IT Services Market Woeful in Q3

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The third quarter was not a good one for the IT services market – so bad, in fact, that total contract value (TCV) dropped by a third, resulting in its lowest level in nine years.

That's a key stat from researcher Ovum's 3Q12 IT Services Contracts Quarterly Analysis, which says 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.

The TCV of IT services deals announced in between July 1 and Sept. 30 was less than $19 billion, down 33 percent on the same period in 2011. The volume of deals 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, Ovum said.

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

Europe was strongest in private-sector contract deals signed in the third quarter, while activity dropped sharply in North America, a market on which many IT services vendors depend. A pair of mega-deals (contracts valued at $1 billion or more) announced by CSC and IBM, made the overall private-sector TCV at least somewhat respectable.

For the public sector, TCV was $10.6 billion, down 43 percent from the same period of the previous year, while the number of deals tracked by Ovum fell 22 percent to 195, with no mega-deals. Largely as a result of the lack of large projects, the average value of public-sector contracts slipped to $54.6 million, the research firm said, almost half the average public-sector award in 2Q12.

“This sharp dip in activity will wipe out any optimism engendered in the previous quarter, when an increase in the number of deals brought to an end seven consecutive quarters of decline," Thomas added.

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