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
Steve is President, ISG EMEA, providing strategic insight and advice to help ISG clients in the region solve their most critical business challenges and adopt and optimize the technology and operating models they need to compete successfully.
Steve was named Chief AI Officer in 2024. He leads the firm’s work to help clients create an AI strategy, establish a business case for investment and select the right business partners. His industry-leading expertise in navigating the complexities of adopting technology at scale is helping clients drive value into every aspect of their operations.
Steve joined ISG in 2005 and has led ISG Digital Advisory Services, Emerging Technology Services, Global Product Engineering and Application Development & Maintenance. He is trained as a software engineer and holds a bachelor’s degree in computer science from Regis University.
