Brexit, Trump and the end of Obamacare – all good news for Atos it seems

SUMMARY:

The Brexit vote and Trump’s election were two major upheavals on a global scale, but for French services provider Atos, it’s a case of finding the best way to create opportunities out of the uncertainties.

Thierry Breton

The world is currently facing big changes and uncertainties in term of economy, border control, currency evolution, and, of course, technological breakthroughs.

So says Thierry Breton, CEO of French services giant Atos. Looking at the events of the past 12 months, the Brexit vote in the UK and the election of Donald Trump as US President are two elements that are obviously on the agenda of any international technology player, thanks to the uncertainties and controversies that both have triggered on a global scale.

Breton is an out-and-proud ‘good European’, noting that Atos in 2012 became one of the first Societas Europaea, a public limited-liability company regulated under European Union law:

I am myself, as a strong advocate of such European companies. I was appointed as Chairman of the Association of European Companies in Brussels, regrouping all those companies [into] having these [EU] by-laws and not any more their national by-laws.

In addition, we are a very close partner of the European Commission in many initiatives such as the European Cloud Partnership that I chaired a few years ago, together with the SAP CEO. We are also closely involved in all European technological initiatives, from cyber-security to high performance or quantum computing.

Not that this Europhilia is solely ideologically motivated. Breton bluntly states:

All of this makes us perfectly well-positioned to seize the increase up to 2% of every single European country of European GDP in defense and cyber-security. which is, by the way, what NATO requests now for all European countries.

Despite the pro-EU philosophy, Brexit doesn’t appear to be causing any particular concern at present, even though Breton observes that the UK is the third largest geography for Atos:

In the post Brexit context, the GDP growth now is expected to slow down. In that regard, Atos is really protected by a business model relying on multi-year contracts, as we are a long term partner of our British clients and, in particular, in the public and defense sector.

The Brexit process is expected to last, at least that is what is said, more than two years. But thanks to our low exposure to discretionary expenses and to the financial service sector, we expect to continue growing in this geography. As a long term partner of the public and defense sector, Atos, with its more than 10,000 UK engineers, is also perfectly well positioned to benefit from the large public investment program announced in the UK.

Trump and opportunity

Things might  at first be thought to be more complicated in the US, where the Trump commitment to America First and the ongoing uncertainties around offshoring and visas has caused concern to non-US providers of services and tech.

In this regard, the stated pride in Societas Europaea status is tempered by a desire to promote Atos’ US domestic credentials. Breton says:

We are deeply rooted locally to serve our large American clients with our mechanical engineers. We have more than doubled our staff on the American ground between 2013 and 2016 with almost 9,000 U.S. employees, probably making Atos the foreign IT services company which increased the most in 2016 employment. I am personally deeply involved in the US ecosystem, being a member of the Business Council, where CEOs of important US companies working in the US meet regularly.

This means, he adds, that Atos doesn’t consider restrictions in the H-1B or L1 visa schemes to be an issue, nor it seems is a threatened border tax:

Out of our 8,400 U.S. employees, only 151 are under H1B visa and 154 under L1 visa. The information, of course, are public for industry. Regarding the potential raise of the border tax in the US, I remind you that Atos in the US does not rely on massive off-shoring overall. Costs from India are less than 4% of U.S. revenue. Cost from Mexico is less than 2% of US revenue. And cost from the Philippines are less than 2% of US revenue. That means that our model is to serve our customers in the US from the US.

With what seems to be a ‘never waste a good crisis’ mindset, the commercial opportunism again becomes evident, when Breton adds:

All in all, if restriction of H1B and L1 visa materialize and if border-tax increases, Atos would benefit from this new environment.

This ‘opportunity from chaos’ thinking isn’t new. At a pre-US election analyst day event Breton was asked about the future of the US healthcare system. His response at the time, as he recalls, was to see win/win for Atos whatever the outcome of  the election, saying:

Either it’s somebody who will continue the Obamacare and it will be great news, [or] we will have to dis-install whatever we have done and it will be great news.

Now that Trump is in the White House and committed to tearing up Obamacare, it’s the second ‘great news’ option that’s come to the fore. The person tasked with tapping into whatever comes next is Michel Alain Proch. SEVP & CEO of Atos’ North America Operations, who says:

It’s true that the healthcare market is going to be affected by the Trump administration. For us, Atos seeks an opportunity, because for sure, Obamacare is going to be reformed. So either reform [or] repair, it’s too early to say, and I will not go there. But for sure things are going to change. [Systems will] need to be recoded, and it will be extra revenue for us.

As the man who will be leading Atos expansion in the US during the Trump administration, Proch reiterates his boss’s view that the firm is better placed than other non-US headquartered services providers, pointing again to the lack of employees using the H-1B visa scheme:

We have almost none of them in the U.S., in comparison to our competitor, because it’s not our model of development. We believe, actually, that it’s going to be the reverse. It’s going to bring us a competitive advantage, as some others will have to make some modification on their structure of course.

For its part, Atos in the US will be pushing harder into working in the government sector, he affirms:

We are positioning Atos as a federal player, and this is new, because in the past it was not the case. We have created a company called Atos Defecti…A new-generation 911 [emergency response system] is going to be the first offer we’re going to push through this new company, and obviously, it’s a very large market. We’re talking about the several billions of dollars, and obviously, it’s the beginning of this offer. As you all know, there’s a very large infrastructure program that is [being] launched in the US and we want to capture part of it.

My take

Life gives you lemons, make lemonade and other clichés. Breton’s commercial pragmatism around the opportunities that emerge from upheaval and change is to be admired, especially if you’re an Atos shareholder, even if sometimes it teeters perilously close to becoming an ‘I’m alright Jacques’ form of cynicism. The firm just turned in some excellent full year results for 2016. Let’s see if that continues in the new world order of 2017.

Image credit - Atos