It seems that the economic problems in both the US and Europe are also hitting the IT services market hard with the lowest number of IT servicing contracts signed last year since 2002.
Technology In Decline
The information is contained in new research that has just been published by business and IT research company Ovum which took a look at services activity in the last quarter of 2012. Activity fell well below the same quarter as 2011, making it the worst year in a decade for IT services both in terms of total contract value (TCV) and deal volume.
If this doesn’t set as many alarm bells ringing as the decline in the PC market does, this is only temporary. More and more companies are depending on services for incomes, IBM being one of them.
In its annual report for the end of last year, IBM posted a decrease in revenues of 2% to US$ 10.3 billion, or flat if currency adjustments were taken into account.
But that’s only an example and it seems that over the year this has been a general trend. In fact, things were so bad in the fourth quarter, according to Ovum, that the total contract value globally fell by 34% on the same period last year
This is reflected in the number of deals that were agreed, which fell by 17% with a notable lack of what Ovum describes as megadeals -- deals worth more than US$ 1 billion.
Dig a little deeper and it gets worse. While the level of activity was, in fact, an increase on activity in the third quarter, if you break the overall figure into private and public sector, the private sector had its worst year since 1998 in terms of TCV.
Europe Drives IT Downturn
Unlike the PC sector where factors that are depressing the market are things such as the rise of mobile business and cloud computing, the factors that are cited here as creating this situation will inevitably change in the future, even if it will take some time.
According to the research, current economic uncertainty is the principal factor in the current downturn, with many enterprises wary about committing to major projects, particularly in the eurozone area where a permanent resolution to the problem still appears a long way off.
This is true not just of the private sector, but of the public sector as well with many governments cutting spending to deal with government overspend and public debt.
Here, the result is in a drop in the number of deals in the health sector by 39% and in the financial services sector by 18% respectively, with an overall drop of close to 50%.
Regionally, Europe was the biggest market for private sector contracts over the course of 2012, inking 45% of all IT services contracts, but the amount of money generated by European companies fell by 31% to US$ 16.7 billion.
In the US, the decline was most severe in 2011 with a small upturn last year. However, it is still too early to say whether the upturn will continue.