2012 'Worst' Year for IT Services Spending: Ovum

With looming economic uncertainty, enterprises remain cautious about taking on major IT projects, with 2012 finishing as the worst year for the IT services industry in a decade, according to new research from Ovum (News - Alert).

In Ovum’s latest analysis of the IT services market, the total contract value (TCV) of deals announced in the fourth quarter of 2012 was $20.8 billion – down 34 percent on the same period of the previous year.

The ongoing economic uncertainty afflicting key markets for IT services such as the U.S. and Europe was a major factor behind the weak performance of the industry in 2012, according to Ed Thomas, senior analyst in the Ovum IT Services team.

“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,” Thomas said in a statement. “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 hesitancy among enterprises occurred in several vertical markets, with the sharpest fall 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.

On a regional level, Europe was the leading market for private sector contract activity last year, 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.

Having dropped dramatically in 2011, private sector TCV in North America, rebounded somewhat in 2012, finishing the year up 48 percent at $10.5 billion

Other parts of the world and – aside from North America and Europe – in other sectors appear to be less affected by economic uncertainty. For example, the government sector in the Middle East and Africa is expected to spend $17.7 billion on IT products and services in 2013 – an increase of 2.3 percent over 2012 revenue of $17.3 billion, according to Gartner (News - Alert).