Our Healthcare Technology WITCH report for Q2 2017 is out. You can download it here.

Technology services firms continued to face challenges last quarter in the healthcare sector – some more so than others. Cognizant and HCL posted strong results, Infosys turned the corner, and TCS maintained consistent growth. Wipro lagged behind its peers, weighed down by the performance of HPS, the 2016 acquisition that is now a troubled asset. The recent resignation of Infosys CEO Vishal Sikka may create some uncertainty in the near term for the company.

All the companies in our WITCH group, except Wipro, showed healthcare business growth at a rate higher than the company as a whole. Cognizant remains head and shoulders above the rest of the pack and has made some interesting moves this quarter, specifically the cloud-enablement of its Trizetto product portfolio. TCS has become more horizontally focused, creating a new Business and Technology Services group, ostensibly to offer the entire digital stack of offerings as a fully orchestrated end-to-end service for clients in an industry-agnostic manner.

Thematically, we see the following trends emerging:

– Automation is gaining momentum. Both Infosys and Wipro have quantified the impact of automation on FTE reduction. Infosys has highlighted its investments in AI technology, specifically the Nia platform.

– “Digital” is a major focus area: For Cognizant and TCS, digital is clearly driving margin growth. However, “digital” seems like a catch-all term that includes systems integration, cloud enablement, analytics, and more. All the companies we have covered have their own definition of “digital”. There is acknowledgment that “stand alone” digital projects tend to be smaller and one-off, with limited or no “run” component at the back end.

– Large outsourcing deals have become a commodity. Application services at the higher end of the value chain, such as systems integration, is driving growth for firms such as Accenture. Other aspects include legacy platform modernization and digital enablement.

– The infrastructure management business (IMS) which has driven a lot of the large deals flow in the past couple of years may be slowing down as clients review their long-term options, especially in the context of cloud migration. Companies like HCL that have traditionally been strong in the IMS business could see some uncertainty in the coming quarters.

– Regardless of the type of business, deal cycles seem to be getting longer in the U.S., as enterprises take their time to assess their investment options in an uncertain policy environment.

This quarter, we have included an analysis of the M&A transactions over the past year by the WITCH companies. The analysis provides some interesting insights into the valuation premiums paid and the impact on margins from the amortization of goodwill from these acquisitions.

There is also a listing of transactions announced by the major companies in our report since Jan 1, 2017, for those interested in competitor activity.

Once again, our research team (the WITCH doctors) has put together a report that provides deep insights into the state of the healthcare technology services markets as well as the relative performance of the companies in our coverage. This is a valuable reference document for technology executives in healthcare enterprises as well as technology solution providers with a strategic focus on healthcare. Anyone with interest in healthcare and technology services will find this extremely informative.

I invite you to share your comments and observations.

Paddy