Global Spending on IT and Business Services Slowed in Q3, Though Demand Remains High, ISG Index™ Finds
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
- 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.
- 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
Data from the ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of
“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
Hall said ACV growth also was impacted by the strengthening
“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
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
Managed services spending, meanwhile, declined 1 percent, to
Year-to-Date Results
Combined market ACV for the first nine months rose 11.5 percent, to
“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
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
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
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