Despite a weak third quarter, the Software Services sector ended on a strong note. In Q4’14 the value of mega-relationships (contracts over US$100mn) increased by 354% and the value of restructured contracts rose by 77% compared to the third quarter. The total value of contracts with Annual Contract Value (ACV) exceeding US$5mn was US$5.8bn in Q4’14, an increase of 27% compared to Q4’13.
The global outsourcing industry achieved double-digit growth in revenues for 2014, ending the year with 16% growth compared to 2013. 2014’s cumulative ACV reached US$23.1bn from 1,218 contracts, a 6% increase year over year. Although the number of new-scope contracts increased by only 1% in 2014, there was a 16% rise in terms of contract value at $US14bn. Restructured contracts increased by 16% in value at US$9.1bn and 9% in volume in 2014. The value of new-scope mega-relationships for the year increased by 53% at US$6.2bn. This implies that a large number of contracts were restructured, possibly to extend the tenure of the contracts or to include additional services. There was a significant rise in the number of new contracts signed, reflecting renewed buyer aggressiveness at a time when prices of services are extremely competitive.1
In Q4’14 Information Technology outsourcing (ITO) witnessed a year-over-year increase of 13% in ACV. For the full year, ITO had total ACV of US$17.3bn, a 19% increase compared to 2013. Demand for ITO services is on the rise, especially in the Americas, where the market saw a number of large deals for bundled IT services. With heavy investments made in cloud solutions, insourcing and automation, clients are now increasingly looking at applications design and maintenance (ADM) contracts to manage their IT infrastructure more efficiently. Overall, ITO contracts alone contributed to about 75% of the cumulative ACV of US$23.1bn generated in 2014.
After witnessing decline in Q3, business process outsourcing (BPO) posted a massive year-over-year increase of 80% in ACV for Q4’14. For the full year, BPO had an 8% increase in ACV compared to 2013. The total ACV for BPO stood at US$5.8bn at the end of 2014.1 Overall, BPO contracts contributed to the remaining 25% of the cumulative ACV of US$23.1bn generated in 2014.
Computer Sciences Corp (CSC) reported revenues of US$3.0bn in Q4’14, compared to US$3.1bn in Q3’14, a decline of 4%. This is attributable to price-cuts and business restructuring in Global Business Services and Global Infrastructure Services segments. Additionally, the company adopted a new pension accounting policy under which actuarial gains and losses and changes in fair value of plan assets are recorded in the year in which they occur and are excluded from operating income and EBIT, resulting in a reported loss of US$462mn in Q4’14. During the quarter, CSC also changed its accounting policy so inter-company transactions between segments are now treated as cost transfers instead of revenues. This revision comes after the US$195mn fine that the company paid in Q4’14 to the SEC, which alleged that CSC’s previous inter-company accounting policy violated US antifraud, reporting, and books-and-records laws. As a result, the company’s net income declined to a loss of US$313mn in Q4’14 against net profits of US$151mn in Q3’14.
Infosys continues to expand and enter into strategic partnerships to offer new solutions to clients. It partnered with Tableau Software, a business analytic software, to integrate their offerings into the Big Data solutions offered to clients. Infosys has also entered into an engineering partnership with DreamWorks Animation through which Infosys will deploy its global talent pool, available across Cloud, Big Data, Java and open source capabilities, to develop next-generation solutions based on DreamWorks technology. Infosys reported relatively flat performance quarter over quarter with flat revenue and net income. Its EPS dropped by half due to the 1:1 bonus issue by the company.
Cognizant completed the acquisition of TriZetto Corporation, which manages the health benefits of close to half the insured population in the US and supports about a quarter of all US healthcare providers. With more than US$3.0bn in combined healthcare revenue, Cognizant and TriZetto will serve nearly 245,000 healthcare providers.