Here is a very positive article that everyone should read:
Tech Prepares For A Push South Of Its Border
By Steven J. Stark
Investor's Business Daily
If there is a downside to the boom times at Montreal-based CGI Group Inc. - the largest
Canadian-owned information technology outsourcing company - it's that three-fourths of the company's
revenue comes from Canada.
Don't expect that to last. The company's strategy is to increase business from the United States to
30% by 2002 and 50% by 2005, says Serge Godin, CGI's co-founder and chief executive. It's currently
at 18%.
"That means we are focusing and giving priority to merging with another company in the U.S.," said
Godin, whose company has experienced 23 consecutive years of revenue growth.
CGI took a step in that direction earlier this year by acquiring DRT Systems International from Deloitte
Consulting, doubling its revenue and tripling its staff in the United States.
Ralph Garcea, analyst at Scotia Capital Inc. in Toronto, says CGI's deal with DRT could help it land
other contracts with U.S. financial service companies. Garcea says CGI is looking at several U.S.
companies - public and private - to acquire.
"Right now, CGI's backlog of signed contracts is $5 billion, and we expect them to announce another
$3 billion in long-term deals in the next 30 to 60 days," Garcea said.
"They'll look to consolidate some of the smaller outsourcers," he said. "The beauty with their strategy in
Canada is they have coast-to-coast data center infrastructure. In the U.S. now, they have the
infrastructure in Northeast."
Garcea said one company ripe for a deal with CGI is SBC Communications Inc.
"The reason I say that is if you look at AT&T, they've partnered with IBM. MCI (WorldCom Inc.) has
partnered with EDS (Electronic Data Systems). Both those deals are worth about $1 billion a year,"
Garcea said. "And just from a competitive standpoint, there's only one outsourcer in North America
comparable with SBC, and that's CGI."
Alex Baluta, analyst at Merrill Lynch in Toronto, agrees the challenge for CGI is to expand into the
United States.
"For them to grow, they just can't rely on Canada," Baluta said. "It's about generating real revenue
growth and winning contracts south of the border head-to-head with the other players. So far, they
haven't done that. It's not to say they can't, but they have yet to prove they can."
Baluta says CGI's backing from BCE Inc., the holding company for Bell Canada, is one of its great
strengths. BCE owns 45% of CGI.
"It gives them credibility, scale, opportunity for future contracts," Baluta said. "From a growth
perspective, it'll be easier for them to grow compared with some of their (U.S.) competitors."
CGI also is thinking globally. In October, the company and two partners, IBM and Portugal-based
Case, signed a 10-year, $1 billion data processing pact with Portugal Telecom.
Godin said the most important event in the company's growth was switching from short-term contracts
to long-term contracts. Today, 75% of CGI's business comes from long-term outsourcing contracts.
For fiscal year 1999 ended Sept. 30, CGI had $1.4 billion in revenue compared with $741 million for
1998. Earnings were 63 cents a share for 1999 compared with 30 cents the prior year. The company
trades as GIB near 35.
CGI has signed long-term contracts worth $5 billion, Godin says. He notes that the company's sheer
size makes a big difference in its success toward winning large contracts.
"We have a full range of services, critical mass," he said. "A company with $500 million a year in
outsourcing is not going to award its outsourcing to a $100 million-a-year company."
Are there are any warning signs ahead for CGI?
"I am asked this question quite often and we don't see any problems," said Godin. "There is no risk,
because the backlog we have is there, it's signed and we are highly confident."
Joseph Vejvoda, analyst at National Bank Financial in Toronto, says that globally, CGI is not the
biggest technology outsourcer - EDS is 15 to 20 times larger - but CGI reached the $1 billion sales
mark faster.
"They have forecast to us that their revenue will be $4 billion by 2002," Vejvoda said. "Can they
maintain the momentum? Yes, absolutely."
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