The Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows second-quarter ACV at US $3.0 billion for the combined market—including both cloud-based XaaS and managed services. That was down 33 percent versus last year’s second quarter and 31 percent sequentially from the first quarter, both strong periods. It was also the sharpest quarterly decline in the region’s combined market ever recorded by the ISG Index, and the third quarter in the past four in which growth slowed sequentially.
“Asia Pacific has been on a tremendous run, topping US $4 billion for four straight quarters dating back to last year,” said Scott Bertsch, partner and regional leader, ISG Asia Pacific. “We have seen a gradual slowing of the market in recent quarters, although demand continues to remain high. Economic headwinds dramatically slowed the market in the second quarter, particularly in ANZ, Japan and China, which all faced difficult comparisons with prior periods.”
ACV for cloud-based XaaS, a long-time growth engine for the region, slumped 38 percent year over year and 44 percent against the first quarter, to US $2.2 billion. It was the lowest quarterly XaaS ACV for the region since the pandemic-impacted third quarter of 2020. The slowdown reflects weakness in China, impacted by extended Covid lockdowns and a tighter regulatory environment for the country’s technology sector. China’s big hyperscalers – including Baidu, Alibaba and Tencent – saw their growth stall.
Within the XaaS segment, infrastructure-as-a-service (IaaS) was down 43 percent from a year ago, to US $1.8 billion, even as software-as-a-service (SaaS) advanced 16 percent year on year, to US $378 million. The latter reflects the continuing trend away from traditional, on-premises software licensing, as well as growing uptake on SAP S/4 HANA and Microsoft Dynamics.
On the managed services side, ACV declined 17 percent year on year, to US $826 million, but was up 63 percent against the first quarter. Demand for managed services has exceeded US $800 million in three of the last five quarters, a sustained level of performance above historical norms. India and Southeast Asia were up markedly in the quarter, while Australia-New Zealand, Japan and China saw declines against strong prior-year periods.
There were 76 managed services contracts signed during the second quarter, the most ever recorded for the region, beating the previous high of 72 contracts in the second quarter of 2017.
First-half ACV for the combined market, at US $7.4 billion, was down 5.5 percent versus the same period last year, the first time ACV declined in a first half since 2016. ACV for XaaS was US $6.1 billion, down 6 percent, the first time the region’s XaaS market has been down at the half-year mark. Managed services ACV, at US $1.3 billion, was down 4 percent versus the prior-year period. There were 123 managed services contracts signed in the first half, up 27 percent over the like period in 2021, and the highest volume Asia Pacific has ever recorded in the first half.
2022 Global Forecast
With the potential for continued economic uncertainty, ISG lowered its 2022 global growth forecast for cloud-based XaaS (IaaS and SaaS) to 18 percent, from 22 percent a quarter ago, and reduced its global growth forecast for managed services to 3.5 percent, from 5.1 percent in the first quarter.
About the ISG Index™
The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 79 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media. In 2016, the ISG Index was expanded to include coverage of the fast-growing as-a-service market, measuring the significant impact cloud-based services are having on digital business transformation. ISG also provides ongoing analysis of automation and other digital technologies in its quarterly ISG Index presentations.
For more information about the ISG Index, visit this webpage.
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 800 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.