Index Insider: Solid Q1, but Uncertainty Ahead | ISG

Hello. This is Stanton Jones and Steve Hall with what’s important in the IT and business services industry this week.

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Solid Q1, but Uncertainty Ahead

The IT and business services industry continued to show resilience in Q1 despite macro-economic uncertainty. Sweeping tariffs and potential retaliatory measures are further intensifying short-term uncertainty, especially related to discretionary IT spending.

Data Watch

1Q25 Recap

• Managed services annual contract value (ACV) was up 2% Y/Y.
• EMEA led the growth in managed services; Americas was flat.
• BFSI was down 2% but showed signs of recovery over the last six months.
• ITO posted solid growth in both applications and infrastructure.
• Broad-based weakness in BPO spanned all service lines.
• Six mega deals (ACV > $100M) were awarded, up from four in 1Q24.

2025 Forecast

Despite a solid Q1, heightened uncertainty from trade policy, geopolitical tensions and evolving regulations is beginning to weigh on second-quarter forecasts. Enterprises are in a wait-and-see mode, holding discretionary budgets and re-evaluating capital-intensive projects.

Given the uncertainty in the environment, we’re providing a scenario-based approach for our full-year outlook:

• Scenario #1: If tariffs are short term, we expect to see a rebound of discretionary spending in 2H25. In this scenario, we’re forecasting managed services to grow 1.3% and as-a-service to grow by 18%.
• Scenario #2: If tariffs cause a more protracted impact on the industry, we expect to see −2.4% growth for managed services and 15% growth for as-a-service.

You can catch a replay of the call here and download the slides here.