Managed services down 1% in Q1, while
cloud-based XaaS down 11% vs. prior year
Managed services improvement seen vs. Q4,
with ACV up 12%, deal volume up 6%
Demand for IT and business services in the Americas declined 7
percent in the first quarter versus the prior year, but was up
slightly from the fourth quarter, 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
as-a-service (XaaS) and managed services—at $12.5 billion, down 7
percent, the steepest year-over-year drop for the region since ISG
began tracking the combined market in 2015. Sequentially, the
Americas combined market was up 0.3 percent, ending a string of
three straight quarters of declining results since the market
peaked in the first quarter of 2022.
“Enterprise spending on outsourcing rebounded somewhat in the
first quarter from Q4 but remains below its post-pandemic peak in
Q1 last year, as companies focus on optimizing their current
environments,” said Todd Lavieri, ISG vice chairman and president
of ISG Americas and Asia Pacific. “We saw six mega-deals—those
valued at $100 million or more annually—in the first quarter and
the beginnings of what may be a rebound in 2023.”
Managed services ACV declined 1 percent versus the prior year,
but was up 12 percent against the fourth quarter, to $5.2 billion.
A total of 354 managed services contracts were signed during the
quarter, down 9 percent from the market peak in the first quarter
last year, but up 6 percent from the fourth quarter.
The Americas saw its the second-highest deal volume ever in Q1.
Market activity was driven by restructured contracts (renewals and
extensions), which made up more than $2 billion in ACV, and new
scope awards, at more than $3 billion. “The volume and value of new
scope awards is an indication that continuous digital
transformation remains alive and well,” Lavieri said. “Companies
must continue to advance the ball when it comes to customer
experience and operational efficiency.”
Within managed services, IT outsourcing, at $3.2 billion of ACV,
was flat with the prior year, but up 2 percent versus the fourth
quarter, while business process outsourcing, at $2.1 billion, was
down 3 percent from the prior year but up 32 percent over the
fourth quarter, driven by growth in engineering, research and
development and human capital management services.
Demand for cloud-based XaaS solutions, at $7.3 billion of ACV,
declined 11 percent from the prior year, its sharpest quarterly
drop ever, and 7 percent versus the fourth quarter. The market has
declined sequentially for four straight quarters, and the rate of
decline is accelerating, as clients focus on optimizing their
existing cloud environments rather than add new workloads.
Cloud-based infrastructure-as-a-service declined 14 percent
versus the prior year, to $4.9 billion, while software-as-a-service
dropped 6 percent, to $2.4 billion.
2023 Global Forecast
ISG lowered its forecast for global XaaS growth in 2023 to 15
percent, down 200 basis points from its January forecast, and
maintained its global growth forecast for managed services at 5
percent.
“The macro-economic environment remains uncertain, with interest
rates, inflation and trouble in the banking sector topping concerns
for enterprise clients,” said Lavieri. “There continues to be more
scrutiny on deal signings to ensure price and value are at market
levels, and discretionary spending is down. Enterprises are
revisiting cost optimization, efficiency gains and vendor
consolidation.”
ISG said industry attrition has stabilized and the firm expects
hiring to improve in the back half of the year. The decline in XaaS
bookings is expected to last through the second quarter, with
demand picking up again in the second half, ISG 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 82 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. 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 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 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/20230418005841/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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