CT-ISG
15.7.2024 10:01:28 CEST | Business Wire | Press release
Europe’s IT and business services market grew only slightly in the second quarter, as slowing demand for managed services largely offset a sharp rise in spending on cloud-based services, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.
The EMEA ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows ACV for the combined market (both managed services and cloud-based as-a-service) rose 1 percent, to US $7.7 billion, in the second quarter. Since bottoming out in the third quarter of last year, the combined market has grown sequentially for three straight quarters to reach its second-highest quarterly ACV ever in Q2.
“Having rebounded from the trough of last year’s downturn, the European market is now on a slow growth trajectory, with sluggish demand for managed services impeding overall growth,” said Steve Hall, president, ISG EMEA. “Cost optimization remains the primary driver of managed services demand, while decision-making on new initiatives continues to be slowed by macroeconomic and geopolitical uncertainty.”
Second-Quarter Results by Segment
Managed services ACV in the second quarter dipped 8 percent, to US $4.0 billion, but rose 3 percent sequentially from a weaker first quarter. A total of 295 managed services contracts were signed in the quarter, up 20 percent from the prior year. Among those contracts were four mega deals (ACV of US $100 million or more), compared with five signed in the second quarter last year. The volume of smaller deals under US $10 million rose 38 percent year on year.
Within managed services, IT outsourcing (ITO) rose 7 percent, to US $3.3 billion, driven by strong growth in bundled infrastructure and application development and maintenance (ADM) services, which offset declines in ADM-only and data center services.
Business process outsourcing (BPO), meanwhile, slumped 45 percent, to US $692 million, as all BPO segments showed declines, especially customer engagement and facilities management services.
By industry, managed services ACV was higher in retail (up 71 percent), manufacturing (up 50 percent) and media and telecom (up 41 percent), while BFSI, Europe’s largest industry for outsourcing, dropped 31 percent year on year, reflecting a higher-for-longer interest rate environment.
ACV in the as-a-service (XaaS) segment climbed 14 percent year on year, to US $3.7 billion, and has grown three straight quarters after hitting bottom in the third quarter of 2023.
Within this segment, infrastructure-as-a-service (IaaS) rose 22 percent, to US $2.7 billion, amid signs the cost-optimization cycle for cloud may be over, due in part to rising interest in data-fueled GenAI. Software-as-a-service (SaaS), meanwhile, was off 2 percent, to US $1.0 billion, as enterprises reduced licensing volume.
Geographic Performance
Although down 13 percent year on year, the region’s largest managed services market, the U.K., posted its sixth straight US $1 billion quarter with ACV in Q2 of US $1.3 billion. The DACH market (Germany, Austria and Switzerland), meanwhile, generated US $896 million of ACV, up 20 percent versus the prior year, its best quarter since the fourth quarter of 2022. Both France (down 12 percent) and the Nordics (down 18 percent) pulled back in the quarter.
First-Half Results
For the first half, combined market ACV rose 3 percent, to US $15.2 billion. Managed services, at US $7.9 billion, was down 3 percent, while XaaS, at US $7.3 billion, was up 11 percent versus the first half last year. A record 571 managed services contracts were signed in the half, up 5 percent, including six mega-deals, even with the prior year.
Within managed services, ITO was essentially flat (down 0.1 percent), at US $6.1 billion, while BPO declined 12 percent, to US $1.8 billion. On the cloud side, the IaaS market rose 15 percent, to US $5.2 billion, while the SaaS market rose 1 percent, to US $2.1 billion.
2024 Global Forecast
For the full year, ISG is forecasting 2 percent revenue growth for managed services, down 100 basis points from its April forecast, and 14 percent revenue growth for XaaS, down from its 15 percent growth forecast in April.
“Uncertainty persists in the IT and business services market, with no clear catalyst at the moment to push discretionary spending higher,” Hall said. “Activity in the important BFSI sector remains dampened, due to the higher-for-longer interest rate environment impacting the overall growth of the market. Enterprises in general continue to focus on cost optimization, and AI growth, while strong, is likely masking underlying weakness in the IT and business services industry.”
About the ISG Index™
The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 87 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media.
The 2Q24 Global ISG Index results were presented during a webcast today. To view a replay of the webcast and download presentation slides, visit this webpage.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including AI and automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.
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