Report: ITO Spending Stops Declining for First Time in Two Years

Corporate companies have resumed investing in information technology services, thus preventing the IT outsourcing market from shrinking further for the first time in two years, according to the latest study by technology consulting firm Nelson Hall.

Spending on IT services in the third quarter of 2014 was up 1.5%, driven mainly by increased investment in professional services, which expanded 3% in the quarter.

“Q3 2014 was a landmark quarter for ITO. This is the first time since Q4 2012 that spending is not negative. Quarter after quarter, corporate clients are back into investment mode, awarding slightly higher scope ITO contracts,” said the research firm.

According to the study, there has been a steady rise in long-term ITO contracts.

The report brings a degree of relief for IT outsourcing service providers, because spending on ITO had been shrinking every quarter since the fourth quarter of 2012.

ITO bookings were down 20% over the Q1 and Q3 period this year. This decline was driven by businesses in North America, where bookings decreased by about 30% over the period of three quarters.

Within North America, the commercial sector was up 90% during Q1-Q3, albeit on low total contract value (TCV) levels. The public sector was down 70% during the same period, also low on TCV levels.

Yet the research firm estimates that worldwide IT services spending will have increased by an average 2% by the end of this year. The report says ITO spending will remain flat in 2015, largely because of the low level of ITO bookings in late 2013 and 2014.