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MOSL:TECHNOLOGY: ISG, Gartner IT industry demand outlook intact despite macro concerns

ISG and Gartner, leading global consultants and advisors to the IT Services industry, released their 2QCY22 industry growth forecast. Commentary from both advisors indicated that the demand environment for the IT Services industry remained good, despite macro headwinds. While ISG lowered its growth estimate for IT Services deal wins for CY22, it was primarily on account of external factors, including FX movement and a hyperscaler slowdown in China. Gartner, on the other hand, increased its CY22/CY23 absolute growth estimates, along with an upward revision in its CY21 base. Here are the key takeaways:

 

2Q ACV moderates v/s 1QCY22 levels; ISG maintains its double-digit guidance

• Overall annual contract value (ACV) grew 9% YoY in 2QCY22, with the as-a-Service (AAS) market/Managed Services up 14%/2% YoY.
• Growth in AAS was driven by a 40% YoY growth in Infrastructure-as-a-Service (IaaS) on account of a robust performance from hyperscalers and continued migration of legacy infrastructure to the Cloud. Growth in Managed Services was led by a 38% YoY growth in the BPO business, while ITO ACV declined by 7% due to a decline in legacy infrastructure.
• ACV in Americas/EMEA rose 21%/18% YoY, while the APAC market declined by 33% due to regulatory changes impacting the Chinese Cloud market.

 

Traditional IT spends for CY22 impacted by currency movements

• ISG revised down its CY22 Managed Services (Traditional IT Services) growth guidance to 3.5% YoY from 5.1% in 1QCY22. While the demand environment remained robust, the cut in guidance was due to FX-related headwinds of 150-200bp from depreciation in the EUR and GBP (30% of the market), along with a weakness in legacy heavy IMS vendors in the US and Europe.
• AAS is expected to grow strongly at 18% YoY, although it moderated v/s its 22% growth guidance in 1QCY22. A majority of this downward revision was on account of a decline in Chinese IaaS business due to a new regulatory environment for hyperscalers, which shaved off USD1.5b in revenue in 2QCY22.
• ISG sees demand remaining strong, despite the macroeconomic uncertainty, especially for industry-specific Cloud solutions. Moreover, it continues to see favorable pricing in both traditional as well as Digital deals.