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IT services sector risk report

Digital transformation continues to fuel the global IT services industry

L

Low RISK for entreprises

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

Updated in June 2023.
  • High value added, high margins in IT consulting, software, cloud computing
  • Significant share of recurring revenues
  • Broad customer base (industries, retail, banking, insurance, transport, etc.)
  • Powerful long term growth drivers (digitization of the economy)
  • Positive legacy of the Covid-19 outbreak on future IT investment
  • Low barriers to entry
  • Sensitivity to cuts in corporate IT investment
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What to watch ? 

  • Positive fallout of the pandemic on demand for remote, cloud-based professional solutions
  • Labor shortages for highly skilled IT professionals
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The global IT services sector is expected to grow by +9.5% in 2023, defying a more challenging economic environment and showing that digital transformation remains a priority among companies. The IT services segment, estimated at around USD1,250bn, should grow by about +8%, with companies placing a greater emphasis on cloud computing. Artificial intelligence in particular is seeing booming investment from all client industries, with financial services and industries leading the pack. Software, valued at around USD800bn, will see +12% growth as companies accelerate the modernization of their legacy software solutions.

Though a generally high-margin industry with recurring cash flows, it could however suffer from the tightening of financing conditions across most markets. This is especially the case for start-ups or companies operating in frontier markets. The sector is also vulnerable to an acceleration in salary growth amid fierce competition for talent and a shortage of skilled labor in emerging applications.

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The industry can be divided into five main subsegments - companies generally operate across many segments. While IT consulting and programming is a fragmented activity , the managed services, software and data processing segments are far more concentrated with regional and global players.
- Consulting is about helping organisations make the best possible use of digital technologies to operate more efficiently.
- Programming is about developing custom digital tools to help organisations reach their business objectives.
- Managed services is about outsourcing the management of the IT infrastructure to a third-party company.
- Software are complex, generic programmes that can are made available to a variety of corporate customers.
- Data processing, including cloud computing, is about collecting and treating large quantities of data for corporate customers.

Contacts

 
Allianz Research
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Aurélien Duthoit
Senior Sector Advisor
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