IT services market slumps 40% in Q2

The gathering economic gloom has hit IT service companies hard, according to a report from Ovum.

New global analysis from the analyst group has highlighted a 40% year-on-year decline in new service contract signings in the second quarter of 2011.

The total contract value (TCV) of new deals hit an eight year low at just $19 billion (£11.8 billion), while the number of deals recorded fell for the fourth consecutive quarter, to 384 – down more than 20% in the second quarter of 2010.

Author of the report Ed Thomas, commented, “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.

“In previous quarters, the buoyancy of the public sector outsourcing market has gone some way toward offsetting the lacklustre returns from enterprise clients. However, on this occasion government spending on IT services projects also took a hit, with a notable lack of large-scale projects on offer,” he said.

Thomas highlighted the lack of mega deals – valued at $1 billion or more – as well as the squeeze on public sector spending as factors depressing the market.

Enterprise spending on IT services was hit hard in North America with private sector TCV accounting for just 15.5% of the global market in the first half of 2011, compared with the 39% it held for the first six months of 2010.

Europe generated 58% of private sector TCV in Q2 2011, but this was mainly due to significant contract-signing in Denmark, Finland, Norway and Sweden, according to Ovum.

Taken together with recent reports that show a modest increase in coporate IT spending in the US, the Ovum survey suggests both the impact of tightening markets and changing IT buying patterns.