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IT outsourcing market slumps to 10-year low

Contract values are down 34 percent on the same period last year

Last year was the worst for the IT services contract market since 2002, according to research from analyst Ovum.

Activity in the last three months of the year, said Ovum, fell well below the levels seen in the same period of 2011, ensuring that annual IT services contract activity fell to its lowest level for 10 years, both in terms of total contract value and deal volumes.

Ovum said total contract values in the fourth quarter of 2012 added up to $20.8 billion (£13.75 billion), down 34 percent on the same period of the previous year. The number of deals fell 17 percent in the same period and there was a notable lack of "megadeals" (contracts valued at $1 billion or more).

While the level of activity in the fourth quarter represented a slight improvement on the previous three months of the year - with total contract value (TCV) up 10 percent from the third quarter of 2012 - annual TCV was down on the previous 12 months across both the public and private sector, with the private sector enduring its worst year since 1998 in TCV terms.

"The ongoing economic uncertainty afflicting key markets for IT services such as the US and Europe was a major factor behind the weak performance of the industry in 2012," said Ovum analyst Ed Thomas.

Thomas added: "Our research suggests that many enterprises remain wary of committing to major projects, with issues such as the Eurozone crisis having a particularly significant impact.

"In addition, public sector activity has reduced as many governments come under pressure to cut public spending in the face of high debt levels, leading to a general reluctance to get involved in large-scale IT services deals."

The sharpest fall in activity came in the services sector, where the number of deals announced fell by 50 percent. In healthcare and financial services contract volumes were down 39 percent and 18 percent respectively. The only industries in which contract activity was up on the previous year were telecommunications and technology.

Regionally, Europe was the leading market for private sector contract activity in 2012, with 45 percent of annual TCV. However, TCV generated by European enterprises actually declined sharply during the year, falling 31 percent to $16.7 billion (£11 billion).

Private sector TCV in North America, having slumped dramatically in 2011, rebounded in 2012, finishing the year up 48 percent at $10.5 billion (£6.9 billion).


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