IT services market sees slight recovery

Ovum says number and total value of contracts rises in third quarter 2011

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IT services market sees slight recovery IT services contract activity was up from Q2 2011, but Ovum expects the overall contract value for the year to be the worst for eight years.
By  Mark Sutton Published  November 30, 2011

Ovum reports a slight recovery in the IT services contract market, with number of deals and total contract value (TCV) up from a "disastrous" second quarter 2011.

TCV for the three months to end of September hit $27.3bn, up 43% from Q2, when only $19bn in service deals was recorded. However, year-on-year, the value was down 9%.

The number of contracts was up from 382 in the second quarter to 416, but this was again down 12% from last year.

"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 $50bn mark, said Ed Thomas, Ovum analyst.

After falling to its lowest level since 2000 in the second quarter of the year, private sector TCV increased in the third quarter, although 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 $9.2bn, up 31% on the previous quarter of the year, but down 21% on the third quarter of 2010.

Ovum said that the main reason for the slow results was a lack of activity in the private sector, with only $25.6bn of contracts signed in the first three quarters of 2011, down from $36.1bn in the same period of 2010 and the worst performance since 1999.

"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," said Thomas. "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 $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 $4.1bn were announced."

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