A key index reports unexpected service sector growth, while digital services M&A could overtake 2021 deal volume and value levels; more IT channel news.
Two reports issued last week lend additional weight to apparent trends in the partner ecosystem: continued IT services growth, despite the economy, and the uninterrupted pace of mergers and acquisitions.
The Institute for Supply Management's Services PMI -- an index closely watched by investors, business and other financial professionals -- grew an unexpected 1.4% in July compared with the association's June survey. The index, based on a poll of purchasing and supply executives, tracks activity in a number of services sectors, including professional, scientific and technical services, which includes consulting and computer services. Other sectors represented in the index run the gamut from mining to financial services.
While the rise in the Services PMI ran counter to economists' expectations, the index seemed on track with IT services providers' general optimism and the continuing growth of cloud services. However, the S&P Global U.S. Services PMI, also released last week, underscores the uncertainty surrounding the current market. The index reported the sharpest decline in the U.S. services sector since May 2020. S&P Global tracks 400 services companies in sectors such as consumer (excluding retail), finance, real estate and information.
Another measure of IT services activity, M&A deals, continues to expand. Drake Star, a New York-based technology investment bank, reported "steady" transaction growth in what it terms the digital services sector. Digital services include managed IT services, digital transformation and business process outsourcing.
Drake Star reported more than 375 M&A deals in digital services for the second quarter, totaling $70 billion in value. The number of deals already outpaces first-quarter volume by 19%, putting transaction volume and value on pace to surpass 2021 levels, according to Drake Star.
The times are very challenging for everyone.
Konstantin VasyukExecutive director, IT Ukraine Association
M&A transactions in a shaky economy could indicate an increase in companies forced into fire sales, but that doesn't seem to be the case with IT services. Buyers have been focusing on MSPs due to business models based on recurring revenue and attractive cash flows, according to industry executives.
Ukrainian IT industry shows resilience
Individual IT services companies in Ukraine have reported revenue growth this year despite the Russian invasion, and economic data suggests the sector, on the whole, is showing resilience.
Computer services export volume for the first half of 2022 reached $3.74 billion, a 23% year-over-year increase, the National Bank of Ukraine reported. Ukrainian consultancies and software developers provide much of their services to enterprises in other countries that seek skilled developers and lower costs through outsourcing. That export increase, while significant, compares with a growth rate of 43% before the war began.
Konstantin Vasyuk, executive director of the IT Ukraine Association, which represents more than 110 companies, said he is moderately optimistic about the industry's prospects, noting that global demand continues to grow. The continuing war and the recessionary environment complicate the outlook, however.
Konstantin Vasyuk
"The times are very challenging for everyone," he said. "That is why we are not speaking about a fantastic forecast."
Businesses specifically seeking to work with Ukrainian IT partners in order to contribute to the nation's economy have helped boost export growth, Vasyuk noted. "A lot of companies want to support Ukraine by contracting with our development centers," he said, citing the recent example of a large Japanese company interested in hiring an IT provider in Ukraine.
Overall, Ukrainian companies see growing demand from industries including retail, automotive, logistics, banking and fintech, and in technologies such as AI, he added.
IT services firms in Ukraine help mitigate the risk of disruption through resiliency plans and multinational operations. N-iX, a provider of software development outsourcing services, has operations in Ukraine and Poland and is a member of the Software Development Association Poland.
Sviatoslav Kavetskyi
"We still have a good flow of new business, even though the war did impact our company like many other businesses in Ukraine, Poland and other countries," said Sviatoslav Kavetskyi, director of industry affairs at N-iX.
The company earlier this year forecast 50% growth for 2022, but has since revised that figure to around 30%, according to Kavetskyi. "We aren't signing as many new clients as we expected, but we have still partnered with almost 20 new clients since February," he said.
Clients have been supportive during the war, Kavetskyi said, noting that the company's business continuity planning and risk management have kept service delivery levels above 95%.
Report: Application modernization important, but problematic
IT leaders believe application modernization is important to their businesses, but 93% of them run into challenges when pursuing such projects.
That's a key takeaway from a survey of 150 IT managers and senior executives conducted by Asperitas, a Chicago-based consulting firm. Respondents ranked identifying the right tools/technologies and finding staff with the right experience as the top obstacles. Other issues included choosing external partners, training users on new systems and obtaining management support.
More than 80% of IT leaders polled cited upskilling of internal staff and improving "antiquated processes" as extremely important to application modernization, according to Asperitas.
Cameron Hatten
"Process reengineering is a critical part of application modernization," said Cameron Hatten, executive vice president at Asperitas. To make that transformation happen, organizations must assess, design and implement change across several key areas. Those include testing, code management, governance, operations and security defense, he said.
The effects of economic contraction on businesses' application modernization priorities will depend on the organization, Hatten said. Application modernization involves optimizing velocity, reliability, processes and resources. When successful, such optimizations drive ROI through process automation, productivity gains and technology savings, he noted.
"In this way, application modernization helps in times when there may be financial constraints," Hatten said.
Other news
EY U.S. and GE Digital inked an alliance in the manufacturing vertical. EY will provide business consulting and systems integration services, while GE contributes software to the relationship. GE Digital software offerings such as Predix have been deployed on digital transformation projects in manufacturing. The companies, however, will use GE Digital's entire suite of software assets, which includes more than a dozen different applications, according to Scott Dixon, digital manufacturing leader at EY. EY has previously deployed GE Digital software tools for more than 40 different clients in various industry sectors.
CompTIA, an IT industry association, launched a technology career initiative in a bid to build a broader base of IT talent. Project Agora, which CompTIA rolled out at its annual ChannelCon event, aims to help people explore tech jobs and encourage them to pursue technology over other career options, according to the association. CompTIA research shows that the technology sector trails other industry sectors in attracting job seekers, ranking behind sales, marketing, real estate and retail; hospitality, food, travel and tourism; healthcare; and finance.
Kion, a cloud enablement solution provider in Fulton, Md., has entered a strategic partnership with consulting firm Booz Allen Hamilton. The relationship, which focuses on the government market, combines Kion's offering with Booz Allen's technology transformation and managed services.
Pax8, based in Denver, has added Intuit's QuickBooks Online to its cloud marketplace. Partners have been asking Pax8 to add the QuickBooks financial platform to its roster of offerings, according to the company.
Radware, a cybersecurity and application delivery vendor in Mahwah, N.J., has signed a reseller pact with DataBank, which provides colocation, connectivity and managed services. Under the agreement, DataBank will offer Radware's Cloud DDoS Protection and Application Protection offerings.
Extreme Networks, a cloud networking company based in Morrisville, N.C., rolled out new partner certification badges. Those include state and local government; sports and entertainment delivery; and diversity, equity and inclusion badges. Other partner program additions include technical training materials for the company's Extreme Fabric Connect product and grant-writing services for partners.
Netreo, a Huntington Beach, Calif., company that provides IT infrastructure monitoring and observability offerings, has signed a distribution agreement with Arrow Electronics. The relationship supports Netreo's switch to a channel-only sales model.
Involta, a data center and cloud consulting firm in Cedar Rapids, Iowa, is partnering with HacWare, which offers a cybersecurity awareness and training SaaS product.
TBI, a technology services distributor headquartered in Chicago, has added Sangoma, a business and unified communications provider, to its supplier portfolio.
Executive appointments
Otava, a hybrid cloud solutions provider in Ann Arbor, Mich., has appointed Pete Bell as senior vice president of sales. He joins Otava from Faction, where he had the same title.
Expereo, a managed network solutions provider in Amsterdam, has appointed Rupert Wadsworth as senior vice president of marketing. Wadsworth was previously senior vice president of marketing and communications at NTT Ltd.
TBI promoted Adam Knudsen to senior vice president of sales operations.
Kaseya, an MSP software provider based in Miami, Fla., has promoted Dan Tomaszewski to executive vice president of the channel.
Konstantin Vasyuk
Sviatoslav Kavetskyi
Cameron Hatten
