Global IT Services Sector Slumps Badly

A new report has added to further jitters about the state of the global economy after it found that the IT services sector has experienced a massive decline in new orders.

This is according to a new report by analyst house Ovum, which found that the value of new contract signings had fallen to its lowest level in more than eight years.

The Ovum report revealed that the total contract value (TCV) of deals announced in Q2 2011 was just $19 billion (£11.8bn), down 40 percent on the same period last year.

It also said that this is the lowest quarterly figure since Q1 2003.

IT Services Slump

The findings are significant, as the IT services sector has traditionally been one of the strongest performing tech sectors during the past ten years, thanks in part to valuable contracts from central government and the trend toward outsourcing certain IT operations of businesses.

But the Ovum report highlighted the current parlous state of the sector, when it said that the total number of IT services deals had also slumped for the fourth consecutive quarter, to just 384. This is apparently down 20 percent compared to the second quarter of 2010, but it was also the lowest number of deals recorded by Ovum in a single quarter since Q4 2007.

“After a disappointing start to the year, things went from bad to worse in the second quarter of 2011 with this very weak performance in contract signings,” said Ed Thomas, Ovum analyst and author of the report.

“The distinct lack of large deals on offer was a major contributing factor, combined with the on-going lack of demand from private sector firms, particularly in the US,” he added.

No More Gravy Train

“In previous quarters, the buoyancy of the public sector outsourcing market has gone some way toward offsetting the lacklustre returns from enterprise clients,” Thomas said. “However, on this occasion government spending on IT services projects also took a hit, with a notable lack of large-scale projects on offer.”

Thomas found that one of the problems is that there had been no so-called mega deals (those valued at more than $1 billion or £623m) signed in the second quarter of 2011.

“In previous quarters, the majority of large deals have been awarded by public sector bodies, but even this took a hit in Q2 2011,” said Ovum.

The report said the fall in spending on IT services by businesses was most noticeable in North America. In the first six months of 2011, the region’s private sector TCV (total contract value) fell to just 15.5 percent of the global market, compared with the 39 percent it held for the first six months of 2010.

Government ICT

However on this side of the pond things were marginally better, after Europe put in the strongest performance globally, generating 58 percent of private sector TCV in Q2 2011. This was due to a significant amount of contract-signing activity in the Nordic region (notably Denmark, Finland, Norway and Sweden).

Meanwhile, in this country, the coalition government is working hard to reduce its IT spending.

In January the Government’s ICT strategy revealed that the public sector would look to the more effective use of open source software, as well as energy efficient technologies and cloud computing, in order to cut public sector IT spending by around £3.2 billion a year.