IT services market takes severe hit in Q2 2011

MELBOURNE, AUSTRALIA: The IT services market suffered a severe hit globally in the second quarter of 2011, with the value of new contract signings falling to its lowest level in more than eight years, according to Ovum.

In a new report, the independent technology analyst states that the total contract value (TCV) of deals announced in Q2 2011 was just $19 billion, down 40 percent on the same period last year and the lowest quarterly figure since Q1 2003. However, the fall was less dramatic in Asia-Pacific, with TCV down just 4 percent on Q2 2010 at $1.7 billion.

In addition, Ovum finds that the number of deals recorded worldwide also slumped for the fourth consecutive quarter, to just 384. Not only was this down more than 20 percent on the number tracked during the second quarter of 2010, but it was also the lowest number of deals recorded by Ovum in a single quarter since Q4 2007.

Ed Thomas, Ovum analyst and author of the report, commented: “After a disappointing start to the year, things went from bad to worse in the second quarter of 2011 with this very weak performance in contract signings.

“In previous quarters, the buoyancy of the public sector outsourcing market has gone some way toward offsetting the lacklustre returns from enterprise clients. However, on this occasion government spending on IT services projects also took a hit, with a notable lack of large-scale projects on offer.”

There were no mega deals (those valued at $1 billion or more) signed in the second quarter of 2011. In previous quarters, the majority of large deals have been awarded by public sector bodies, but even this took a hit in Q2 2011.

In Australia, HP was chosen by the country's tax office to deliver centralized computing services under a five year deal worth $500m. HP will provide and manage the Australian Tax Office's IT infrastructure, including managing mainframes, server management, and storage management services, as well as delivering data center services,

Asia-Pacific generated only 15 per cent of private sector TCV in Q2 2011. This was mainly due to a distinct lack of large deals awarded by the region’s enterprises. Just two contracts in the second quarter were valued at over $100m, including a major deal won by Indian vendor Tech Mahindra with Vodafone Hutchison Australia. Tech Mahindra will manage the telecoms company’s IT systems for the next five years, reportedly replacing incumbent suppliers IBM and Ericsson.