Friday, 02 December 2011 02:42

IT services pick-up, but times are still tough

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The global IT services sector is still doing it tough following a disastrous second quarter this year, with just a slight pickup in the number of deals signed in the third quarter, and with a signficant drop in demand for services in the US market for most of the year.


According to a new report from Ovum, both the number of deals signed and the total contract value (TCV) recorded during the second quarter were below the levels tracked in the same period of the previous year, and the analyst firm cautions that there is the very real possibility that the annual TCV for 2011 will be the lowest in eight years.

And, Ovum reports that the total contract value of deals announced in the three months to the end of September was US$27.3bn, up 43 per cent on the dismal US$19.0bn recorded in the second quarter of 2011, but down nine per cent compared with the third quarter of 2010.

According to data from Ovum's IT Services Contracts Analytics tool, the number of contracts announced also increased to 416, from 384 in the second quarter of this year, but compared to the third quarter of 2010 this was down 12 per cent.

Ed Thomas, Ovum analyst and author of the report says that, after another uninspiring quarter, there is the very real possibility that annual TCV for 2011 will be the lowest in eight years. 'Vendors will now be looking to see if there will be a repeat of last year's dramatic fourth quarter, when a bumper crop of megadeals propelled TCV for the three months to the end of December close to the US$50bn mark,' Thomas said.

After falling to its lowest level since 2000 in the second quarter of the year, private sector TCV increased in the third quarter, although Ovum reports that it still fell some way below the total recorded in the same period of 2010. In the three months to the end of September, TCV derived from private sector clients was US$9.2bn, up 31 per cent on the previous quarter of the year, but down 21 per cent on the third quarter of 2010.

Thomas says that activity in North America picked up after a terrible start to the year, with TCV of US$3.1bn derived from the private sector, higher than the total generated in the first six months of the year. In Europe, private sector TCV came in at just under US$3.0bn in the third quarter, with more than one-third of the total derived from the UK.

However, according to Ovum, the overall lack of significant activity in the private sector over the first nine months of 2011 is the primary reason for the low level of TCV recorded so far this year, and the firm reports that the value of deals awarded by businesses worldwide in the first three quarters of the year was just US$25.6bn, down from US$36.1bn in the same period of 2010 and the worst performance since 1999, when TCV of US$23.5bn was recorded in the first three quarters.

'The drop in demand for IT services among enterprises has been most apparent in the US, the world's largest and most mature outsourcing market,' Thomas said. 'In the first nine months of the year, just 145 deals involving US businesses have been announced (the lowest return since 2001), and the total value of these deals came to a meagre US$4.6bn. To find a lower TCV in the first nine months of a year, it is necessary to go back more than a decade, to 1997, when deals worth a combined US4.1bn were announced.'

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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