A/NZ IT contract value shrinks in A/NZ

Large annual contract value for managed services deals took a hit during the first three months of 2024 in Australia and New Zealand (A/NZ), declining 15 per cent year-on-year.

This is according to tech search and advisory firm Information Services Group (ISG), which claimed that, outside of A/NZ, the Asia Pacific (APAC) IT and business services market delivered a "resurgent performance".

In the firm's latest report for its Asia Pacific ISG Index, which looks at commercial outsourcing contracts with annual contract value (ACV) of at least US$5 million, ACV for the combined market of managed services and as-a-service (XaaS) rose 25 per cent for the quarter year-on-year, to over US$5 billion.

This is the first time this is happened in the region since the second quarter of 2022 and the first raise after five quarters of declines.

Broken down, managed services ACV was up 18 per cent, year-on-year, to over US$1 billion, business process outsourcing (BPO) was up on the last period by 72 per cent, to US$339 million, and IT outsourcing (ITO) fell 1 per cent, to US$643 million.

In total, 66 managed services contracts were awarded, up 12 per cent, with the volume of deals under US$30 million increased by 2 per cent.

For XaaS, ACV rose 27 per cent, to US$4 billion, with infrastructure-as-a-service contracts making up US$3.6 billion, an increase of 30 per cent. Meanwhile, software-as-a-service contracts rose by 4 per cent, to US$427 million.

On an industry basis, the banking, financial services and insurance sector was responsible for ACV of US$434 million an increase of more than double on the period last year and accounted for 137 per cent of APAC's managed services growth.

While ISG did not provide figures, manufacturing and telecommunications spending was down "significantly" and other industries saw gains off a small basis.

"As we noted last quarter, Asia Pacific has bottomed out and is poised for a rebound in 2024," said Michael Gale, partner and regional leader at ISG Asia Pacific.

"The region is off to a strong start, with double-digit managed services growth led by the BFSI sector and BPO overall. ACV for cloud-based services surpassed the US $4 billion level for the first time since the second quarter of 2022 and produced its second straight quarter of double-digit growth. Early indications are that Asia Pacific is leading the way in a global rebound of IT and business services spending among the three regions."

Taking its prediction to the rest of the year, ISG forecasted 3 per cent growth for managed services, which is a decline of 125 basis points from its January forecast, while XaaS holds onto its prediction of 15 per cent revenue growth.

ISG is forecasting 3 percent growth for managed services, down 125 basis points from its January forecast, and maintaining its forecast of 15 percent revenue growth for XaaS in 2024.

"Looking ahead, economic conditions are forecasted to be less volatile as the year progresses and inflation continues to slow, but challenges persist," Gale added.

"In this environment, outsourcing could see a boost as companies seek to balance cost management and service quality. GenAI [Generative artificial intelligence], meanwhile, is poised to be a growth catalyst, with large hyperscalers expected to manage increasing workloads. The data layer, integral for training AI models, presents a prime opportunity for service providers."

By comparison, in February, ISG claimed the A/NZ region generated US$1.2 billion of managed services average contracted value in 2023, up 5 per cent on 2022.