Worldwide IT and business services revenue declined 1,9% year over year (in constant currency) during the first half of 2020 (1H20) according to the International Data Corporation (IDC) Worldwide Semiannual Services Tracker.
Derailed by the pandemic in the first quarter and then absorbing the full impact of the shutdowns during the second quarter, services revenue fell below $500 billion (in constant currency) in 1H20.
In nominal dollar denominated revenue based on today’s exchange rate, the decline was 3.7%, due to the strengthening dollar.
IDC forecasts the market to continue to decline throughout the year. However, the near-term outlook is less pessimistic than a few months ago. The June market forecast update projected the market to decline 2.8% for 2020. The current forecast tempers that to just a 2.3% decline. The forecast growth rate for 2021 has also been increased by 500 basis points, from 1.4% to 1.9%, reflecting optimism for a quicker and stronger recovery.
IDC’s view on the supply side remains intact. Most services providers have helped their clients’ employees transition to working from home without major hiccups. As most providers expect to continue remote working throughout the year and even well into 2021, productivity and potential employee burnout remain a top challenge and concern for leadership. IDC believes that the short-term financial impact will be limited.
The demand-side shock was indeed severe and immediate. Most large global vendors, including top Indian services providers, saw their second quarter reported revenue growth reduced by at least a few percentage points from pre-COVID-19 levels.
However, overall confidence and outlook have improved. Some vendors are reporting strong bookings in the second quarter and more active pipelines despite declining revenues.
Sales teams are adopting quickly to virtual B2B selling and taking advantage the expanded “mind-share” of senior business leaders (more time or freed up due to no travelling/commuting and more open-minded to new ideas and new ways of doing things, unlocked by the crisis). This has already contributed to large deal making in the third quarter.
Most vendors believe that in the long run the crisis is a net-positive with the Covid-19 crisis tipping organisations and consumers over to the digital world.
The forecast for Europe received significant upward adjustments in this forecast update. While the Euro area GDP is still projected to shrink by more than 8% this year, it is less severe than previously expected. Most European governments were able to contain the pandemic somewhat effectively and have shown great coordination and collaboration during the crisis (for example, issuing a common Euro bond in July, which greatly improved busines confidence in the region).
The shutdowns and budget shortfalls will likely drive more cloud adoption and outsourcing/offshoring. Therefore, we are expecting faster recoveries in key services markets within the region.
The short-term growth rate for the Middle East & Africa (MEA) was also adjusted up slightly to less than a 3% decline this year. While the pandemic and plummeting oil prices continue to wreak havoc in the economy, it is partially offset by the shutdown driven “need for digital” among local organisations.
“Buyers’ budgets may still be down, but there is much more certainty now compared to a few months ago,” says Xiao-Fei Zhang, program director of Global Services Markets and Trends at IDC. “Enterprises and government agencies are moving from a ‘do whatever to survive today’ mentality to the ‘if we do not go online, we will not survive tomorrow’ mentality. Decision makers are beginning to prioritize and reprioritise budget items accordingly and are willing to make tough calls again. This can drive digital spending in the coming years.”