Annual value of managed services contracts falls to €2
billion, down more than €900 million from previous
quarter;
Concerns about recession, Brexit, trade and tariff wars lead
to cautious spending in EMEA, even as global spending on
outsourcing rose 13% year on year in Q3;
Companies divided on whether to invest for growth or focus on
cutting costs; majority of investment in digital and cloud
LONDON, Oct. 21, 2019 /PRNewswire/ -- The annual
value of Europe's managed services
contracts dropped by more than €900 million sequentially in the
third quarter amid recession fears that tempered spending on
technology services, the latest state-of-the-industry report from
Information Services Group (ISG) (Nasdaq: III), a leading global
technology research and advisory firm, shows.
The EMEA ISG Index™, which measures commercial outsourcing
contracts with annual contract value (ACV) of €4.5 million (₤3.9
million) or more, found the ACV of the region's managed services
contracts in the third quarter declined 31 percent, or €910 million
(₤792 million), quarter over quarter, to €2 billion (₤1.8 billion).
Compared with the 2018 third quarter, managed services ACV was down
17 percent.
At the same time, demand for cloud-based as-a-service solutions
rose 10 percent year over year, to a record €1.6 billion (₤1.4
billion), but the increase was not enough to offset the slowdown in
managed services spending. Overall, the combined EMEA market was
down 7 percent, to €3.7 billion (₤3.2 billion).
The ISG Index noted that while global spending on technology and
business services is increasing (combined market ACV in the third
quarter rose 13 percent on record demand for as-as-service
solutions, particularly in the Infrastructure-as-a-Service space),
concerns in Europe about
recession, Brexit and trade wars mean companies remain extremely
cautious about spending. ACV in each of the region's three largest
markets – UK, DACH and France –
was down by double digits in the third quarter compared with the
prior year. The number of contracts awarded in EMEA during the
quarter was down 11 percent, to its lowest level in more than two
years.
Companies, however, continue to invest in cloud-based services
and digital transformation projects, particularly in the retail
sector, where 62 percent of overall spend is for as-a-service
solutions. For the sixth consecutive quarter, the ACV of
as-a-service contracts in EMEA exceeded €1.3 billion (₤1.1
billion). Year to date, as-a-service accounted for 39 percent of
combined ACV, compared with just 20 percent three years ago. But at
10 percent this quarter, growth still lags behind the Americas and
Asia Pacific, which saw
as-a-service gains of 26 percent and 14 percent, respectively, this
quarter.
Market Performance
Year to date, managed services ACV in the UK and Ireland decreased 4 percent, from €2.2 billion
(₤1.9 billion) to €2.1 billion (₤1.8 billion), a relatively modest
decline as companies appear to have shrugged off much of the
ongoing uncertainty around Brexit. However, as the Brexit deadline
neared, ACV in the third quarter was down 11 percent compared with
the prior year, and down 27 percent compared to this year's second
quarter. The biggest impact on the UK outsourcing market was
that of Brexit-related uncertainty on the performance of the pound
sterling, which means UK businesses may wait for the market to
settle before deciding on a strategic direction.
DACH was the worst hit overall, with ACV down 24.5 percent, from
€2.5 billion (₤2.2 billion) to €1.9 billion (₤1.6 billion) year to
date compared with the same period last year. ACV in the third
quarter was down 36 percent compared with the prior year, but up 31
percent quarter on quarter this year. The lack of growth is largely
associated with the manufacturing industry, which was impacted by
fines and legal action resulting from the VW emissions issue, and
trade wars impacting German exports, which affects overall GDP.
However, the ISG Index notes real opportunity in the DACH market
as German multinationals embrace the cloud (Germany was relatively late compared to other
markets here, because of questions of security and privacy) and
begin to adopt as-a-service solutions in greater numbers.
France, while down 23 percent
in the third quarter compared with last year, has seen overall
growth for the year-to-date period compared with the same
period last year, with ACV up 29.3 percent, from €540 million (₤467
million) to €698 million (₤603 million).
Steve Hall, partner and
president, EMEA, ISG, said: "Political and trade issues are
contributing to a mixed stance on technology spending, with
enterprises largely split on investing for growth or leveraging
technology for cost reduction through 2020. Many technology
providers remain cautiously optimistic regarding their pipelines
and the demand environment. In the near term, providers will be
watchful of external factors that could impact customers and their
decision to spend."
Global Forecast
ISG is projecting 22 percent year-on-year ACV growth for the
remainder of 2019 in the as-a-service market. "We are casting a
watchful eye on continued U.S. trade talks with China and how technology firms look to cope
with demand issues if China
becomes more restrictive in its approach with U.S. firms," Hall
said.
"In the overall IT and business services market, we are also
taking a more conservative perspective by lowering our forecast
more than 50 basis points to 2.6 percent for the remainder of
2019. This takes into account FX headwinds due to the strong
U.S. dollar and possible top-line softness by a few of the largest
providers in the sector."
About the ISG Index™
Now in its 68th consecutive quarter, the ISG Index™ provides a
quarterly review of the latest sourcing industry data and trends
for financial analysts, enterprise buyers, software and service
providers, law firms, academia and the media. For 17 years, it has
been the authoritative source for marketplace intelligence related
to outsourcing transaction structures and terms, industry adoption,
geographic prevalence and service provider performance. In 2016,
the ISG Index™ was expanded to include coverage of the fast-growing
as-as-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.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading
global technology research and advisory firm. A trusted business
partner to more than 700 clients, including more than 70 of the top
100 enterprises in the world, 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.
Logo -
https://mma.prnewswire.com/media/454165/ISG_Logo.jpg