ISG Index

Asia Pacific’s market for technology services and software declined sharply in the fourth quarter, on lower demand for both cloud services and managed services, the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm, finds.

The Asia Pacific ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows fourth-quarter ACV for the combined market (both cloud-based XaaS and managed services) down 11 percent versus the prior year, to US $5.5 billion. It was the region’s worst performance since the first quarter of 2023, when the market was down 17 percent, and it ended a five-quarter growth streak during which growth averaged 8.5 percent.

“Asia Pacific had a very challenging fourth quarter and year in managed services,” said Michael Gale, partner and regional leader, ISG Asia Pacific. “We saw growth in engineering services in both periods, related to the need to become AI-ready. And while XaaS spending was down for the quarter, for the full year it accelerated slightly from the prior year, driven largely by AI workloads, data platform expansion and enterprise cloud modernization.”

Fourth Quarter Results

Managed services ACV in the fourth quarter slumped 36 percent, to US $735 million, and it was down 18 percent from the third quarter. A total of 64 contracts were awarded in the fourth quarter, down 13.5 percent from the prior year, but up 7 percent from the third quarter. New-scope and restructured contract volume were both down double digits versus the prior year, as was the number of smaller deals between $5 million and $9 million of ACV.

Within managed services, both IT outsourcing (ITO) and business process outsourcing (BPO) ACV were down sharply. ITO slid 46 percent, to US $464 million, and BPO dropped 42 percent, to US $119 million. Engineering services (ER&D) ACV, meanwhile, nearly doubled, up 93 percent, to US $152 million.

From a geographic perspective, Southeast Asia and China were up triple digits, while the remaining markets were down, including Australia-New Zealand (ANZ), down 70 percent, and India, down 7 percent. By industry, ACV for media/telecom and energy were both up triple digits, with most other verticals down significantly. Banking, financial services and insurance (BFSI) was down 60 percent and manufacturing was off 29 percent.