IT Services Forecaster™ Growth Forecast Report for C3Q 2016

Extensive study of true growth (organic, constant currency) across 19 IT services market segments indicates that the market grew by 3.1% YOY in the quarter ending September 2016, a 0.8 percentage point deceleration over the same period in 2015. The segments driving this deceleration were - Application outsourcing; Banking, financial services & insurance, and Europe.

Based on market analysis, we are revising our industry growth forecast ahead of the upcoming earnings season. While we had earlier forecasted industry growth at 3.0% over the next 12 months, we are downgrading that figure to 2.8% at present, based on both secular and cyclical challenges. Our revised growth forecast is based on deteriorating leading indicators as well as changes in buyers’ behavior and their approaches to contracting with service providers. Our prior and latest forecasts are based on our ongoing premise that services industry growth is being pressured primarily by significant revenue compression on existing deals in the traditional services segments (i.e., Applications outsourcing, Infrastructure outsourcing, and Business process outsourcing). Moreover, there was an uptick in the overall cyclical demand pressures in the recent months, primarily in the financial services, healthcare, and retail verticals.

The IT services industry is buffeted by ongoing changes, but the “black-box” nature of the industry makes it difficult for key stakeholders to answer basic – yet crucial – questions. To address these challenges, Everest Group has partnered with DeepDive to develop a systematic methodology to examine detailed industry growth trends, forecast industry & market segment growth rates, and measure & compare performance among major IT services providers.

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