An all-time record high of 340 outsourcing contracts were signed in Q2’14 with growth coming mostly from deals valued at under US$40mn annually. These contracts generated US$6.4bn in annual contract value (ACV), also a record, and increased 72% versus the same period last year, despite a falloff in the number of mega deals (contracts valued greater than US$100mn). Building on the strong first quarter, second quarter results pushed the first-half contract count to a record high of 663, up 30% year over year, and ACV to US$12.4bn.1
In terms of domains, Information Technology Outsourcing (ITO) second quarter ACV doubled over Q2’13 to US$4.9bn, and its contract count reached a record high of 250 for the quarter.
The Business Process Outsourcing (BPO) domain recorded a slightly improved quarter compared to Q1’14. However, first-half 2014 performance was down 4% year over year, belying its essentially solid growth over the last five years. Traditional back-office functions like human resources, contact centers, procurement, finance and accounting haven't fared as well as industry-specific BPO, which has become one of the largest and fastest-growing markets.
Deal counts are strong across the globe. All three regions—Americas, Europe and Asia Pacific—are seeing upward momentum as ITO continues to grow. In short, the demand for outsourcing is extremely robust and is expected to remain so for the rest of the year.
EMEA had its best first-half ACV (US$6.3bn) since 2008. Second-quarter ACV of US$3.1bn was up 45% from Q2’13, fueled by continued strength in mega deals, new-scope and ITO contracts, as overall contract levels rose 35% from Q2’13.
The Americas rebounded from a string of relatively weak quarters, logging its best quarterly performance and breaking through the US$2bn ACV mark for the first time since Q1’13. Q2’14 ACV was at US$2.3bn, 22% higher than Q1’14. The increase was driven by a surge in overall contract awards, which increased more than 40% from last quarter and more than 120% from Q2’13. Restructured ITO and BPO deals all contributed to the first-half growth in ACV, while financial services and manufacturing were the top industry performers in the first half.1
Cognizant’s revenue in Q2’14 rose to US$2.52bn, up 16.5% from Q2’13. Net income was US$371.9mn, or US$0.61 per diluted share, compared to US$300.4mn, or US$0.49 per diluted share in Q2’13. Operating margin for the quarter was 19.4%. However, the results were below market expectations. Growth also slowed after the last few years’ consistent growth in earnings. This was due to weakness of certain clients and longer than anticipated sales cycles for a few large integrated deals.
TCS’ revenue at US$3.69bn was up 16.7 % year over year. Quarter over quarter, revenue grew 5.5%, the highest growth seen in 12 quarters, and US$191mn of incremental revenue was the highest in 15 quarters. Net income of US$845mn was up 20.5 % year over year. Robust volumes and healthy growth across all industries and key markets pushed revenue higher.