Globally, the value of the IT service contract has plummeted to an eight-year low in the second quarter of 2011 but outlook for the sector in Australia remains relatively bright, according to an Ovum.
In the analyst firm’s new report, the total value of contracts for global IT services deals in quarter two was $US19 billion, down 40 per cent from the previous corresponding period.
The market has not seen such low figures since 2003. The number of deals worldwide also dropped for the fourth consecutive quarter to 384, the lowest number of deals in a single quarter since 2007 and represented a 20 per cent decline from quarter two of 2010.
Asia-Pacific, however, took a lesser hit, with the total value of IT contracts down four per cent.
“There is still a far more positive sentiment in the Asia-Pacific region where the services market is expected to grow anywhere between 4-20 per cent,” Ovum principal analyst, Jens Butler, told ARN. This was attributed to the trend for companies to outsource their IT in a bid to facilitate growth.
“The Asia-Pacific region, including Australia, has a different dynamic compared to the rest of the world,” Butler said. “Most of the investment here is about supporting growth whereas in Europe for example it is all about cost-cutting.”
In Australia, total contract value was at $US969 million compared to $US1.7 billion in the second quarter of 2010.
But this figure was greatly bolstered by the five-year deal between HP Enterprise Services and the Australian Taxation Office (ATO) in May worth $738 million.
But negative sentiment, partly brought about by the dour retail sector may dampen Australia’s IT services results in the near future.
“To some extent I think we are trying to talk ourselves into recession because if you actually look at the fundamentals they are still pretty good,” Butler said. “In terms of sentiment there is a bit of negativity at the moment brought down by the retail sector but realistically the retail sector on its own isn’t a huge component of the IT services market.”
Government and the financial services sector are the big drivers of the IT services business and both are still making investments.
Globally, no ‘mega deals’ which were valued at more than $US1 billion were signed in the second quarter of 2011.
“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,” Ovum analyst, Ed Thomas, said in a statement.
In previous quarters, the public sector outsourcing market cushioned the results brought down by the private sector. But in quarter two, even the public sector has recorded dour results as large-scale project offers dry up, according to Thomas.