Combined market up 1% in Q2, third straight
quarter of sequential growth
Market impacted by sluggish managed service
demand, even as XaaS grows by double digits
Europe’s IT and business services market grew only slightly in
the second quarter, as slowing demand for managed services largely
offset a sharp rise in spending on cloud-based services, 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 EMEA ISG Index™, which measures commercial outsourcing
contracts with annual contract value (ACV) of US $5 million or
more, shows ACV for the combined market (both managed services and
cloud-based as-a-service) rose 1 percent, to US $7.7 billion, in
the second quarter. Since bottoming out in the third quarter of
last year, the combined market has grown sequentially for three
straight quarters to reach its second-highest quarterly ACV ever in
Q2.
“Having rebounded from the trough of last year’s downturn, the
European market is now on a slow growth trajectory, with sluggish
demand for managed services impeding overall growth,” said Steve
Hall, president, ISG EMEA. “Cost optimization remains the primary
driver of managed services demand, while decision-making on new
initiatives continues to be slowed by macroeconomic and
geopolitical uncertainty.”
Second-Quarter Results by Segment
Managed services ACV in the second quarter dipped 8 percent, to
US $4.0 billion, but rose 3 percent sequentially from a weaker
first quarter. A total of 295 managed services contracts were
signed in the quarter, up 20 percent from the prior year. Among
those contracts were four mega deals (ACV of US $100 million or
more), compared with five signed in the second quarter last year.
The volume of smaller deals under US $10 million rose 38 percent
year on year.
Within managed services, IT outsourcing (ITO) rose 7 percent, to
US $3.3 billion, driven by strong growth in bundled infrastructure
and application development and maintenance (ADM) services, which
offset declines in ADM-only and data center services.
Business process outsourcing (BPO), meanwhile, slumped 45
percent, to US $692 million, as all BPO segments showed declines,
especially customer engagement and facilities management
services.
By industry, managed services ACV was higher in retail (up 71
percent), manufacturing (up 50 percent) and media and telecom (up
41 percent), while BFSI, Europe’s largest industry for outsourcing,
dropped 31 percent year on year, reflecting a higher-for-longer
interest rate environment.
ACV in the as-a-service (XaaS) segment climbed 14 percent year
on year, to US $3.7 billion, and has grown three straight quarters
after hitting bottom in the third quarter of 2023.
Within this segment, infrastructure-as-a-service (IaaS) rose 22
percent, to US $2.7 billion, amid signs the cost-optimization cycle
for cloud may be over, due in part to rising interest in
data-fueled GenAI. Software-as-a-service (SaaS), meanwhile, was off
2 percent, to US $1.0 billion, as enterprises reduced licensing
volume.
Geographic Performance
Although down 13 percent year on year, the region’s largest
managed services market, the U.K., posted its sixth straight US $1
billion quarter with ACV in Q2 of US $1.3 billion. The DACH market
(Germany, Austria and Switzerland), meanwhile, generated US $896
million of ACV, up 20 percent versus the prior year, its best
quarter since the fourth quarter of 2022. Both France (down 12
percent) and the Nordics (down 18 percent) pulled back in the
quarter.
First-Half Results
For the first half, combined market ACV rose 3 percent, to US
$15.2 billion. Managed services, at US $7.9 billion, was down 3
percent, while XaaS, at US $7.3 billion, was up 11 percent versus
the first half last year. A record 571 managed services contracts
were signed in the half, up 5 percent, including six mega-deals,
even with the prior year.
Within managed services, ITO was essentially flat (down 0.1
percent), at US $6.1 billion, while BPO declined 12 percent, to US
$1.8 billion. On the cloud side, the IaaS market rose 15 percent,
to US $5.2 billion, while the SaaS market rose 1 percent, to US
$2.1 billion.
2024 Global Forecast
For the full year, ISG is forecasting 2 percent revenue growth
for managed services, down 100 basis points from its April
forecast, and 14 percent revenue growth for XaaS, down from its 15
percent growth forecast in April.
“Uncertainty persists in the IT and business services market,
with no clear catalyst at the moment to push discretionary spending
higher,” Hall said. “Activity in the important BFSI sector remains
dampened, due to the higher-for-longer interest rate environment
impacting the overall growth of the market. Enterprises in general
continue to focus on cost optimization, and AI growth, while
strong, is likely masking underlying weakness in the IT and
business services industry.”
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 87 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.
The 2Q24 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 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 AI and 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240715801522/en/
Philipp Jaensch, ISG +49 151 730 365 76
philipp.jaensch@isg-one.com
Will Thoretz, ISG +1 203 517 3119 will.thoretz@isg-one.com
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