Infotech Lead America: The IT services market has suffered a blow as total contract value (TCV) dropped by a third in 3Q12 to its lowest level in nine years, according to 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.
The TCV of IT services deals announced in the three months ending September 2012 was US$18.9bn, 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.
The signs of recovery in the IT services market apparent in the second quarter of 2012 were largely conspicuous by their absence in 3Q12. 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 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. Overall private sector TCV was given an air of respectability by two mega-deals (contracts valued at US$1bn or more) announced by CSC and IBM, yet the quarterly return of US$8.3bn was still the lowest since 2Q11 (US$7.1bn).
For the public sector, TCV in 3Q12 was US$10.6bn, down 43 percent on 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 US$54.6m, 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.
By Ed Thomas, senior analyst at Ovum