Tech Mahindra provides security services through its Cyber Security practice, a horizontal line of business. The practice has a headcount of 650 personnel, has 85 active clients, and has several service offerings/sub-practices:

• Consulting and GRC
• Identity and Access Management
• Security Operations and Monitoring (through security operations centers in Pune and Delhi)
• Application Security.

Most contracts are small (up to $10m), with clients mostly in the U.S. and U.K., across sectors. Tech Mahindra has a larger client base larger in telecoms, a reflection of the company’s background in communication service provision, and it is expanding to BFSI and manufacturing.

Application Security is a significant activity for the Cyber Security practice, accounting for 25% of revenues, and with a headcount of ~120. The Application Security sub-practice is responsible for:

• Addressing attacks that target security gaps in applications
• Creating transactions to check data, access and privilege-based security issues
• Addressing non-compliance to regulatory and security standards.

Application Security has several activities across the software development lifecycle, including dynamic application security testing (DSAT), ethical hacking, static application security testing (SAST), and security design review. Of these, ethical hacking (e.g. manual and automated penetration testing) remains one of the services most in demand, along with related project-based activities (including code reviews, threat modeling, and application design review), plus training and ‘shift-left’ consulting.

Penetration testing is in demand as an effective way of security testing, and also for compliance reasons; e.g. as part of quarterly audits, or by data center operations for certification purposes. Most of the applications tested are web-based applications, web sites and mobile apps.

One of the challenges face by the Application Security sub-practice is expanding project-based testing into multi-year contracts, with TCV currently up to $10m over five years. The sub-practice argues that, contrary to functional testing activities, it does not provide a pass/fail service; rather, it continuously looks for vulnerabilities, not knowing where the next attack will come from, including finding vulnerabilities in previously tested code. For this reason, Tech Mahindra has created its Application Security Bureau offering for multi-year contracts, where delivery of application security is provided by Tech Mahindra, but with governance remaining in the hands of the client organization.

In spite of this, client demand remains very much project-based, largely constrained by budget availability. As a result, Application Security has expanded its service offerings and pricing model to accommodate clients with limited budgets. These offerings are:

• Security Test Factory (where the client buys services from a service catalog, and where teams are provided on a flexi model)
• Security Liaison (where one of Tech Mahindra’s consultants acts as the interface between the businesses and IT, to drive understanding and coordination among stakeholders).

Security Test Factory is a very successful offering and captures 80% of spending among Application Security’s multi-year contracts.

Tech Mahindra’s Application Security sub-practice remains optimistic about the potential for multi-year contracts, with security having become a top priority for client organizations. Lack of skills are another driver, as well as lack of knowledge of the relevant hacking software tools. Application Security points out that clients tend to use traditional enterprise software products for ethical hacking. Yet Application Security’s research shows that attacks are carried out by hackers using software found on Darknet, or open source software, and require skills that most clients do not have internally.

What is the future like for Tech Mahindra’s Application Security? Digital is obviously on the agenda. The sub-practice has launched two digital flavors of its Security Test Factory: DevOps and IoT. With short development lifecycles, DevOps requires further investment in security testing automation and industrialization. Meanwhile, IoT mostly requires security assessments at the user interface level for connected devices, and remotely for sensors.

By Mike Smart and Dominique Raviart

Four years ago, at the time of the London 2012 Olympics and Paralympic Games, NelsonHall reported on the work Atos does for the International Olympic Committee (IOC) though its Major Events unit. See our previous commentary here. This week we visited its center in Barcelona to get an update on the work it is doing for the Rio Games starting next month,

The Olympic Games remain a fantastic opportunity for Atos to demonstrate it can handle complexity and scale for a very visible event. The numbers are humongous: 4bn viewers, 300k accreditations, 70k volunteers, 30k media members, 10.5k athletes - and also on the IT side: an expected 1bn security alerts, 200k hours of testing, 250 servers (equivalent to 1,000 physical servers) and 80 applications.

Major Events is a relatively small unit within Atos (we estimate revenues <€100m), with activity fluctuating significantly from one year to the other in terms of headcount and revenues. Major Events has diversified its client base from the IOC to other international sporting events, including the 2015 Pan American Games in Toronto. The unit is Spain-centric for historical reasons: Atos, then SEMA Group, had started servicing the IOC for the 1992 Barcelona Olympic Games. And in 2012, Atos acquired MSL Group a scoring and time group with sport domain experience, based in Madrid.

In addition to managing scale, Atos Major Events manages uncertainty: at the time of its contract renewal (until 2024) in late 2013, the company did not where the Olympics would take place in 2022 (Beijing) and 2024 (still TBD). The location impacts Atos significantly from a delivery perspective e.g. for the Sochi 2014 Winter Games, Atos faced IT labor shortage in Sochi and had to source personnel across Russia, and in Russian-speaking countries (i.e. Romania and Serbia). For the 218 PyeongChang Winter Games, Atos Major Events is facing a similar challenge, and will be relocating IT personnel from Seoul, 200km away. In total, the financial impact is significant (up to 20% in additional costs), all within the context of a fixed bid, done eight years before the event. Nevertheless, Atos highlights its margins on Major Events are positive.

Atos Major Events provides a full IT outsourcing service. This includes a SIAM role, working with ~30 technology partners (which it has not selected to work with, but has gained years of experience in joint work). In addition to its SIAM role, Atos provides systems integration services and software products (Games management System, including volunteer portal, sport entries and qualifications, accreditation service, and workforce management), as well as security services. Testing, of course, is a priority: “when we are finished testing, we start testing again”.

IOC Budget Shifting from Run Services to Digital

Reflecting a broader market evolution, the Rio Games take place in the context of shifting budgets: the IOC is looking to drive down costs on run services. IaaS (on Canopy private cloud) is a part of this change, with Atos using a Canopy datacenter in Eindhoven, Netherlands for the 2018 Winter Games. The biggest savings will come from removing the need for migrating 1k physical servers in a new onshore datacenter for each Games. Also, there a very significant space gain element. Obviously, the datacenter is located on the other side of the Atlantic for the Rio Games and Atos Major Events will be using dedicated leased lines for critical applications.

Delivery is also changing: the company will deploy its last onsite Integration Center (mostly providing testing services) for Rio 2016. Going forward, this center will be located in Madrid. As for Canopy/IaaS, the creation of a centralized remote center in Madrid will remove equipment migration needs, and associated costs. And Atos is moving back its application management work (~25 FTEs supporting its software products) from the host city to Barcelona.

What will remain in the host city is the Technical Operating Center (TOC), a command and control center providing IT infrastructure management, service desk, project management, security services. The TOC is significant (500 personnel of Atos, IOC and technology partners, over three shifts, operating 24/7 during the Games) but still needs to be onsite in the host city at this point.

The IOC is rebalancing its budgets towards digital, starting with mobility. In the London 2012 Games: just 1% of information was accessed through mobile. In Sochi, this number reached 80%! Rio will be the Games where visitors will attend one competition in one venue while accessing results of another competition on their smart phones. In total, ~8bn devices will at some point during the Rio 2016 Games access information provided by Atos Major Events.

In addition to mobility, Atos Major Events is working on integration with social media, and is investing in its media player (for streaming video, audio and data). It is also refreshing its software products to make them further user-friendly to the different communities and the media in priority.

What Else Will We See Next?

Digital will continue to be a priority for IOC, extending from mobile services to wearables and IOT (and therefore big data).

Another big digital push is services to the media and broadcasting industry. Provisioning of some level of media content is part of the plans.

To some degree, Atos is leveraging Atos Major Events capabilities in other units: certainly, in security, Major Units and the Big Data & Security unit are collaborating on methodologies, common IT architectures, and also on security scenarios.

There is also an element of cross-selling with the usage of Atos Bull SIAM software products and Bull Hoox encrypted phones. Looking ahead, Atos is considering using software products from its Unify subsidiary.

Our understanding is that Major Events is currently self-contained and uses the larger Atos, apart from security collaboration, on sourcing talent, for instance around testing. Will we see more experience sharing from Atos Major Events to the wider Atos? As Atos focuses more and more on being an integrated firm, to accelerate organic growth, this may happen. We also expect to see Major Events benefit from Atos’ investments in automation and AI over the next few years.

We would have liked to have heard more about plans around big data, analytics, AI and content, suspect that Atos is constrained contractually to disclose much about these.

In summary, the Olympic Games are a wonderful opportunity for Atos to showcase its capabilities around SIAM, project management, testing and security services, and to demonstrate it successfully handles scale, complexity and uncertainty, each time in a new location, every four years.

In short, 2016 started off with a bang, with two very large IT services acquisitions announced in the first quarter:

• Leidos acquiring Lockheed Martin’s IS&GS unit for $6bn
• NTT DATA is acquiring Dell Services for $3.1bn.

Compared with last year, the whole of 2015 saw just one multi-billion acquisition announced: that of IGATE by Capgemini for $4.5bn. We expect to see more large deal activity.

Atos and CGI Likely Bidders for Large Transactions in 2016

Among all IT services vendors, Atos and CGI are the most likely buyers: their business models are based on inorganic growth.

• Atos has clear growth ambitions. Its net cash position (estimated by NelsonHall) is ~€200m after the Unify acquisition. The U.S. continues to be a priority, in particular Managed Services, adding to the scale brought in by Xerox ITO
• CGI now has net debt under control (estimated at ~CDN $2.0bn) and can borrow up to CDN $1.7bn. CGI acquisition targets include around software IP, U.S. commercial and U.K. commercial.

Meanwhile, three other acquisitive vendors, Leidos, NTT DATA and Capgemini, have put a temporary hold on their M&A activities. Leidos and NTT DATA obviously will focus on finalizing and integrating their acquisitions, also on reducing their net debt (~$3.4bn and ~$6.5bn respectively). Capgemini has a lower debt (~€1.8bn) but less appetite for debt leverage than, for instance, CGI, and still needs to integrate IGATE and prove this acquisition is working. The company has denied any interest in acquiring Hexaware.

TCS, Cognizant and Infosys have the cash make large acquisitions. TCS does not have a track record in large transactions and does not need one: it still is enjoying industry-leading growth in spite of its size ($16.3bn in revenues in calendar year 2015). Cognizant has also enjoyed industry-leading growth but appears to be more large acquisition minded, even after TriZetto. For both Infosys and Wipro, inorganic growth is key to their 2020 revenue targets. Infosys’ target is $20bn (up from $9.2bn in CY 2015). Wipro’s target is $15bn (up from $7.2bn). Both have experience in small to mid-sized acquisitions. Neither has of integrating a large acquisition. 

CSC is in a different situation: acquisitions are a key component of its turnaround. Having acquired UXC to gain scale in Australia, it is now in the process of acquiring Xchanging which will bring in insurance software assets, inter alia. We expect to see more mid-sized acquisitions from CSC.

Finally, the network of companies that is Deloitte continue to make small acquisitions across the globe, many of them digital related.

So what themes will prevail in 2016? In short, all the current hot topics will remain

Gaining scale in India

Mphasis, Hexaware and Zensar are likely targets in 2016. And PLM service vendor, Geometric Ltd, whose largest client is ISV Dassault Systems, is also rumored to being up for sale. Valuation multiples in India defy gravity but firms like Hexaware and Mpashis are within reach, at ~$1bn-$1.5bn.

Mid-sized deals in U.S. Commercial

As we have noted above, the likes of Atos, CGI and CSC, also some of the Indian oriented service providers are interested in mid-sized vendors with a presence and IP in specific U.S. commercial industries, including utilities (but not energy, although there will be some fire sale opportunities) and healthcare.

BpaaS, or at least a BpaaS aspiration, is likely to be a feature of some of these deals. An early example this year is Wipro’s announcement in February it is to acquire HealthPlan Services for $460m.

Digital Capabilities and RPA IP: Small to Mid-Sized Acquisitions

Looking at smaller acquisition activity, obvious attractive targets will continue to be firms, often privately held:

• With digital services capabilities, including in digital marketing, UX, cyber security, and SaaS implementation services. In particular, we expect to see M&A activity around cyber hot up this year
• That have IP around RPA or cognitive intelligence.

Many of these targets have headcounts in the 50 to 200 range and are local players. Competition for these firms is high and includes the largest global IT services vendors, with Accenture having led this drive for the last four years.

The hunt even extends to very small firms. Giants such as Accenture and IBM are acquiring firms with specialisms in perhaps digital strategy or SaaS services that have fewer than 100 employees.

The market is getting further crowded; telecom service providers continue to acquire in security while the advertising sector has expanded its M&A scope from UX to SaaS services.

And what will we see in the mid-term?

IoT, IT/OT and Big Data Will Become Increasingly Important in the Mid-Term

IoT, also the integration between IT and Operational Technology (OT) will drive a lot of M&A investment in the years to come, initially around IoT platforms, with the intent to reach scale, create a vertical-specific IOT platform, or gain point capabilities e.g. device security testing, creating device-specific apps. In all likelihood, acquisitions will be small in scale; an early example is that of Radius by Luxoft.

On a large scale firms that have IP around big data will be attractive (while this was not an IT services acquisition, that of The Weather Company for $2bn by IBM was an interesting move that will prove its value in the longer term).

In its FY15 (ending March 31, 2015) this part of CSC achieved revenues of $8.1bn, and an adjusted operating margin of 10%.  

However, H1 FY16 revenues were just $3.55bn, and guidance for FY16 is $7.5bn. So this is a company still in negative growth, with no sign of topline recovery in either division: GBS revenues were down 13.4% y/y (down 5.7% in CC) to $1.8bn and GIS down a painful 19.8% (down 13.2% in CC) to $1.754bn.

Yet management is now talking about a resumption of organic growth (of 1%-2% in constant currency) by H2 FY 2017, with acquisitions expected to bring an additional 1% - 2% per year. Is organic growth likely? We think not.

While we believe CSC may well resume topline growth by H2 FY17 (for the first time in many years) we believe this will be driven by acquisition activity.

Since the arrival of Mike Lawrie as CEO, there has been a sharp improvement in profitability - and the drive continues. For example over the next three years CSC is targeting a margin improvement of 125 to 175 bps from delivery and workforce optimization. And in procurement, it is looking to take out another $300m in spend

But achieving topline growth in the legacy business? Let’s look briefly at the current portfolio.

GIS: still impacted by red contracts; may shed its data centers

While the number of red contracts in Global Infrastructure Services (GIS) is far fewer than the 45 when CEO Mike Lawrie, a handful still remain – and their impact continues: they will represent a revenue decline of 200m to $250m in FY 2017.

GIS has changed its market approach, only going after large deals very selectively. But strengthening the sales culture, for both hunting and farming, and account management is not something that can be done speedily, particularly in a global organization like CSC. The company has increased sales-related expenses to 5% of revenues and claims it is both retraining and hiring aggressively. However, it is hardly an employer of choice currently.

In recent years, GIS has standardized and streamlined its portfolio, and repositioned from large asset transfer deals to smaller deals, in line with a general market shift. CSC has sought to reduce delivery fragmentation across clients, and drive hardware, software, tool and process standardization. As it admits“[previously] we had volume but we did not have scale”. This will help in pricing – but enough to win enough new business to drive topline growth?

In what would be a dramatic move to move to an asset-lite model, CSC is now considering shedding its large estate of datacenters and moving to a co-location partner model.

GBS: Turning around US consulting and growing Celeriti Fintech both key

Within Global Business Services (GBS) the consulting unit has recently seen mixed performance in terms of topline growth and profitability. In Q2 FY16, the U.K. was back to growth (18% in CC) whereas the U.S. consulting was (down 5%). CSC is confident it can replicate its success in its U.K. consulting practice in the U.S. We are not convinced.

Elsewhere, GBS is expecting slight organic topline growth (up to 2%) in its Industry Solutions and Services (ISS) business in the banking, insurance and healthcare/life sciences sectors.

Key to this will be the JV with HCL Technologies (‘Celeriti FinTech’) in which CSC has put Celeriti and Hogan, and which addresses modernization opportunities in the banking sector.  It is too early to tell how successful this JV will be - but speed is of the essence, both in the platform development and in the sales efforts.

CSC did not address in the investor day how it is going to address its fast decline (~7% in CC in H1 FY16) in its application management and software testing businesses. Traditional application management continues to prove tough, even for some of the larger IOSPs. And the AppLabs acquisition has not helped CSC achieve the kind of growth in software testing that other vendors have been enjoying recently.

“Next-Gen” Offerings: Targeting 30% CAGR

CSC claims its “next-gen” offerings will represent ~$700m of its FY16 revenues (or just over 10%). They comprise

• Cloud $210m
• Cybersecurity $150m
• Big data $80m
• “Other next-gen”: $260m.

A targeted 30% CAGR means revenues of over $1.5bn by FY19 - excluding any contribution from acquisitions. And here the targets for the legacy business get a little cloudy, particularly in “other next gen”, also what is in scope in “cloud” (e.g. does it include BPaaS).

Overall, the aspiration to achieve organic revenue growth seems optimistic.

Acquisitive Growth Will Reshape the Portfolio

CSC is essentially a company that continues to look to reinvent itself. We believe any profitable growth in the next few years will be dependent on acquisitions.

The four that CSC has recently closed or is actively considering (we have written separately about all of them in other blogs) indicate where CSC is looking to reshape its portfolio:

• Fixnextix and (if it completes) Xchanging will boost the ISS and industry-specific BPS business in the BFSI sector
• UXC (again, if it completes) brings in additional scale in Australia, plus useful practices for ServiceNow and Microsoft Dynamics
• Fruition Partners brought in ServiceNow integration capabilities.

Together, these will mean an investment of ~$1.2bn…. above CSC’s guidance of acquisitions accounting for 15% of its capital allocation.

Before, CSC was talking about acquiring in areas such as cyber (for commercial, enterprises, not just in the federal). The emphasis now appears to be more strongly on GBS, and on industry IP, domain expertise and BPS in a few target sectors. While CSC has longstanding experience in both insurance software business and in insurance BPO, it has not historically really leveraged the former to build a BPS business: this would mean a shift in focus.

Another area where we might expect to see inorganic growth is in analytics.

We recognize that organic topline is not the Holy Grail when it comes to shareholder value: CGI provides a great example of a company that is superb at managing and integrating very large acquisitions every few years without achieving organic growth. In comparison, CSC’s track record in acquisition is mixed, and it does not have CGI’s “Management Foundation”. 

But CSC knows it needs to move fast. Will it reach $8.5bn revenues by FY 19? Possibly. Will it achieve this through organic growth? Probably not.

Dominique Raviart and Rachael Stormonth

Bull: Is An Expanded Portfolio Relevant?

With its acquisition of Bull, Atos has acquired an IT firm with a significant level of hardware and software that expanded the traditional, more IT services-centric portfolio of Atos. Bull’s portfolio ranged from X86 severs to HPC, from hardened phones to its Evidian line of security software products, and its line of GCOS mainframes.

Key questions since the acquisition are whether Atos will benefit from this extended portfolio, how relevant it is, and how much R&D effort it requires from Atos.

We gathered from our discussions:

• Revenues from hardware represent ~2.5% of Atos revenues. Within hardware products, Atos will continue in most offerings with alignment around the broad themes of big data and security, e.g. HPC and appliances (bullion servers), which represent a NelsonHall estimated €150m to €175m in revenues. Atos will continue to support other product lines without pushing hard on its commercial development
• Within the area of security, Atos has aligned its legacy security portfolio with that of Bull and wants to continue investing in it
• Atos is confident it can maintain its existing level of R&D investment, which it estimates at 2% (~€200m) of its revenues. Excluding Worldline, we estimate Atos will spend ~€50m to €70m in R&D around Bull hardware and software products (Bull as a standalone firm spent 6% of revenues on R&D). Excluding the Worldline business, this represents less than 1% of Atos revenues.

Can Atos compete effectively against IBM, HP, Fujitsu and Dell in terms of client reach and R&D investment? Atos is counting on its salesforce to grow revenues of the former Bull products (e.g. HPC and bullion appliances) primarily in Europe and also in French-speaking Africa (where Bull has a client base), as well as address engineering departments of its manufacturing clients (especially around HPC and in-memory appliances, for product design and simulation). Time will tell whether this strategy works but Atos highlights that the combined line of Bull products were profitable.

Xerox ITO Strengthens Presence in the U.S.

While the Bull acquisition was perhaps a surprise, the planned one of Xerox ITO was more self-explanatory:

• Atos had in 2014 highlighted its priority to grow in the U.S., and Xerox ITO with its $1.5bn in revenues (of which 93% from North America) has filled this objective. The company considers Xerox ITO as a reverse take-over and a base for organic growth: cross-selling of project services (C&SI) to Xerox ITO clients will be a priority. Over time, Atos wants to develop a partnership approach similar to the one it formed following the 2011 acquisition of SIS from Siemens; details are unclear at this point but this will include joint investments in IPs and joint go-to-market
• IT infrastructure management (the Managed Services business unit of Atos) has been a priority: with the acquisition of SIS, Managed Services became the company’s largest unit (51% of revenues in 2014) and is also more profitable than C&SI, despite some dilution coming from Bull’s own IT IM business. Xerox ITO will strengthen Managed Services (and also Canopy) while also driving its profitability up.

Presence in Low-Cost Countries: A Work in Progress

Finally, Atos shed some light on its offshore and nearshore presence. Growth in low-cost countries remains a priority for both C&SI and Managed Services. The company announced in its Q4 2014 results that a (relatively low) percentage, 21%, of its headcount (~18k) is now based in nearshore and offshore countries. NelsonHall estimates growth in nearshore/offshore activity in 2014 to be +56%, very high indeed. We suspect this also includes activities in emerging and fast-growth countries to service local markets (Bull in Africa and Poland, for example).

C&SI represents the largest share of this offshore/nearshore presence (38% of C&SI headcount; NelsonHall estimate: 13k). We estimate that Managed Services has a much lower low-cost country ratio (~15%) but Atos highlighted that it has accelerated its transition to low-cost countries during 2014.

Atos highlights its offshore presence and capability in India, but key questions regarding Atos’ presence in India remain:

• Offshoring is about more than pure headcount in India. It also implies the centralization of service offerings and IPs, relatively free flow of personnel across countries, approaches such as continuous improvement and expertise in contract transitioning, as well training. We think Atos has adopted or is currently adopting this centralized approach
• When will Atos reach the inflexion point where adoption of offshore will stop driving revenue down and actually increase revenues? The answer is not clear at this point.

What is clear is that Atos takes presence in low-cost countries seriously. However, unlike Capgemini which has adopted Indian offshoring fully, Atos is trying to find the balance between its onshore presence, further specializing its in-country personnel, and its offshore presence, where cost is the number one client requirement.

We emerged reassured from our meetings with Atos. With a net cash balance that is going to remain positive after the acquisition of Xerox ITO, Atos still has financial freedom to continue its external growth strategy and invest in offerings to fuel organic growth.

NelsonHall will shortly publish commentary on Atos' Consulting & Systems Integration analyst day.

Background

The data shows a steady (but non-linear) decline in Total Contract Value (TCV) from 2002 onwards. The level of new-scope contracts declined from ~80% towards ~40%, signaling fewer new deals. Then came the subprime-driven recession of 2008-9, which triggered a vast level of ITO renegotiations: in 2009, bookings were up to a very high level, but that of new-scope contracts were low (~20%). Unlike 2001 when the internet bubble burst, the 2008-9 crisis was about existing contract renegotiations, not about new deals.

Contract signings were high during 2009 and 2010. But then, booking levels declined to their lowest level since 2008, to ~$32bn. Meanwhile, the level of new-scope contracts continued to be low. In short, the market is quiet with few transactions, mostly renewals and recompetes. This signals a maturing market, also marked by the impact of offshoring (which is reducing prices and TCVs very significantly) and also - and increasingly - by cloud computing (and in particular public clouds).

About three years ago, NelsonHall complemented its ITO Index approach based on contract data with a quarterly spending analysis of IT services, professional services (i.e. consulting and systems integration) and ITO. Our quarterly spending analysis has several benefits: it provides a quarterly view on how ITO spending is going to evolve, while our contract signings analysis provides more of a 12 to 18 month view of how ITO spending will change.

What does our short-term spending analysis tell us?

Spending in IT services has continued to grow, albeit at low levels (~2% in Q4 and about the same during full-year 2014). Growth is driven by professional services (+3% in Q4 2014 and ~4% in full-year).

Meanwhile, for the first time since Q4 2012, ITO spending growth was in positive territory in Q4 2014 (up by almost 1%) and down 1% for full-year 2014. This final quarter improvement in spending growth results from better economic conditions in mature countries.

What does our 12- to 18- month bookings quarterly analysis tell us?

During 2014, ITO bookings were flat across geographies as well as in North America and Europe. Activity in fast-growth countries (India, Brazil, China) was anecdotal.

An important KPI is the level of new-scope contracts (as opposed to existing scope contracts): an estimated 40% of contracts (with a TCV over $100m) in full-year 2014. This is better than 2013, when new scope contracts accounted for ~35% of bookings (and 30% in 2012). This level is at the higher end of the traditional range and is good news.

What does NelsonHall forecast for 2015?

The outlook for IT services in 2015 remains mixed, with the improving economic conditions driving some spending. For ITO specifically, the higher level of new-scope contracts will also have an impact on spending.

However, the economic environment in mature economies is only somewhat better. It is positive for India, unclear for China and Brazil, and clearly negative for Russia. In addition, offshoring will continue to further drive prices down, resulting into lower spending.

We are therefore predicting limited higher growth in spending in IT services overall (2.5-3.5%), professional services (4-5%), and ITO (1-2%).

You can listen to a recording of this week’s ITO Index webcast here. NelsonHall regularly blogs about the ITO industry here.