Global combined market up 9%, but registers
first sequential quarterly decline since Q3 2020
Recession fears expected to create more
volatility in second half
ISG lowers full-year growth forecasts for
managed services and XaaS
Global demand for IT and business services remains strong,
although the market is showing signs of slowing amid recession
fears, finds the latest state-of-the industry report from
Information Services Group (ISG) (Nasdaq: III), a leading global
technology research and advisory firm.
Data from the ISG Index™, which measures commercial outsourcing
contracts with annual contract value (ACV) of $5 million or more,
show second-quarter ACV for the combined global market (both XaaS
and managed services) reached $22.8 billion, up 9 percent versus
the prior year, but down 7 percent compared with the first
quarter.
It was the first time since the third quarter of 2020 that the
global market did not grow sequentially – a period of six straight
quarters in which quarter-over-quarter growth averaged 7
percent.
“We have been through an 18-month period of sustained high
demand that has pushed the global market to new heights as
companies accelerated their digital investments,” said Steve Hall,
ISG president. “With fears of a potential recession on the horizon,
we saw a slowdown in the second quarter and expect the market to be
more volatile in the second half of the year.”
Hall said market demand remains high, as companies continue to
embrace cloud computing and leverage technology to improve
productivity, lower costs and get closer to customers to drive
revenue growth. Yet the market faces headwinds, he said, including
rising interest rates, lingering supply chain issues, a tight labor
market and higher energy prices.
Results by Segment The cloud-based XaaS market grew 13
percent in the second quarter, to $14.1 billion, but was down 11
percent versus the first quarter, as the market slowed from its
average 44 percent quarterly growth rate over the last 12 months.
Infrastructure-as-a-service (IaaS) rose 11 percent, to $10.2
billion, but was down 14 percent sequentially, reflecting weakness
in China, which was impacted by extended Covid lockdowns and a
tighter regulatory environment for the country’s technology sector.
Software-as-a-service (SaaS), meanwhile, was up 20 percent, to $3.9
billion, and off only 1 percent from the prior quarter.
Managed services spending rose 2 percent, to $8.8 billion – the
fifth straight quarter it exceeded ACV of $8 billion. Flat quarter
over quarter, the market slowed from its average 16 percent
quarterly growth rate over the last six quarters.
For the second quarter, IT outsourcing (ITO) declined 8 percent,
to $6.0 billion, although it was up 5 percent sequentially.
Business process outsourcing (BPO), meanwhile, rose 33 percent, to
$2.8 billion, but declined 9 percent from the first quarter.
With the historically strong data center business in decline,
demand is shifting from large, legacy infrastructure deals to
smaller application development and maintenance (ADM), engineering,
and industry-specific BPO awards.
A total of 600 managed services contracts were awarded in the
second quarter, up 5 percent versus the prior year, though down 4
percent from the first quarter. The awards included nine mega-deals
(contracts with annual value of $100 million or more), the highest
number in the last three years.
First-Half Results The combined market reached ACV of
$47.3 billion in the first half, up 19 percent over the prior year.
XaaS advanced 27 percent, to $29.8 billion, and now accounts for 63
percent of the combined global market, up from 51 percent three
years ago. Managed services produced a record $17.5 billion of ACV,
up 8 percent, on record volume of 1,225 contracts, up 12 percent
versus the prior year.
2022 Forecast ISG sees continued economic uncertainty
impacting the second half of 2022, even as market demand remains
high.
“We are lowering our growth forecast for managed services to 3.5
percent for the year, down from 5.1 percent last quarter,
reflecting the negative impact of foreign currency translation and
inflationary concerns,” said Hall.
On the XaaS side, ISG is lowering its growth forecast to 18
percent, compared with its previous forecast of 22 percent. “We see
this segment coming under pressure due to Covid and regulatory
headwinds in China, leaving the big three hyperscalers – AWS, Azure
and Google Cloud – to support market growth. China is down almost
$1.5 billion year to date, and we don’t see cloud providers there
fully recovering this year.”
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 79 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. In 2016, the ISG
Index was expanded to include coverage of the fast-growing
as-a-service market, measuring the significant impact cloud-based
services are having on digital business transformation. ISG also
provides ongoing analysis of automation and other digital
technologies in its quarterly ISG Index presentations.
The 2Q22 Global ISG Index was presented during a webcast today.
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 800 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 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 1,300
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/20220713005159/en/
Press Contacts: Will Thoretz, ISG +1 203 517 3119
will.thoretz@isg-one.com
Julianna Sheridan, Matter Communications for ISG +1 978-518-4520
isg@matternow.com
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