IT outsourcing market slumps to nine-year low

The global IT services market saw total contract value (TCV) drop by a third in the third quarter to its lowest level in nine years, according to analyst Ovum.

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The global IT services market saw total contract value (TCV) drop by a third in the third quarter to its lowest level in nine years, according to analyst Ovum.

The number of private sector deals hit an 11-year low, with public sector TCV and deal volume at their lowest levels in three years, said the analyst.

Ovum said TCV of IT services deals announced in the three months ending September 2012 was $18.9 billion (£11.7 billion), down 33 percent on the same period in 2011.

The volume of deals also fell sharply, to 332 from 438 in 3Q11, representing the least activity in a single three-month period in nearly five years, since just 324 contracts were tracked during the fourth quarter of 2007.

“The signs of recovery in the IT services market apparent in the second quarter of 2012 were largely conspicuous by their absence in 3Q12,” said Ovum analyst Ed Thomas.

“There will need to be a significant upturn in both TCV and deal volume if last year’s performance is to be matched in 2012. 

"On current form, both annual TCV and the number of deals are set to hit 10-year lows, as the global economic crisis continues to impact the performance of the IT services industry,” said Thomas.

Ovum said Europe dominated the few private sector contract deals that were signed in 3Q12, while activity dropped sharply in North America, a market on which many IT services vendors depend.

In the public sector global TCV in 3Q12 was $10.6 billion (£6.6 billion), down 43 percent on the same period the previous year, while the number of deals tracked by Ovum fell 22 percent to 195.

Largely as a result of the lack of large projects, the average value of public sector contracts slipped to $54.6 million (£33.8 million), almost half the average public sector award in 2Q12.

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