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Big ITO deals resilient in the UK in 1H09
|17 июня 2009|
Ovum’s forthcoming report UK ITO: opportunities in a recession, shows that the UK IT outsourcing (ITO) market has been more resilient to the downturn during the first half of 2009 than previously expected. Deals signed by HP-EDS (Aviva and the Ministry of Defence), BT (National Health Service), CSC and IBM (UK Identity and Passport Service), and Fujitsu Services (Marks & Spencer) since January 2009 will add well over £2 billion of new ITO spend into the market over the lifetime of the deals – which range between six and ten years.
However, this paints a somewhat distorted picture of the broader IT services market in the UK. Most suppliers, particularly the tier-2 and tier-3 players, are finding life very tough in the current climate, while those at the top end are clearly benefitting from significant contract wins.
Top ten see ITO deal values jump 31%
Our research shows that the ten biggest UK ITO providers (HP-EDS, Fujitsu, IBM, CSC, Capgemini, BT, Atos Origin, Logica, Computacenter and Siemens) saw their total contract value (TCV) of ITO deals signed grow an impressive 31% in 1H09, even though the total number of deals was down 17%. This shows that it is a far more difficult market environment in which to do business, but those that do come through are bigger and potentially more lucrative at the top end of the market.
The key beneficiaries of this trend are the big guys such as HP-EDS, BTGS and IBM, which have seen a sharp increase in their TCV of deals signed in H109; others such as Capgemini, Atos Origin and Logica are seeing new orders come through and a strong pipeline of deals going forward, which should benefit them over the coming quarters.
Public sector, retail and insurance drive growth
Perhaps unsurprisingly, the vertical sectors that are actively investing in ITO in the UK in 2009 are the public sector, retail and insurance sectors – the latter two of which have been impacted by the economic recession and/or the banking crisis, and are actively deploying ITO to drive out costs.
Public sector is by far the biggest opportunity area in 1H09, and it too is accelerating cost-reduction programmes to respond to the challenging economic conditions. However, the deals signed in H109 at the MoD, NHS and UKIPS are all a natural continuation of existing programmes that are directed by government policy, in areas such as health-care transformation, national ID cards and a more integrated and modern armed forces service. Government commitments will provide further opportunities in 2H09, with the Environment Agency and UKIPS due to sign three deals each worth several hundred million pounds. (At the time of writing UKIPS had signed its first of the deals, a £400 million contract with De La Rue to manufacture the new ID-card passports.)
Retail too is under enormous pressure to cut costs and improve profitability as spending falls. So the award of a £142 million IT support service deal to Fujitsu Services by Marks & Spencer is a sign that major retailers are now reconsidering ITO as a means to solve some of their financial challenges. Insurance meanwhile is also showing a strong appetite for outsourcing – for example, Aviva’s decision to engage HP-EDS for a $1 billion ITO programme aims to reduce its IT costs by a planned 20% per year. Capita’s recent good form in the commercial sector can also be attributed to big wins in the UK insurance sector.
Polarisation of the UK ITO market is accelerating
The UK ITO market is heavily weighted to the large providers, and this evidence shows that they are clearly increasingly their hold on the market. The mid-sized and niche UK ITO players such as Steria, Northgate, Phoenix and Agilisys therefore have a smaller potential ITO opportunity to address.
This is accelerating the polarisation of the UK ITO market between the big players at the top which continue to make progress and the smaller players below which are being further squeezed as a result.
This will only continue to encourage further merger and acquisition activity in the UK market for the foreseeable future, with the large players continuing to make a land grab by purchasing their smaller rivals. Capita’s decision to acquire Carillion IT Services last week emphasises the fact that small and niche players will struggle to remain independent in the current climate.
The era of a two-tier UK IT outsourcing market may well now be over.