Asia Pacific was down sharply in the fourth quarter, buffeted by the troubled tech sector in China, according to the latest state-of-the-industry report from Information Services Group a leading global technology research and advisory firm.
“The tech sector in China continues to have outsized impact on the overall Asia Pacific region. If you exclude China, Asia Pacific’s combined market ACV for the quarter would have been up 10 percent over the prior year”
The Asia Pacific ISG Index which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows fourth-quarter ACV for the combined market (managed services and cloud-based XaaS) dropped 33 percent, to US $3.4 billion, with particular weakness in infrastructure-as-a-service (IaaS) spending due to lockdowns and technology regulation in China that impacted the country’s large hyperscale providers. Versus the third quarter, combined market spending was up 14 percent, the best sequential growth of the three regions the ISG Index measures.
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“The tech sector in China continues to have outsized impact on the overall Asia Pacific region. If you exclude China, Asia Pacific’s combined market ACV for the quarter would have been up 10 percent over the prior year,” said Scott Bertsch, partner and regional leader, ISG Asia Pacific.
The managed services sector outperformed the overall market in the fourth quarter, with ACV up 21 percent, to US $1.3 billion, and 96 contracts signed in the quarter, up 52 percent year over year. Within managed services, IT outsourcing (ITO) was up 19 percent, to US $877 million, while business process outsourcing (BPO) climbed 26 percent, to US $437 million. Compared with the third quarter, overall managed services spending was up 76 percent.
“Managed services had its second-best quarter ever, trailing only the second quarter of 2012,” Bertsch said. “The region saw strong demand for infrastructure and managed network services, as well as industry-specific BPO services and facilities management. Nearly 100 managed services contracts were signed in the quarter, a new record.”
Fourth-quarter XaaS spending, on the other hand, was down 48 percent from the prior year, at US $2.1 billion. IaaS spending was off 53 percent, to US $1.7 billion, while software-as-a-service (SaaS) spending declined 9 percent, to US $412 million.
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Full-Year Results
For the full year, Asia Pacific’s combined market generated ACV of US $13.8 billion, down 21 percent versus 2021, the steepest decline since ISG began measuring the combined market in 2015. XaaS ACV declined 27.5 percent, to US $10.4 billion, while managed services rose 9 percent, to US $3.4 billion. Enterprises signed 273 managed services contracts in 2022, up 24 percent over the prior year.
Within the XaaS segment, IaaS was down 31 percent, to US $8.8 billion for the year, while SaaS eked out a small increase, up 0.1 percent, to US $1.6 billion. On the managed services side, ITO advanced 4 percent, to US $2.4 billion, while BPO climbed 27 percent, to US $989 million.
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