TPI says demand worry looms for IT cos next yr

Information technology contracts are shrinking rapidly as per the latest report from TPI, a firm that structures one-fourth of global IT and ITeS deals.

The second quarter 2010 Global TPI Index, which measures commercial outsourcing contracts valued at $25 million or more, has recorded total contract value (TCV) of $18.1 billion, down about 13 % both sequentially and year on year.

As expected major market’s of worry were Europe, the Middle East and Africa (EMEA).

“The global outsourcing market continued to recover slowly and quite unevenly in the second quarter,” said Mark Mayo, Partner and President, TPI Global Operations.

Some analysts had already raised their concern on demand sustainability in 2011.

“While we do believe that the next two quarters will continue to be good from a demand standpoint, the drop in TCV and weak order bookings in IBM, will raise concerns on the sustainability of the demand in 2011,”  Manoj Singla, Rumit Dugar and Udit Garg of Religare wrote in a note on Wednesday.

Even as economists regard US as a market still under rcovery, according to TPI TCV increased as much as 30% in US, down 6% in Europe and Middle East and 59% in Asia-Pacific for the first half of 2010.

However according to TPI, innovations such as cloud computing would provide some comfort to IT service firms as more than three fourth of TPI’s clients ‘have had internal discussions about cloud computing.’

Another positive was the uptake in BPO services. “The quarterly TCV of contracts for business process outsourcing (BPO) rose 60% over the Q12010, which was one of the worst on record in this segment, and 20 % over the Q2 of 2009.’

TPI, however, said overall BPO activity remained weak with the greatest growth in contracts valued at between $10 million and $25 million.

For the first half of 2010, global market TCV of $38.9 billion remained flat with a year ago following the unprecedented surge in contract restructurings during the first quarter. In the second quarter, restructurings accounted for 20 percent of TCV, in line with historical trends.