Region sees mixed results in Q1 with managed
services up 62% and XaaS down 23% versus the prior year
Asia Pacific’s demand for IT and business services in the first
quarter bounced back from a weak fourth quarter but was still down
significantly from the prior year, 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 Asia Pacific ISG Index™, which measures commercial
outsourcing contracts with annual contract value (ACV) of US $5
million or more, shows first-quarter ACV for the combined market
(cloud-based XaaS and managed services) rose 4 percent sequentially
from the fourth quarter, to US $4.1 billion, but was down 14
percent versus the prior year.
“Asia Pacific had quite a run in 2021 and 2022, with six
straight quarters of ACV over US $4 billion, including one US $5
billion-plus quarter in Q4 2021, before dropping below the US $4
billion level last quarter,” said Scott Bertsch, partner and
regional leader, ISG Asia Pacific “It’s good to see the market
above $4 billion again, and to see the return of sequential growth
after four straight quarters of declining results.”
The cloud-based XaaS market grew 24 percent sequentially versus
the fourth quarter, to US $3.3 billion, but was down 23 percent
from a year ago. The reverse was true for managed services, with
ACV of $825 million up 62 percent versus the prior year, but down
37 percent from the fourth quarter.
In the XaaS space, infrastructure-as-a-service declined 24
percent versus the prior year, to US $2.9 billion, although it was
up 32 percent sequentially from the fourth quarter.
Software-as-a-service, meanwhile, declined 14 percent year on year,
to US $380 million, and was down 12 percent sequentially.
“The last three quarters have seen year-over-year declines in
cloud services ACV, with the last two dropping more 20 percent,
putting us in the middle of the biggest sustained decline the XaaS
segment has ever experienced in this region,” Bertsch said. “The
market appears to have bottomed out in Q4, so we expect to see
positive comps return soon.”
Bertsch said softening cloud demand in Asia Pacific can be
attributed, in part, to the Covid lockdown in China, which impacted
big providers like Alibaba, Tencent and Baidu. “These providers
have ceded market share to such players as China Telecom, China
Unicom and Huawei,” he noted.
Within managed services, IT outsourcing in the first quarter
soared 74 percent, to US $643 million, and business process
outsourcing climbed 32 percent, to US $182 million, both versus the
prior year. While the managed services market remains uneven
quarter to quarter, five of the last eight quarters have topped US
$800 million of ACV.
During the first quarter, 57 managed services contracts were
awarded, up 21 percent versus the prior year, but down sharply off
the record 97 awards made in the fourth quarter last year.
Geographic Performance
Australia and New Zealand (ANZ) generated US $483 million of
managed services ACV in the first quarter, its best quarterly
performance since the fourth quarter of 2021 and up triple digits
versus the prior year. India and South Asia was up 32 percent year
on year, posting its fourth straight quarter of managed services
ACV over $100 million, the first such streak since 2012. Meanwhile,
both Southeast Asia and Japan began the year with managed services
ACV down more than 25 percent each from the prior year.
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.
“Globally, the macro environment remains uncertain, with
interest rates, inflation and trouble in the banking sector topping
concerns for enterprise clients,” said Bertsch. “There continues to
be more scrutiny on deal signings, especially in discretionary
spending areas. Enterprises are revisiting cost optimization,
efficiency gains and vendor consolidation deals.”
ISG said industry attrition has stabilized and the firm expects
hiring to improve in the back half of the year. The decline in
global 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/20230418005999/en/
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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