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Market analysis

The global outsourcing market slowed in the first quarter of 2015 from its near-record high revenues in Q1 2014, with contract values falling due to increased competition. First-quarter Annual Contract Value (ACV) fell 18%, to US$5.1bn, one of the lowest first quarter ACVs in the last decade. Q1 2015 revenue was also flat compared to the fourth quarter of 2014, but up 6.3% year over year. Most of the tracked companies experienced a slight decline in net income compared to last quarter and year over year. Computer Sciences Corp (CSC) reported the sharpest decline in net income of 103% quarter over quarter and 94.8% year over year.

The total number of first quarter contracts (305) was down 7% from Q1 2014. Still, the volume of smaller deals, those with ACV of under US$30mn, remained steady compared to Q1 2014 totaling 269 contracts valued at US$2.5bn. However, larger deals, worth more than US$30mn annually, declined about 25% in number (28 contracts) and value (US$1.3bn in ACV) from the previous year. By domain, information technology outsourcing (ITO) slowed in the first quarter, with US$3.5bn in ACV awarded, down by 27% from last year and the lowest first quarter ACV since 2004. Conversely, business process outsourcing (BPO) saw contract volume grow by 18% and ACV by 13% to US$1.6bn. This was the second consecutive quarter BPO had an ACV of more than US$1.5bn.1

In Q1 2015 the Americas had the strongest quarter compared to EMEA and Asia Pacific. The Americas ACV increased by 10% compared to Q1 2014 to US$2.1bn. This makes Q1 2015 the fourth consecutive quarter the Americas region posted ACV higher than US$2bn. A total of 143 contracts were awarded in the quarter, up 27%. Restructured ACV reached more than US$1bn in consecutive quarters, and the value of restructured contracts were higher than that of new-scope contracts, which has happened only twice before. Among industries, the Energy sector’s ACV increased by 125% and its volume soared by 150% as the pace of sourcing activity picks up in the face of falling oil prices. Healthcare and Pharma also had a strong quarter, with ACV more than tripling and volume up nearly 150%, reflecting the growing need to provide services at lower cost amid increasing regulatory and compliance pressures.1

Computer Sciences Corporation plans to divide into two separate publicly traded companies. One company will serve commercial and government clients globally and the other will serve public sector clients in the US.

  • CSC Global Commercial will be the information technology (IT) services and solutions partner for Fortune 1,000 companies and non-US government clients. With US$8.1bn in FY 15 revenue, CSC Global Commercial will have more than 1,000 customers (including 175 of the Fortune 500), 51,000 employees and 34 delivery centers globally. The business will retain its leadership status across multiple markets, along with innovative offerings and industry-leading strategic partnerships.
  • CSC US Public Sector will be a provider of mission-specific IT, infrastructure and business services to US federal, state and defense agencies. The public sector business had FY 15 revenues of US$4.1bn and employs 14,000 people.
  1. The Global ISG (Information Services Group) Outsourcing Index, April 2015

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