IT Services Market Feels Economic Pinch: Ovum

The only industries in which contract activity was up on the previous year were telecommunications and technology.

Last year was not a particularly promising time for the IT services market, with Ovum Research calling 2012 the worst year for IT services contract activity since 2002.

In terms of total contract value (TCV) and deal volume, performance in the three months to the end of December 2012 fell well below the levels seen in the same period of 2011, dragging annual IT services contract activity down to its lowest level for 10 years, the report found.

"The ongoing economic uncertainty afflicting key markets for IT services such as the U.S. and Europe was a major factor behind the weak performance of the industry in 2012," Ed Thomas, a senior analyst in the Ovum IT Services team, said in a statement. "Our research suggests that many enterprises remain wary of committing to major projects, with issues such as the Eurozone crisis having a particularly significant impact. In addition, public-sector activity has [declined], as many governments come under pressure to cut public spending in the face of high debt levels, leading to a general reluctance to get involved in large-scale IT services deals."

The TCV of deals announced in the fourth quarter of 2012 was $20.8 billion, down 34 percent from the same period in the previous year. The number of deals fell 17 percent in the same period, and the report pointed out there was a notable lack of megadeals, which Ovum categorizes as contracts valued at $1 billion or more.

However, the level of activity in the fourth quarter of 2012 represented a slight improvement from the previous three months of the year, with TCV up 10 percent from the third quarter of 2012. Despite a higher level of activity, the report found annual TCV was down from the previous 12 months across both the public and private sectors, with the private sector enduring its worst year since 1998 in TCV terms.

The only industries in which contract activity was up on the previous year were telecommunications and technology, while in health care and financial services, contract volumes were down 39 percent and 18 percent, respectively. The sharpest fall was in the services sector, where the number of deals announced fell 50 percent.

On a regional level, private-sector TCV in North America, which experienced a dramatic slump in 2011, rebounded somewhat in 2012, finishing the year up 48 percent, at $10.5 billion. The picture was less rosy in Europe, where TCV generated by European enterprises declined sharply during the year, falling 31 percent to $16.7 billion, despite the fact that Europe was the leading market for private-sector contract activity in 2012.

"The last quarter of 2012 saw some notable awards from North American firms such as Procter & Gamble," Thomas said. "However, it is too early to tell whether or not this represents a significant shift in approach by enterprises in the region, which have been wary of committing to major projects in recent years due to the economic turmoil."