Combined market down 3%, driven by an 8%
drop in managed services; XaaS up 1%
BFSI accounts for more than 70% of managed
services decline
Roiled by economic uncertainty, the Americas market for IT and
business services was down in the first quarter, extending the
region’s year-over-year decline to five straight quarters,
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 Americas ISG Index™, which measures commercial outsourcing
contracts with annual contract value (ACV) of $5 million or more,
shows first-quarter ACV for the combined market—including both
managed services and cloud-based as-a-service (XaaS)—was $12.1
billion, down 3 percent from a year ago. The rate of decline in Q1
slowed compared with the average 5.4 percent decline over the last
five quarters. Versus the fourth quarter of 2023, the combined
market was up 2 percent.
“The Americas continues to be impacted by economic and
geopolitical concerns, extending a market downturn here that began
in early 2022,” said Todd Lavieri, vice chairman and president of
ISG Americas and Asia Pacific. “The widespread expansion of
generative AI in the fall of 2023 also put a chill on large-scale
investments as clients worked through potential strategic
opportunities, while balancing those opportunities with current
needs. Amid the uncertainty, enterprises remain focused on
optimizing their existing investments across their IT portfolio. We
saw discretionary projects being delayed and spending on those
projects being stretched out in Q1.”
Lavieri said ISG expects the market for IT and business services
to improve in 2024. “We are cautiously optimistic that companies
will increase their spending on IT and business services later this
year. Investments in cloud computing are starting to grow again,
partially due to rising interest in generative AI and the data
needed to train the large language models that support this
powerful new technology.”
Q1 Results by Segment
The managed services segment generated first-quarter ACV of $5.1
billion, down 8 percent from the prior year and down 7 percent from
the prior quarter. Contract volume rose 2 percent, to 367
contracts, the third highest quarterly volume ever for the
Americas. Two mega deals (contracts with ACV of $100 million or
more) were awarded in the quarter, the lowest number since the
third quarter of 2022.
The ACV of both new scope (down 9 percent) and restructured
contracts (down 5 percent) fell this quarter, while the number of
smaller contracts (those with ACV of $30 million or less) rose 2.5
percent, bucking a downward trend in other regions.
By industry, ACV in the banking, financial services and
insurance (BFSI) sector was down 18 percent, accounting for more
than 70 percent of the region’s decline in overall managed services
ACV this quarter. Other large industries fared better, with ACV in
healthcare/pharmaceuticals and manufacturing both gaining more than
2 percent in the quarter. Other industries, such as energy and
travel, transport and leisure, saw double-digit increases in ACV,
although off smaller bases.
Within managed services, IT Outsourcing (ITO) ACV rose 1
percent, to $3.4 billion, driven by strong growth in bundled
infrastructure and application development and maintenance (ADM)
services, offset by sharp declines in areas such as data center and
end user computing services. Business processing outsourcing (BPO)
ACV, meanwhile, fell 22 percent, to $1.7 billion. Contact center
and industry-specific services were off sharply, partially offset
by growth in finance and accounting (FAO), engineering and supply
chain services.
ACV for XaaS was up 1 percent, to $7.1 billion, breaking a
four-quarter string of declining year-over-year results to reach an
ACV total not seen since the fourth quarter of 2022. It was also
the second straight quarter this segment saw sequentially improving
results.
Within this segment, ACV for infrastructure-as-a-service (IaaS)
was up 2 percent versus the prior year, to $4.6 billion, while
software-as-a-service (SaaS) was flat, at $2.5 billion.
2024 Global Forecast
ISG is forecasting 3 percent growth for managed services, down
125 basis points from its January forecast, and maintaining its
forecast of 15 percent revenue growth for XaaS in 2024.
“Looking ahead to the rest of the year, economic conditions are
forecasted to be less volatile than in 2023, but challenges
persist,” Lavieri said. “Clients remain focused on quality of
service, innovative customer experiences, IT security and costs.
Global competitiveness continues to be a challenge especially in an
environment where interest rates remain elevated from the previous
cycle.
“Outsourcing could see a boost as companies seek to balance cost
management and service quality. GenAI, meanwhile, is poised to be a
growth catalyst, with large hyperscalers expected to manage
increasing workloads. The data layer, integral for training AI
models, presents a prime opportunity for service providers.”
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 86 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 1Q23 Global ISG Index results were presented during a
webcast on April 11. 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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version on businesswire.com: https://www.businesswire.com/news/home/20240416206792/en/
Press Contacts: Will Thoretz, ISG +1 203 517 3119
will.thoretz@isg-one.com
Julianna Sheridan, Matter Communications for ISG +1 978-518-4520
isg@matternow.com
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