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Asia Pacific’s IT, Business Services Market Up in Q1, But Growth Remains Uneven, ISG Index Finds

Combined market, XaaS and managed services segments each up 28% for the quarter, but down versus strong Q4

Asia Pacific’s IT and business services market grew by 28 percent in the first quarter, but demand slowed dramatically from a record fourth quarter as the region continues to produce uneven results, according to the latest state-of-the-industry report from Information Services Group (ISG), a leading global technology research and advisory firm.

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“It’s been a bit of a roller coaster ride recently, with each new quarterly high followed by a sequential drop in ACV.”

The Asia Pacific ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows full-year ACV for the combined market—including both as-a-service (XaaS) and managed services—reached US $4.2 billion, up 28 percent, but that was the region’s lowest growth rate in the last four quarters. First-quarter ACV was off 10 percent from the region’s fourth-quarter high of US $4.7 billion, the steepest quarter-over-quarter drop in more than two years.

“This is the fourth straight quarter the region has produced ACV of at least US $4 billion, but sequential growth has been uneven,” said Scott Bertsch, partner and regional leader, ISG Asia Pacific. “It’s been a bit of a roller coaster ride recently, with each new quarterly high followed by a sequential drop in ACV.”

As with the broader market, XaaS spending rose 28 percent in the first quarter, to US $3.7 billion, but was down 1 percent from the fourth quarter. Infrastructure-as-a-Service (IaaS) rose 30 percent, to US $3.3 billion, but was down 1 percent against the prior quarter, while Software-as-a-Service (SaaS) advanced 14 percent over 2021, to US $400 million, but was flat with Q4.

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Managed services, likewise, grew 28 percent in the first quarter, to US $498 million, but dropped 47 percent against the fourth quarter. The 28 percent year-over-year growth rate was the slowest in the last four quarters, with the three preceding quarters averaging 54 percent annual growth.

Within managed services, IT outsourcing (ITO) was up 31 percent, to US $370 million, but was down 50 percent against Q4. Business process outsourcing (BPO) grew 18 percent, to US $128 million, but fell 33 percent versus the fourth quarter.

The region generated 45 managed services contract awards in the first quarter, up 50 percent versus a soft first quarter last year, but down 26 percent versus a much-stronger Q4. The year-over-year growth in volume was driven entirely by the smallest band of contract awards measured by the ISG Index – those falling within the US $5 million to US $10 million range. Contract awards at this level were up 94 percent versus last year.

From a geographical perspective, Australia-New Zealand, at US $114 million of managed services ACV, was down 5 percent year on year, and off 77 percent against a very strong Q4. Both South Korea (up 67 percent) and Japan (up 25 percent) advanced versus the prior year off a small base, while the ASEAN region was up significantly as it posted its third straight quarter with ACV of more than US $100 million.

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