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Market analysis

The global outsourcing market in Q3 2015 remained flat in terms of total contract value. However, the volume of contracts surged as enterprise buyers continue to push for shorter contracts at lower cost. A total of 344 contracts were signed during the quarter, up nearly 20% year over year, but down from the record 448 contracts signed in Q2 2015. Annual Contract Value (ACV) during the quarter stood at US$5.6 billion, flat year over year, but down 9% compared to Q2 2015.

New-scope contract ACV of US$3.8 billion was up 5% sequentially and 8% year over year. Restructured contract ACV of US$1.8 billion registered a 29% decline sequentially and a 13% decline year over year. Mega-relationship contract ACV of US$0.9 billion was up 126% sequentially, but declined 26% year over year.1

The Software Services subsector in Q3 2015 reported strong year-over-year growth of 6.7% and quarter-over-quarter growth of 2.2%. Year-over-year growth was spearheaded by Cognizant (+24%), whose acquisition of TriZetto in Nov 2014 has led to higher earnings compared to Q3 2014. Other companies that contributed to year-over-year growth include Infosys (+9%), HCL Technologies (+8%) and Tata Consultancy Services (+6%).

On a quarter-over-quarter basis, the strongest growth was reported by Infosys (+6%), Cognizant (+3%) and Tata Consultancy Services (+3%). Computer Sciences Corp (CSC) was the only company that reported both year-over-year and quarter-over-quarter revenue declines of 12% and 2%, respectively. This was partly due to unfavorable currency movements that reduced CSC’s earnings.

Information technology outsourcing (ITO) ACV of US$3.6 billion dropped 23% sequentially and 15% year over year as large infrastructure deals gave way to smaller cloud and other ‘as a service’ contracts. On the other hand, business process outsourcing (BPO) ACV of US$2.0 billion was up 40% sequentially and 53% year over year, fueled by a sharp increase in contract center outsourcing and industry-specific BPO.

At 165 deals with an ACV of US$2.4 billion, the Americas has now surpassed US$2.0 billion in ACV for seven consecutive quarters. However, the region saw a continuing trend toward smaller contracts spread across a broad base of buyers. While ACV was down 12% sequentially and 1% year over year, the number of deals surged 42% sequentially and 31% year over year. The US market has seen the number of contracts increase 26% year over year, while ACV has grown 4% year over year. Among industries, Business Services, Retail and Travel & Transport posted strong ACV, while Financial Services and Energy pulled back spending.1

Computer Sciences Corp (CSC) has agreed to combine its Computer Sciences Government Services (CSGov) unit with SRA International upon the spin-off of CSGov. Plans for the spin-off were announced in May 2015 and the transaction with SRA is targeted to close by the end of November 2015. The combined company will become the largest pure-play IT services provider serving the US government sector, with combined FY2015 revenues of approximately US$5.5 billion and nearly 19,000 employees.2

CSC also announced that they will acquire Fruition Partners and Fixnetix Ltd. Fruition Partners is an enterprise service management solutions provider and a leading global integration partner for ServiceNow. Fixnetix is a specialized Managed Service Provider of low-latency solutions to capital market participants.2

CSC also created a joint venture with HCL Technologies in July 2015 to serve global banking clients. CSC will provide its core banking, cards, payments and default management industry talent, software and product development expertise. HCL will provide capital investment, extensive experience in product engineering and application implementation services, as well as banking sales and client engagement expertise.3

HCL Technologies is collaborating with IBM to jointly develop Internet of Things (IoT) solutions. Together, HCL and IBM will initially focus on specific verticals including Industrial & Manufacturing and Smart Facilities to co-develop innovative solutions around ‘Connected Products and Operations’ such as remote monitoring, smart inventory management and smart building & facilities management. The two companies will also set up an incubation center at Noida, India to develop these solutions for the targeted industries.4

Infosys won five large deals with a total contract value (TCV) of US$983 million. In North America, it signed a three-year deal with TOMS Shoes to become its worldwide partner to maintain and develop its digital platform. It was also selected by Saks Fifth Avenue, an American luxury retail store chain, to deploy an Omni-channel solution. In Europe, Infosys entered into an agreement with ABB (a Swiss high-tech engineering multinational operating in robotics, power and automation) to roll out and manage a product compliance solution for ABB’s Low Voltage products. Infosys also entered into a strategic partnership with the Association of Tennis Professionals (ATP) to transform tennis fans’ and players’ experience by using the latest technological advances in mobility, cloud and analytics powered by the Infosys Information Platform. In India, Infosys won a US$210 million contract from the Goods and Services Tax Network (GSTN) to build and maintain the GSTN system for five years.

 

1. The Global ISG (Information Services Group) Outsourcing Index, Oct 2015

2. CSC.com, Aug 2015

3. The Economic Times, Jul 2015

4. HCL, Sept 2015