Europe’s IT and business services market was down slightly in the fourth quarter, the first time in the last 13 quarters the region failed to produce year-over-year growth, according to the latest state-of-the-industry report from Information Services Groupa leading global technology research and advisory firm.
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“should provide favorable tailwinds for this market”
The EMEA ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows ACV for the combined market (both managed services and cloud-based as-a-service) at US $7.2 billion for the fourth quarter, down 1 percent from the prior year. It was the first time since the third quarter of 2019 that the region did not register year-over-year growth.
Managed services ACV for the quarter came in at US $3.4 billion, down 3 percent. Contract awards were up 12 percent, to 234 contracts, but that was the region’s lowest quarterly volume this year after a record-setting third quarter. IT outsourcing (ITO) slumped 15 percent, to US $2.5 billion, while business process outsourcing (BPO) soared 73 percent, to US $873 million, driven by growth in engineering services and facilities management.
ACV in the as-a-service (XaaS) segment, at US $3.8 billion, was up 0.5 percent versus the prior year, the slowest growth since the first quarter of 2015. Infrastructure-as-a-service (IaaS) rose 4 percent, to US $2.8 billion, while software-as-a-service (SaaS) dipped 7 percent, to US $1.0 billion.
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“Europe finished the year on a bit of a down note, after robust growth in the prior three quarters,” said Steve Hall, president, ISG EMEA. “Economic and energy concerns likely had a dampening effect on spending. However, the region’s record full-year results paint a much brighter picture of overall demand and early market indicators bode well for growth in 2023.”
Full-Year Results
EMEA’s combined market ACV reached a record US $30.1 billion for the year, up 11 percent over the prior year.
Managed services had a record year, with ACV of US $14.9 billion, up 6 percent, the region’s best performance since 2011. Even though ITO, at US $11.3 billion, was down 1 percent, BPO climbed 37 percent, to US $3.6 billion. A record 1,031 managed services contracts were awarded in 2022, up 14 percent versus the prior year.
The XaaS segment generated record ACV of US $15.3 billion, up 17 percent, and accounted for 51 percent of the combined market, versus 48 percent in 2021. IaaS rose 23 percent, to US $11.3 billion, while SaaS was up 2 percent, to US $3.9 billion.
Geographic Performance
In the fourth quarter, the region’s second-largest market, DACH (Germany, Austria and Switzerland), generated US $772 million of managed services ACV, up 19 percent versus the prior year, on the strength of infrastructure services and banking, financial services and insurance (BFSI) services. Conversely, managed services in the UK, the region’s largest market, was down 28 percent, to US $843 million, as demand for BFSI and application development and maintenance services slowed. France, likewise, was down, with managed services ACV declining 16 percent, to US $430 million, as demand slowed for BFSI and data center services.
For the full year, DACH generated US $3.5 billion of managed services ACV, up 14 percent, while the UK rose 1 percent, to US $3.7 billion of ACV. France, likewise, was up 1 percent, to US $2.2 billion.
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