Managed services ACV up 32%, while XaaS
spending rose 1% in second quarter
Asia Pacific’s spending on IT and business services surged above
US $5 billion for the first time in two years, led by a resurgence
in managed services demand, according to the latest
state-of-the-industry report from Information Services Group (ISG)
(Nasdaq: III), a leading global technology research and advisory
firm.
The Asia Pacific ISG Index™, which measures commercial
outsourcing contracts with annual contract value (ACV) of US $5
million or more, shows second-quarter ACV for the combined market
(both cloud-based XaaS and managed services) rose 8 percent versus
the prior year, to just over US $5.0 billion, the first time in
seven quarters it eclipsed the US $5 billion mark and the third
straight quarter the region delivered year-on-year growth.
Growth in the second quarter was powered by a resurgent market
for managed services, which saw its ACV climb 32 percent over the
prior year, to US $1.4 billion, the region’s best quarter in 12
years. Versus the first quarter of 2024, ACV was up 34 percent
sequentially. Both the year-over-year and quarter-over-quarter
comparisons came against strong US $1 billion-plus quarters.
During the quarter, 81 managed services contracts were awarded,
up 37 percent year on year and 23 percent quarter over quarter.
Deal volume was boosted by 44 percent growth in smaller deals
valued between US $5 million and US $20 million per year. The value
of restructured contracts, meanwhile, reached a record US $548
million of ACV, up 163 percent versus the prior year.
Demand for cloud-based services grew 1 percent, to US $3.6
billion, but ACV was down 8 percent sequentially against the first
quarter of 2024. It was the third straight quarter XaaS has grown,
averaging 18 percent year-on-year growth over that span, coming off
a streak of five straight down quarters averaging 20 percent
declines.
“Asia Pacific’s rising demand for traditional IT and business
services reflects a continuing focus on cost optimization in a
still uncertain economy,” said Michael Gale, partner and regional
leader, ISG Asia Pacific. “Cloud-based services, which have been
through a brutal downturn, are beginning to rise again, as
enterprises focus on the data modernization that will enable GenAI
adoption at scale.”
Within managed services, IT outsourcing (ITO) ACV rose 8
percent, to just over US $1 billion, driven by strong demand for
bundled infrastructure and application development and maintenance
(ADM) services and data center services. Business process
outsourcing (BPO), meanwhile, surged 237 percent year on year, to
US $367 million, led by triple-digit growth in customer engagement,
facilities management, HR and engineering, research and development
(ER&D) services.
From a geographic perspective, demand for managed services was
up markedly in South Korea, China and Japan, the latter two markets
producing their best quarters ever, up triple digits. The region’s
two largest markets, Australia/New Zealand (ANZ) and India,
meanwhile, moved in opposite directions, with ANZ down 30 percent
in the quarter and India up 4 percent.
By industry, manufacturing, telecommunication and energy all
moved to the upside, while banking, financial services and
insurance (BFSI) and travel and transportation pulled back during
the quarter.
Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV
was flat, at US $3.2 billion, while software-as-a-service (SaaS)
ACV rose 8 percent, to US $430 million.
First-Half Results
Asia Pacific’s combined market ACV rose 19 percent versus the
prior year, to US $9.9 billion, a dramatic turnaround from the
first half of 2023, when the market was down 20 percent versus the
same period in 2022, when Asia Pacific demand reached its
zenith.
Managed services produced its best first half ever, with ACV of
nearly US $2.5 billion, up 26 percent year on year. ITO ACV was up
nearly 5 percent, to US $1.7 billion, while BPO ACV surged 126
percent, to US $773 million.
Among industries, managed services ACV in BFSI was up 43.5
percent year to date, with most other verticals up sizably in the
half, with the exception of manufacturing, which pulled back 17
percent.
On the cloud side, XaaS ACV rose 17 percent, to US $7.5 billion.
IaaS climbed 18 percent, to US $6.6 billion, and SaaS advanced 13
percent, to US $878 million.
2024 Global Forecast
For the full year, ISG is forecasting 2 percent revenue growth
for managed services, down 100 basis points from its April
forecast, and 14 percent revenue growth for XaaS, down from its 15
percent growth forecast in April.
“Uncertainty persists in the IT and business services market,
with no clear catalyst at the moment to push discretionary spending
higher,” said Steve Hall, president and chief AI officer of ISG,
and global leader of the ISG Index. “Activity in the important BFSI
sector remains dampened, due to the higher-for-longer interest rate
environment, impacting the overall growth of the market.
Enterprises in general continue to focus on cost optimization, and
AI growth, while strong, is likely masking underlying weakness in
the IT and business services industry.”
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 87 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. For more information about the ISG Index, or to view a
replay of the 2Q24 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 900 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 AI and 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 1,600
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/20240716214282/en/
Press:
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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