Hello. This is Stanton Jones and Steve Hall with a special recap edition of the most important things you need to know from the 2Q24 ISG Index Call.
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2Q24: Quick Look
Managed services ACV was flat Y/Y, primarily due to continued weakness in BFSI. Cloud bookings grew 11% Y/Y on strong IaaS results. AI project work continued to accelerate in the second quarter, with the number of projects up more than 60% on a TTM basis. Watch the 2Q24 ISG Index replay here.
Data Watch
What You Need to Know
Managed services annual contract value (ACV) was flat year over year in the second quarter, due to continued weakness in the BFSI sector. Deal count was healthy in BFSI, and we see smaller ACV bands bouncing back, but deals over $50 million ACV (including megadeals) are down Y/Y in the sector.
Cloud ACV was up 11% Y/Y, with most of the growth coming from infrastructure-as-a-service, while SaaS bookings were up just 2% Y/Y.
Service provider AI project work is also accelerating. On a trailing 12-month basis, the number of AI-related projects reported on quarterly earnings calls was up more than 60%. However, the ISG estimate of average percentage of firm revenue derived from AI remained at 2.5%.
What’s Next
The weakness in the BFSI sector continues to be a concern. Last quarter, it was isolated to the Americas region; this quarter both Americas and EMEA saw the impact. The weakness was not unexpected.
Certain sectors continue to perform well. As we discussed last week, healthcare has been very strong of late, and both manufacturing and telecom performed well this quarter. The Asia Pacific region has also been very strong lately, with two consecutive quarters with more than $1 billion of ACV.
That said, the market – especially the BFSI sector, which makes up nearly 25% of the overall market – is feeling the impact of rising interest rates over the last 12-18 months. Hence, we are lowering our managed services revenue forecast for 2024 from 3% to 2%.
Meanwhile, cloud bookings are recovering. ACV for the big three hyperscalers grew by 30% in the second quarter, and, as we discussed on the call, 50% of enterprises plan on renewing or expanding an IaaS agreement over the next 12 months. Both of these are strong signals that IaaS is on a path to recovery and growth.
SaaS, on the other hand, remained in a low-single-digit ACV growth range. The promise of new AI features is compelling, but these features won’t be cheap and will require a modernized software infrastructure, which will slow broader adoption. We’re slightly lowering our cloud revenue forecast from 15% to 14% for the full year.
You can watch a replay of the call here.
About the authors
Stanton Jones
Stanton leads ISG's Index research, helping providers, investors and ISG clients make sense of the global IT services sector. Stanton’s weekly newsletter, the Index Insider, is read by thousands of market stakeholders each week. An ISG Digital Fellow, Stanton has been quoted in Fast Company, Forbes and CIO.com, and has appeared on national cable news.
Steve Hall
As the leader of ISG’s business in EMEA and an Executive Board Member, Steve provides strategic insight and advice to help ISG’s clients solve their most critical business challenges, helping them adopt and optimize the technology and operating models they need to compete successfully. In particular, he uses his long experience and broad expertise to challenge and inspire them to think about their risks and opportunities in new and unexpected ways.
Past achievements for clients
Steve leads his team’s engagement with clients with an industry-recognized and highly valued perspective on the most important trends in business and technology. He asks and answers the big questions: Why do you need to transform? What’s your best way forward? What do you need to accelerate? And where should you invest your technology dollars to make it all happen?
Among his many client success stories, his ability to take in the big picture, define the problem and connect the dots to the right solutions helped one legacy postal and shipping giant transform itself into a modern logistics powerhouse. He also guided a global energy industry leader through a complex operating model and IT provider transition, helping them see past the obvious cost cutting measures to identify the root causes of their challenges—and delivering savings far beyond what they had imagined.
