Managed services still growing versus prior year, but down 43% from second quarter
SYDNEY, October 20, 2024--(BUSINESS WIRE)--The market for IT and business services in Asia Pacific continued to grow in the third quarter on solid demand for both managed and cloud-based services, although it decelerated from a strong Q2, 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 Asia Pacific ISG Index?, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows third-quarter ACV for the combined market (both cloud-based XaaS and managed services) rose 10 percent versus the prior year, to US $4.6 billion, but was down 5 percent versus the second quarter.
Demand for managed services remained solid, with ACV up 17 percent over the prior year, to US $794 million, but down 43 percent from the second quarter. A total of 57 managed services contracts were awarded, up 36 percent year on year but down 30 percent quarter over quarter. New scope awards propelled the market, with volume up 47 percent and ACV up 18 percent versus the prior year.
Demand for cloud-based services grew 8 percent, to US $3.8 billion, and was up 10 percent sequentially from the second quarter. Although quarterly demand for XaaS has not exceeded the US $4 billion level since the second quarter of 2022, it was the third time in the last four quarters that ACV exceeded US $3.5 billion.
"After two consecutive quarters with managed services ACV of more than US $1 billion, Asia Pacific has settled back into a more typical US $800 million range," said Michael Gale, partner and regional leader, ISG Asia Pacific. "Growth in the region has always been driven more by cloud services, given the market’s maturity and cloud-first mindset, and that segment is rebounding after a significant slump the last two years."
Within managed services, IT outsourcing (ITO) ACV rose 18 percent, to US $622 million, driven by surging demand for application development and maintenance (ADM) services, up 238 percent in the quarter. Business process outsourcing (BPO), meanwhile, was up 12 percent, to US $173 million, led by strong growth in engineering, research and development (ER&D) services.
From a geographic perspective, demand for managed services was up by triple digits in China and Japan, and by double digits in South Korea. The region’s two largest markets, Australia/New Zealand (ANZ) and India, meanwhile, moved in opposite directions, with ANZ up 79 percent in the quarter and India down 61 percent, its weakest quarter since the first quarter of 2022.
By industry, banking, financial services and insurance (BFSI), energy and travel and transportation all moved to the upside, while manufacturing pulled back 19 percent for the quarter.
Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV was up 8 percent, at US $3.3 billion, while software-as-a-service (SaaS) ACV rose 14 percent, to US $444 million.
Nine-Month Results
Asia Pacific’s combined market ACV rose 13 percent versus the prior year, to US $14.2 billion, a significant turnaround from the same period last year, when the market was down 17 percent. However, the market year-to-date is still off 6 percent from a record first nine months of 2022.
Managed services produced its best first nine months ever, with ACV of nearly US $3.2 billion, up 24 percent year on year. ITO ACV was up 8 percent, to US $2.3 billion, while BPO ACV surged 91 percent, to US $946 million.
On the cloud side, XaaS ACV rose 11 percent, to nearly US $11.0 billion. IaaS climbed 10 percent, to US $9.6 billion, and SaaS advanced 13 percent, to US $1.3 billion.
2024 Global Forecast
For the full year, ISG is maintaining its forecast of 2 percent revenue growth for managed services, and 14 percent revenue growth for XaaS. The firm sees stronger growth in 2025.
"Despite a strong third quarter, we are maintaining our full-year forecast due to continued mixed signals in the market, especially softness in the BFSI sector," said Gale. "Recent rate cuts by the Fed and European Central Bank are expected to boost IT spending in the coming year, and other factors, such as the growing interest in GenAI, increased server shipments and the reacceleration of hyperscaler revenues, all point to a more positive outlook in 2025."
About the ISG Index?
The ISG Index? is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 88 consecutive quarters, it 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 about 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 advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including AI, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based 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 analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.
