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Market analysis

The global outsourcing market surged to all-time highs in terms of number of contracts signed during Q2 2015. A record 451 contracts were signed during Q2 2015, showing a year-over-year increase of 24%. Sequentially, the number of contracts increased 49%. Despite the rise in contracts, Q2 2015 Annual Contract Value (ACV) totaled US$6.2bn, declining 7% from Q2 2014. However, ACV increased by 24% compared to US$5.0bn in Q1 2015.

Buyers continue to negotiate deals at a lower value and took advantage of specialized services offered by small niche providers. They also avoided large, long-term contracts at a time when new technologies and operating models are causing significant disruption and uncertainty in the market. New-scope contract ACV of US$3.8bn was up sequentially (+18%), but declined year over year (-11%). Restructured contract ACV of US$2.4bn also showed sequential gain (+33%), but a year-over-year decline (-1%). Mega-relationship contract ACV of US$0.4bn declined both sequentially (-65%) and year over year (-75%).

Information technology outsourcing (ITO) ACV of US$4.8bn was up sequentially (+43%), but declined year over year (-8%). The year-over-year decline was due to a slow-down in EMEA and a record performance in the manufacturing sector in the second quarter of last year. Business process outsourcing (BPO) ACV of US$1.4bn declined both sequentially (-15%) and year over year (-6%) as buyers continued to push for deals at lower values.1

ACV in the Americas was up 29% sequentially and 11% year over year, driven largely by ITO, which had the strongest quarterly performance in the last three years. Smaller verticals such as Travel and Transport, Healthcare and Pharmaceutical and Retail led the charge as the region’s top growth industries. The US market, with an ACV of US$2.4bn, had its best second quarter since 2010. Overall, the Americas achieved a record 236 contracts in Q2 2015 and an ACV of US$2.8bn is the highest quarterly ACV since the first quarter of 2012. The region has now surpassed US$2.0bn in ACV for six consecutive quarters. Canada and Brazil, with a combined quarterly ACV of US$0.3bn, also contributed to the region’s strong performance. ITO posted an ACV of US$2.1bn compared to US$1.2bn in the first quarter. BPO posted an ACV of US$0.7bn, pulling back slightly from the US$0.9bn seen in the first quarter.1

CSC reported Q2 2015 revenue of US$2.8bn, declining 14.7% year over year and 5.1% quarter over quarter. The declines were due to the strengthening of the US Dollar against major foreign currencies, the ongoing repositioning of the consulting business and contract completions in the applications business. Net income for Q2 2015 was US$160.0mn compared to US$9.0mn in Q1 2015. The Q1 2015 income included the impact of a US$1.2bn cumulative loss from non-cash pension and SEC-related charges, and special restructuring charges. Year over year, CSC’s Q2 2015 net income was up 9.6%, driven by lower operating expenses and lower taxes.


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