Managed services ACV asset value rose 32%, while XaaS spending rose 1% in second quarter
SYDNEY, 17 July 2024–(BUSINESS WIRE)–Asia Pacific spending on IT and business services surged above US$5 billion for the first time in two years, led by a resurgence in demand for managed services, 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 ISG Asia Pacific™ Index, which measures commercial outsourcing contracts with an annual contract value (ACV) of US$5 million or more, showed second-quarter ACV for the combined market (both cloud-based XaaS and managed services) rose 8 percent year-on-year to over US$5.0 billion, the first time in seven quarters to top the US$5 billion mark and the third consecutive quarter the region has recorded year-on-year growth.
Growth in the second quarter was driven by a resurgent market for managed services, which saw its ACV rise 32 percent year-on-year to $1.4 billion, the region’s best quarter in 12 years. Compared to the first quarter of 2024, ACV rose 34 percent sequentially. Both year-over-year and quarter-over-quarter comparisons show a strong quarter above $1 billion.
During the quarter, 81 managed services contracts were awarded, up 37 percent year-over-year and 23 percent quarter-over-quarter. Transaction volume was driven by 44 percent growth in smaller transactions valued between $5 million and $20 million annually. Meanwhile, restructured contract value reached a record $548 million ACV, up 163 percent year-over-year.
Demand for cloud-based services grew 1 percent, to $3.6 billion, but ACV fell 8 percent sequentially compared to the first quarter of 2024. This was the third straight quarter that XaaS grew, with average year-over-year growth of 18 percent over that span, following a string of five consecutive quarters of declines with an average decline of 20 percent.
“Asia Pacific’s rising demand for traditional IT and business services reflects the continued focus on cost optimization in a still-uncertain economy,” said Michael Gale, partner and regional leader, ISG Asia Pacific. “Cloud-based services, which have seen a brutal downturn, are beginning to rebound, as companies focus on data modernization that will enable GenAI adoption at scale.”
In managed services, IT outsourcing (ITO) ACV rose 8 percent to over $1 billion, driven by strong demand for integrated infrastructure, application development and maintenance (ADM) services, and data center services. Meanwhile, business process outsourcing (BPO) surged 237 percent year-over-year to $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 increased sharply in South Korea, China and Japan. The latter two markets delivered their best quarters ever, up triple digits. Meanwhile, the region’s two largest markets, Australia/New Zealand (ANZ) and India, moved in the opposite direction. ANZ fell 30 percent in the quarter and India rose 4 percent.
By industry, manufacturing, telecom and energy all moved up, while banking, financial services and insurance (BFSI) and travel and transportation declined during the quarter.
Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV remained flat, at US$3.2 billion, while software-as-a-service (SaaS) ACV rose 8 percent, to US$430 million.
First Half Results
The combined Asia Pacific market ACV rose 19 percent year-on-year to US$9.9 billion, a dramatic change from the first half of 2023, when the market fell 20 percent compared to the same period in 2022, when Asia Pacific demand peaked.
Managed services delivered its best first half ever, with ACV of nearly $2.5 billion, up 26 percent year-over-year. ITO ACV rose nearly 5 percent, to $1.7 billion, while BPO ACV jumped 126 percent, to $773 million.
Among industries, managed services ACV in BFSI rose 43.5 percent year-to-date, with most other verticals up sizably in the half, except manufacturing, which fell 17 percent.
On the cloud side, XaaS ACV rose 17 percent to $7.5 billion. IaaS rose 18 percent to $6.6 billion, and SaaS rose 13 percent to $878 million.
Global Forecast 2024
For the full year, ISG forecasts 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 continues to persist in the IT and business services market, with no clear catalysts currently to drive discretionary spending higher,” said Steve Hall, ISG’s president and chief AI officer, and global leader of ISG Indices. “Activity in the key BFSI sector remains subdued, as the higher-for-longer interest rate environment weighs on overall market growth. Companies generally continue to focus on cost optimization, and AI growth, while strong, likely masks underlying weakness in the IT and business services industry.”
About the ISG™ Index
The ISG Index™ is recognized as a trusted source of market information on the global technology and business services industry. For 87 consecutive quarters, the ISG Index 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 on 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 consulting firm. As a trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 companies, ISG is committed to helping enterprises, public sector organizations, and technology and service providers achieve operational excellence and accelerated growth. The firm specializes in digital transformation services, including AI and automation, data analytics and cloud; resource consulting; managed governance and risk services; network operator services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and headquartered 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 analytics capabilities based on the industry’s most comprehensive market data. For more information, visit www.isg-one.com.
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