STOCK TITAN

Global Spending on IT and Business Services Slowed in Q3, Though Demand Remains High, ISG Index™ Finds

Rhea-AI Impact
(Low)
Rhea-AI Sentiment
(Neutral)
Tags
Rhea-AI Summary

Information Services Group (NASDAQ: III) reports a slight decrease in global IT and business services spending for Q3 2022, marking the first year-over-year decline since Q4 2016. The total annual contract value (ACV) reached $23.2 billion, down 3% from the previous year. However, contract activity remains robust, with 661 managed services contracts signed, a 3% increase year-over-year. Despite these challenges, ISG maintains a growth forecast of 3.5% for managed services while reducing the XaaS forecast from 18% to 10.5% due to economic uncertainties.

Positive
  • 661 managed services contracts signed in Q3, up 3% year-over-year.
  • Total ACV for managed services reached $27.7 billion, up 6% for the year.
  • The XaaS segment showed an 11% year-to-date increase in ACV.
Negative
  • Q3 ACV for the combined market at $23.2 billion, down 3% year-over-year.
  • XaaS ACV declined 4% to $14.1 billion, marking the first down quarter since 2015.
  • Business process outsourcing (BPO) decreased by 10% to $2.3 billion.

Global combined market down for first time in a quarter since 2016

Contracting activity, however, remains at near record levels

ISG maintains full-year growth forecast for managed services, lowers XaaS forecast

STAMFORD, Conn.--(BUSINESS WIRE)-- Global spending on IT and business services pulled back slightly in the third quarter amid rising economic concerns, though the volume of contracts signed in the quarter remained near all-time highs, according to the latest state-of-the industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

Data from the ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show third-quarter ACV for the combined global market (both XaaS and managed services) at $23.2 billion, down 3 percent versus the prior year. It was the first year-over-year decline in a quarter for the broader market since the fourth quarter of 2016.

“Demand remains at an all-time high, but we are seeing some pullback in spending, as enterprises delay decision-making due to concerns about the economy,” said Steve Hall, president of ISG. “Companies are still invested in ongoing digital transformation but are going slower for now.”

Hall said ACV growth also was impacted by the strengthening U.S. dollar and difficult comparisons with the prior year as the market comes off record highs.

“We saw a period of sustained growth from the end of 2020 through the first quarter of 2022, but the comps are much tougher now,” said Hall. “There are definitely some headwinds in the market, but we remain optimistic on the overall deal flow.”

The ISG Index found a total of 661 managed services contracts were signed in the third quarter, up 3 percent versus the prior year. It was the second most contracts ever signed in a quarter and the fourth time in the last five quarters award volume has surpassed 600 contracts.

Among the awards this past quarter were three mega-deals – contracts worth more than $100 million per year – the lowest such quarterly volume in the last five years, which ISG attributes to timing issues.

Hall said providers are feeling pressure on their margins, due to rising inflation and higher labor costs in a tight labor market. “We do see pricing power for the most in-demand skill sets, but margins are falling for more commoditized services. This can be beneficial to enterprises looking to optimize their costs,” he said. “We see providers responding with more automation, more innovation and other productivity measures.”

Results by Segment

The cloud-based XaaS market saw its first down quarter since the beginning of 2015, with third-quarter ACV declining 4 percent versus the prior year, to $14.1 billion. At $10.5 billion, infrastructure-as-a-service (IaaS) was flat versus the prior year, while software-as-a-service (SaaS) declined 12 percent, to $3.6 billion.

Managed services spending, meanwhile, declined 1 percent, to $9.0 billion of ACV. This segment was buoyed by IT outsourcing (ITO), up 2 percent, to $6.8 billion, while business process outsourcing (BPO) slumped 10 percent, to $2.3 billion.

Year-to-Date Results

Combined market ACV for the first nine months rose 11.5 percent, to $71.8 billion. Managed services ACV reached $27.7 billion, up 6 percent, on record deal volume for the period – 1,992 contracts, up 11 percent. XaaS ACV came in at $44.1 billion, up 15 percent – the slowest growth rate for this period since ISG began tracking the market for cloud-based services in 2015.

“The slowdown in XaaS spending comes down to weaker demand for infrastructure services provided by China’s big four hyperscalers, which have been impacted by continuing lockdowns and the stronger U.S. dollar,” Hall said. “The big three hyperscalers in the U.S. – AWS, Azure and Google Cloud – continue to carry this segment, although we’re seeing growth slow slightly there as well.”

Hall said growth in SaaS spending has also slowed, despite strong demand in such areas as IT service management, HCM, analytics and business intelligence. ISG, he said, sees the potential for even more slowing, as companies grow more cautious about spending on big, complex implementations.

Managed services continues to be paced by record demand for application development and maintenance services, even as demand for infrastructure services remains down for the year. BPO recorded it best nine-month performance ever, led by industry-specific services, and demand for engineering services remained robust, particularly in Europe.

2022 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.

“Given current demand, we are maintaining our growth forecast for managed services at 3.5 percent for the year, but lowering our growth forecast for XaaS to 10.5 percent, from 18 percent last quarter,” Hall said.

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 (20 years), 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.

The 3Q22 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 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.

Press:

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 does ISG's Q3 2022 report indicate for the stock III?

ISG's Q3 2022 report indicates a 3% year-over-year decline in total ACV, impacting stock III.

How many contracts were signed in Q3 2022 by ISG?

In Q3 2022, ISG signed 661 managed services contracts, a 3% increase from the previous year.

What is ISG's updated forecast for XaaS growth?

ISG has lowered its growth forecast for XaaS from 18% to 10.5% due to economic uncertainties.

What are current challenges facing ISG according to the report?

ISG faces challenges including economic uncertainty, rising inflation, and labor costs affecting margins.

How did the global spending on IT services change in Q3 2022?

Global spending on IT services in Q3 2022 saw a slight pullback, marking the first decline since Q4 2016.

Information Services Group, Inc.

NASDAQ:III

III Rankings

III Latest News

III Stock Data

152.06M
48.89M
28.82%
61.76%
0.24%
Information Technology Services
Services-management Consulting Services
Link
United States of America
STAMFORD