Combined market up 2.5%, breaking string of
4 straight down quarters year-on-year
BFSI, region’s largest sector, is catalyst
for growth
Europe’s demand for IT and business services in the first
quarter rose for the first time in a year, powered by growth from
the banking, financial services and insurance (BFSI) sector,
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 2.5 percent, to US $7.5 billion, in
the first quarter. The market’s year-on-year growth in Q1 broke a
string of four consecutive quarters the region was down versus the
prior year.
“The European market is on the rebound,” said Steve Hall,
president, ISG EMEA. “Both managed services and cloud services were
higher in Q1, and managed services was up nearly 5 percent year on
year for BFSI, the region’s largest business sector. Business
process outsourcing was strong, and we also saw a surge in bundled
ADM and infrastructure activity across the region.”
Q1 Results by Segment
Managed services ACV in the first quarter rose 3 percent, to US
$3.9 billion. There were 277 managed services contracts signed in
the quarter, down 8 percent from the prior year, but up 9.5 percent
sequentially from the fourth quarter. Among those contracts were
two mega deals (ACV of US $100 million or more). The volume of
smaller deals (under US $30 million) was down 10 percent year on
year as economic uncertainty weighed on discretionary spending.
With companies still focusing on cost reduction, the ACV of
restructured contracts climbed 12 percent.
Within managed services, IT outsourcing (ITO) was down 7
percent, to US $2.8 billion, driven by declines in data center and
standalone application development and maintenance (ADM) services.
Meanwhile, the ACV of bundled infrastructure and ADM services was
up more than 80 percent.
Business process outsourcing (BPO) soared 40 percent, to US $1.1
billion, fueled by rising demand for industry-specific
services.
By industry, managed services ACV was sharply higher (up 80
percent) in the travel, transportation and leisure sector. BFSI,
Europe’s largest industry for outsourcing, saw its ACV climb nearly
5 percent, offsetting weakness in the next two largest sectors –
manufacturing (down 5 percent) and telecommunications (down 10
percent).
ACV in the as-a-service (XaaS) segment rose 2 percent year on
year, and 9 percent from the prior quarter, to US $3.6 billion –
its best quarterly result since the fourth quarter of 2022. This
segment’s first-quarter growth ended a streak of four consecutive
quarters of year-on-year declines.
Within this segment, infrastructure-as-a-service (IaaS) advanced
7 percent, to US $2.5 billion, fueled in part by growing interest
in the data services required to feed generative AI models, while
software-as-a-service (SaaS) declined 8 percent, to US $1.0
billion.
Geographic Performance
The region’s largest market, the U.K., generated US $1.2 billion
of managed services ACV, its fifth consecutive quarter with ACV of
more than US $1 billion, although it was down 4 percent versus the
prior year. DACH (Germany, Austria and Switzerland), the region’s
second-largest market, saw its ACV decline 6 percent, to US $647
million, while France slipped out of its usual number-three spot as
its ACV fell 27 percent, to US $471 million. The Nordics eclipsed
France to become Europe’s third-largest ACV market in the first
quarter, with ACV of US $600 million, up 45 percent year on
year.
2024 Global Forecast
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 to the rest of the year, economic conditions are
forecasted to be less volatile than in 2023, but challenges
persist,” Hall said. “The global economy is expected to slow down,
impacted by monetary policies to combat inflation, which is
expected to decline.
“In this environment, outsourcing could see a boost as companies
seek to balance cost management and service quality. GenAI,
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.”
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 86 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.
The 1Q24 Global ISG Index results were presented during a
webcast on April 11. 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20240415403014/en/
Press Contacts: 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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