Profitability dropped for IT service providers in 2020, GlobalData finds

IT service providers took a blow to their profitability in 2020 as the COVID pandemic shifted the way the world works, the latest research from GlobaData has revealed.

According to the data and analytics firm, 50% of the top 20 providers reported year-on-year revenue decline, with nine of those even seeing a drop in net earnings.

That equates to a 14.6% year-on-year decline in cumulative net earnings for the top 20 providers, while 40% of them reported double digit decline in net earnings for the year.

IT service providers may also have to ride it our a little longer, GlobalData said.

“Conditions could remain challenging for IT service providers as cost-optimisation strategies necessitated by the COVID-19 pandemic will likely become long term,” commented Keshav Kumar Jha, Business Fundamentals Analyst at GlobalData.

“However, IT infrastructure and application outsourcing service providers may benefit considerably from the digital transformation adopted by organisations amid the health crisis.”

Many IT companies’ experienced customers are delaying IT transformation projects as they struggle to understand how their business will move forward under new working practices. However, Gary Barton, principal analyst for Business Network and IT Services at GlobalData, said this marks an opportunity for IT firms.

“There is an opportunity for IT companies to engage with enterprises and help them build the business models of the future – the IT companies who seize this opportunity will be well placed to grow revenues,” he explained.

New technologies such as 5G, the Internet of Things (IoT) and edge networking/compute also represent an opportunity for providers to generate new IT revenue growth.

“The use cases for these technologies are still being developed, but there are clear rewards for IT companies that can demonstrate clear business/consumer benefits of these technologies,” Barton added.

“Finally, there are signs that smaller businesses are becoming more attuned to the benefits of being more digital. Funding schemes such as NextGenerationEU are providing potentially billions of Euros to help enterprises adopt new technologies and this spending will benefit IT providers.”

Across the top 20 IT service companies, the research revealed that HPE and NCR reported a decline of 5% alongside a net profit decrease of over 110%. DXC Technology also saw a 5% decline in year-on-year revenue, GlobalData found.

Fiserv, NetEase, Capgemini and Intuit were the four major companies within the top 20 ranking to report double-digit revenue growth in 2020.