Demand for IT, Business Services in the Americas Slows Amid Rising Economic Concerns, ISG Index™ Finds

Rhea-AI Summary

Information Services Group (Nasdaq: III) reports a 1% year-over-year increase in third-quarter annual contract value (ACV) for the Americas' IT services, totaling $12.4 billion, but a 2% sequential decline. While demand for XaaS solutions remains strong, it has slowed from prior highs, achieving $7.9 billion in ACV, up 9% year-over-year but down 2% sequentially. Managed services revenue fell 11% year-over-year to $4.5 billion. ISG maintains a 3.5% growth forecast for managed services but lowers its XaaS forecast from 18% to 10.5%.

Positive

• Year-to-date ACV in the Americas reached $38.2 billion, up 19% year-over-year.
• Managed services ACV rose 5% to $14.1 billion, with contract volume at 1,017 awards, the highest ever.
• Despite economic challenges, cloud-based solutions saw strong demand, particularly in the IaaS segment which grew 20%.

Negative

• Overall ACV decreased 2% sequentially from Q2.
• XaaS segment ACV dropped 2% sequentially; growth rate dropped from an average of 41% to 9% year-over-year.
• Managed services segment reported an 11% decline in ACV year-over-year.

Combined market up 1% in Q3, but down 2% sequentially

ISG maintains 2022 global growth forecast for managed services, lowers XaaS forecast

STAMFORD, Conn.--(BUSINESS WIRE)-- Demand for IT and business services in the Americas appears to be slowing amid rising economic concerns, the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, finds.

The Americas ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, shows third-quarter ACV for the combined market—including both as-a-service (XaaS) and managed services—came in at $12.4 billion, up 1 percent from a year ago, but down 2 percent sequentially from the second quarter.

“After a period of breakout growth, we are seeing clear signs of a market slowdown in the Americas as enterprises reduce, reprioritize or delay spending on IT and business services in response to the challenging economic climate,” said Todd Lavieri, vice chairman and president of ISG Americas and Asia Pacific. “Despite the economic headwinds, digital transformation remains a business imperative. Companies will continue to invest in digital transformation and business optimization, albeit at a slower pace for now.”

Lavieri said enterprise focus is shifting toward using technology to optimize costs and improve operating efficiency. “Enterprises are looking to both optimize their current technology spend, while also using technology as a lever to drive further cost savings to help offset rising costs elsewhere,” he said.

Demand for cloud-based solutions in the Americas was the strongest of the three regions measured by the ISG Index, although growth has slowed from its recent highs. XaaS ACV, at $7.9 billion, was up 9 percent in the third quarter versus the prior year, but down 2 percent from the previous quarter. Quarterly growth had been averaging 41 percent over the last five quarters.

Within the XaaS segment, infrastructure-as-a-service (IaaS) rose 20 percent, to $5.6 billion, but was flat sequentially. Software-as-a-service (SaaS), meanwhile, was down 11 percent, to $2.3 billion.

The managed services segment also was down for the quarter, off 11 percent from the prior year, at $4.5 billion, and flat sequentially. Within managed services, IT outsourcing (ITO) was down 14 percent year over year, to $3.15 billion, and business process outsourcing (BPO) was down 3 percent, to $1.35 billion.

Contract volume, likewise, was down for the quarter, off 3 percent, to 327 deals signed. It was the seventh consecutive quarter that managed services contract volume exceeded 300 awards, a sign of “healthy” demand, ISG said.

Year-to-Date Results

Through the first nine months of 2022, the Americas’ combined market generated $38.2 billion of ACV, up 19 percent over the like period last year. Managed services ACV rose 5 percent, to $14.1 billion, on 1,017 awards, up 8 percent. It was the highest level of ACV and contract volume ever for the Americas through nine months. The XaaS market, meanwhile, generated ACV of $24.1 billion, up 29 percent, and now accounts for 63 percent of the combined market in the Americas, up 5 percentage points from the same period last year.

2022 Global Forecast

ISG sees economic uncertainty caused by rising interest rates, energy shortages, supply chain disruptions and continuing inflation dampening enterprise demand in the near term. The firm maintained its growth forecast for managed services at 3.5 percent for the year, and lowered its forecast for XaaS to 10.5 percent, down from 18 percent in the prior quarter.

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 80 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. In 2016, the ISG Index was expanded to include coverage of the fast-growing as-a-service market, measuring the significant impact cloud-based services are having on digital business transformation. ISG also provides ongoing analysis of automation and other digital technologies in its quarterly ISG Index presentations. For more information about the ISG Index, 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 800 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 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 1,300 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221018005833/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

Source: Information Services Group, Inc.

FAQ

What are the Q3 2022 results for Information Services Group (III)?

For Q3 2022, Information Services Group reported a total annual contract value (ACV) of $12.4 billion, a 1% increase year-over-year but a 2% decrease sequentially.

How has demand for XaaS changed in Q3 2022 according to ISG?

In Q3 2022, XaaS ACV reached $7.9 billion, up 9% year-over-year but down 2% sequentially, indicating a slowdown in growth.

What is ISG's forecast for managed services and XaaS for 2022?

ISG maintains a growth forecast of 3.5% for managed services and has lowered its forecast for XaaS from 18% to 10.5%.

What is the annual contract value (ACV) for managed services in Q3 2022?

The managed services segment reported an ACV of $4.5 billion in Q3 2022, an 11% decline from the prior year.

How many contracts were signed in Q3 2022?

In Q3 2022, 327 contracts were signed, marking a 3% decline in contract volume.