friday, October 30, 2009. Listeners can access the webcast live on the Internet at http://investor.gartner.com

A replay of the webcast will be available for approximately 90 days following the call.

Why Do They Leave Forrester?

An interesting blog posts that looks at the top talent that has been leaving Forrester, including Ray Wang, Charlene Li, and most recently, Jeremiah Owyang. The article discusses how top talents “create their own brands”, and this makes it difficult to retain them.

Click here to read this post.

To read more about Jeremiah Owyang’s departure, click here.

A great related article “Why Jeremiah Owyang Is Leaving Forrester Research”, written by Marshall Kirkpatrick on August 21, 2009 for Read Write Web.

And yet another post on Owyang’s departure at The Enterprise System Spectator blog.

Gartner hype cycle v2.0 and analyst predictions

Gartner/analyst humor from the Technobble 2.0. blog….

Click on this link to view the cartoons.

Gartner’s Hype Cycle Indicators

You’ve probably heard about Gartner Hype Cycle – but do you know what it is? Check out this chart that shows the Hype Cycle Indicators.