IT services market recovers slightly in Q3 of 2011

MELBOURNE, AUSTRALIA: Following a disastrous second quarter of 2011, IT services contract signing activity picked up slightly in the third quarter. However, both the number of deals signed and the total contract value (TCV) recorded during the quarter were below the levels tracked in the same period of the previous year, according to Ovum.

In a new report, the independent technology analyst firm states that the total contract value (TCV) of deals announced in the three months to the end of September was $27.3 billion, up 43 per cent on the dismal $19 billion recorded in the second quarter of 2011, but down 9 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 2011. However, this was down 12 per cent on the number tracked during the third quarter of 2010.

Ed Thomas, Ovum analyst and author of the report, commented: “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 $50 billion mark.”

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 $9.2 billion, up 31 per cent on the previous quarter of the year, but down 21 per cent on the third quarter of 2010.

Activity in North America picked up after a terrible start to the year, with TCV of $3.1 billion 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 $3 billion in the third quarter, with more than one-third of the total derived from the UK.

However, 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. The value of deals awarded by businesses worldwide in the first three quarters of the year was just $25.6 billion, down from $36.1 billion in the same period of 2010 and the worst performance since 1999, when TCV of $23.5 billion 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,” 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 $4.6 billion. 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 $4.1 billion were announced.”