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Gartner's IT services forecast calls for consulting uptick

IT service providers could benefit from a less-constrained tech purchasing climate as enterprises seek to bolster in-house skills with consulting services.

IT service providers could see the enterprise technology spending constraints that marked much of 2023 ease over the course of this year as businesses spend more on consulting services.

Gartner last week increased its overall 2024 global IT spending growth forecast to 8%, up from the 6.8% projection it published in January. The new estimate is a bit more than double the 2023 growth rate of 3.8% in the consulting and market research firm's latest totals. The IT services spending category is now expected to approach double-digit expansion in 2024, with Gartner revising its growth estimate to 9.7% from the earlier 8.7%. That compares with 6.1% growth in 2023.

Gartner's latest market update assesses 2024 IT services spending at $1.5 trillion -- 30% of its total IT market estimate of $5 trillion.

The IT services forecast gets a lift from enterprise customers struggling to attract highly skilled personnel and having to spend more on consulting services to make up for the deficit, said John-David Lovelock, a research vice president at Gartner.

But Gartner also pointed to an improvement in the overall business climate as a factor. In 2023, a slowdown in IT spending gathered momentum and became especially pronounced in the fourth quarter, Lovelock noted. This year will see enterprise demand turn that pattern on its head, according to Lovelock.

"2024 is going to play out like 2023 but in reverse," he said. "We are starting out with the hesitancy, but that clears out by the end of the year."

IT services challenges

The reversal will be welcome news for IT services firms, some of which have reported softening sales due to a difficult macro-economic environment.

John-David Lovelock, research vice president, GartnerJohn-David Lovelock

Wipro, a technology services and consulting company based in Bangalore, India, last week reported a 3.8% year-over-year decrease in IT services revenue for its 2024 fiscal year ended March 31. Srini Pallia, CEO and managing director at Wipro, said the industry's "big challenges" in 2023 affected the company's performance.

"The economic environment is still uncertain, and there might be more challenges in the short-term," Pallia said during Wipro's fourth-quarter earnings call.

Accenture, another global IT service provider, last month cut its fiscal year 2024 revenue growth guidance to a range of 1% to 3%, down from its previous outlook of 2% to 5%. The company's fiscal year ends August 31.

Julie Sweet, Accenture's CEO, cited "a further tightening of spending at our clients" when asked about IT services spending during an earnings call.

Lovelock, however, suggested the larger IT service providers might be reacting to limited revenue visibility as much as overall IT spending trends. He said service providers that grew accustomed to average contract lengths of two to two-and-a-half years had a good window into revenue during that period. But customers shortened contracts in 2023, which reduced revenue visibility to perhaps a year, he noted.

Looking ahead

While the market continues to test service providers, fundamentals such as the IT hiring shortfall hint at more favorable conditions ahead.

Vineeta Kumar, vice president of financial services at Hitachi Digital Services, the technology services subsidiary of Japan-based Hitachi Ltd., said Gartner's IT services forecast reflects how IT consulting and services have become "integral in the modernization and growth journey" across industries. Businesses will "lean more on consulting talent" as they accelerate digital adoption to compete with born-digital rivals, Kumar said.

2024 is going to play out like 2023 but in reverse. We are starting out with the hesitancy, but that clears out by the end of the year.
John-David LovelockResearch vice president, Gartner

Generative AI (GenAI) could also improve service provider prospects. IT services firms have been looking to the emerging technology as a catalyst for their advisory businesses.

Accenture, for example, said it booked more than $600 million in GenAI business in its fiscal Q2, which ended February 29. The quarterly uptake brings the company's total GenAI bookings to $1.1 billion for the first half of its fiscal year. "That is the fastest we have ever built sales in an emerging technology," Sweet told financial analysts.

Pallia, meanwhile, said the company will emphasize "AI-infused" offerings, along with consulting-led projects, to build large-deal momentum this year. One fiscal year Q4 deal involves deploying a GenAI offering for an apparel company, which Pallia did not identify. Wipro will implement large language models to improve the customer's search capability and recommendation engines, he said.

Service providers, however, might find better opportunities next year, especially when it comes to GenAI applications heading into production. Lovelock said 2024 is the "year of the plan" for GenAI adoption, saying enterprises will pursue proofs of concept (PoCs) and strategy work, with few deployments going live. Broader implementation will emerge in 2025 pending successful PoCs, he added.

John Moore is a writer for TechTarget Editorial covering the CIO role, economic trends and the IT services industry.

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