IT services deals experienced a steep decline in 2017, both in terms of the number of deals and total contract value (TCV), according to analytics company GlobalData.
GlobalData said that according to its proprietary databases, primary and secondary research, and in-house analysis, both contract values and volumes dropped by over one quarter in the past year.
TCV witnessed a significant annual decline of 33.3% in 2017 to reach a value of $61.4 billion, while the number of deals announced (4,099) saw a considerable decrease of 25.6% in 2017 compared to 2016.
The average contract value also took a beating in 2017 compared to the previous two years. However, the average contract duration experienced a slight increase (2%) in 2017 compared to 2016, which shows that companies are still willing to enter into long term contracts with IT services providers.
Application outsourcing contracts were at the forefront of the total number of deals signed in 2017, accounting for 38.4%. With respect to the TCV of the deals, infrastructure outsourcing contracts dominated the IT service contracts with a TCV of $31.8bn. North America led in terms of the TCV of the contracts announced in the infrastructure outsourcing segment, with a TCV of $16bn, followed by Europe with a TCV of $10.6bn.
Piyush Sharma, Lead Technology Analyst at GlobalData, commented: "Although the TCV of the contracts announced in the infrastructure outsourcing segment was the highest in 2017, it witnessed a considerable decline due to fewer mega deals, meaning deals over $500m, compared to the previous two years."
The BPO segment witnessed the renewal of three large deals (over $100m) in 2017, compared to only one large deal each in the last two years. While, TCS dominated the BPO segment with respect to the TCV, courtesy of the mega deal it renewed with Nielsen Holdings, Hays plc dominated the segment on the basis of the number of deals announced in 2017.
Meanwhile, the systems integration and consulting segments experienced a considerable decline in their TCVs primarily due to the absence of large value deals compared to nine and 15 large deals in these segments in 2016 and 2015, respectively.
Sharma concluded: "Within IT solution areas, cloud computing and information management/analytics segments dominated the IT services segment in 2017, as enterprises are looking to reduce their capital and operation costs and enhance their decision making process. Moreover, a significant number of deals with a scope of information management are set to expire in 2018, providing opportunities for analytics and business intelligence vendors."