How Brazilian software giant Totvs promises to make profits in IoT

How Brazilian software giant Totvs promises to make profits in IoT

Latin America’s largest software group, Totvs of Brazil, believes it can position itself as a competitive player in the Internet of Things and Industry 4.0 by leveraging its ERP and the evolving 5G ecosystem.

“ERP is the great source for this information. When you look at 5G, which enables IoT and other applications, investing in telemetry becomes more relevant,” CEO Dennis Herszkowicz (pictured) told BNamericas.

Team-ups with IoT providers are the key to such a strategy.

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“Of course, hardware is not our business. But if you think about partnerships, it’s a possibility. In the specific context of manufacturing customers, this is [IoT] is a super hot topic that we have at the company right now,” said Herszkowicz, speaking to BNamericas during Totvs’ annual event in São Paulo.

Totvs has around 70,000 companies in its customer base, excluding micro-enterprises and customers of RD Station, which was bought for 2 billion reais ($398 million) in 2021.

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The CEO sees a positive outlook for Totvs’ business, despite less favorable macroeconomic conditions and the recent downturn faced by tech companies both globally and locally.

Totvs reported net sales of 946 million reais in the first quarter, up 33.8% year-on-year, and is on track to deliver strong results for the rest of the year, according to Herszkowicz.

“In the real world, at least in terms of the companies that are our customers and prospects, the situation is looking better than the headlines have shown,” he said in reference to news of layoffs and lower assets in the tech world.

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“Of course, like any other industry, technology will suffer if the crisis reaches recessionary proportions. If you have a severe recession in the US and an ongoing situation in Ukraine, you can have some kind of influence.”

In recent years, the gap between Brazilian companies’ investments in technology and companies in developed markets has widened, Herszkowicz said, in a context where digital and consumer transformations have been thriving.

“When the pandemic hit, that gap became apparent. Now there is a rush that I don’t think will abate, not with the crisis, not with high interest rates. Businesses now understand that technology is the primary answer to most of their challenges, whether they are opportunities or threats.”

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Totvs’ main customers are companies with an annual turnover of 30-500 million reais, although the software group has many customers below and above this threshold.

According to an annual study by FGV, one of the country’s largest think tanks and business schools, Germany’s SAP with Totvs tops the Brazilian ERP market with a 33% share each, while Oracle holds 11%.

However, among the smaller companies (with up to 180 “keyboards”), Totvs leads with a 47% market share, followed by SAP at 13% and Oracle at 6%. Conversely, SAP leads with a 50% share versus Totvs at 19% and Oracle at 17% among large companies.

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For midsize companies (181-800 keyboards), Totvs led with a 35% share versus 37% in the previous survey, while SAP had 32% and Oracle 11%.

Herszkowicz sees problems with FGV’s methodology, arguing that the universe of companies surveyed is misrepresented and largely focused on larger companies.

“But our focus is not and will not be the top of the pyramid. It is a strategic decision made many years ago. We work at the top of the pyramid, we have hundreds or maybe thousands of clients who have an income of more than 1 billion reais. From the companies listed on the Brazilian Stock Exchange [B3], about a third are customers of some Totvs products. So yes, we have an important presence, but that’s not a focus for us.”

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According to Herszkowicz, Totvs’ expansion strategy focuses on four pillars: strengthening the core management software niche, enhancing the solution offering for industries, increasing cross-selling for customers, and expanding business performance and financial technology portfolio.

FINANCIAL SERVICES

In the field of financial solutions or techfin, Herszkowicz sees good opportunities for the joint venture established in 2021 with B3, known as Dimensa.

Since going live last year, the unit has made three acquisitions. It is also being prepared for a future IPO when Dimensa’s size and market conditions are a better fit for that offering, he said.

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Dimensa’s M&A pipeline includes companies of different sizes and segments and at different negotiation stages.

The CEO did not provide details on those talks, but said the core banking segment is a key focus for Dimensa to expand its portfolio of financial solutions.

For Dimensa and Totvs in particular, the lower valuation of tech companies is actually a good thing. It helps with acquisition opportunities on various business fronts, he said. “My concern is whether the asset price is good.”

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