Posted by Mumbai: For major IT service providers, the year 2020 was one of the most challenging years. They faced declining revenues and bottom-line pressure under the impact of the global pandemic. The COVID-19 crisis in 2020 forced most organisations to undertake cost-optimization, which directly affected IT service providers profitability during the year.
Around 50% of the top 20 IT service providers by revenue reported Y-o-Y revenue decline in 2020, while nine saw a drop in net earnings, revealed the latest GlobalData analysis.
According to Keshav Kumar Jha, Business Fundamentals Analyst – GlobalData, conditions could remain challenging for IT service providers as cost-optimization strategies necessitated by the COVID-19 pandemic will likely become long term.
“However, IT infrastructure and application outsourcing service providers may benefit considerably from the digital transformation adopted by organisations amid the health crisis,” said Jha.
“Many IT companies have experienced customers delaying IT transformation projects as enterprises struggle to understand what their businesses will look like in terms of new working practices after the pandemic, according to Gary Barton, Global Data’s Principal Analyst for Business Network and IT Services.
Some of the top IT service providers witnessed a major decline in revenue growth affecting their global rankings in 2020
HPE and NCR – net earnings plunged
Hewlett Packard Enterprise (HPE) and NCR reported a decline of over 5% in revenue and their net profit decreased more than 110%.
Adding to the competitive pricing pressure, the COVID-19 pandemic caused manufacturing capacity constraints in North America, supply chain disruption, delay in completing on-site installations, and reduction in worldwide demand, according to Jha.
This resulted in a decline in HPE’s Y-o-Y revenue and profitability, which led to subdued revenue growth.
“The shift from selling perpetual software licenses to recurring revenue in banking, retail and hospitality verticals was the prime reason for the decline in NCR’s revenue and net earnings,” said Jha.
DXC Technology – net loss declined
DXC Technology reported over a 5% decline in its Y-o-Y revenue, mainly due to the termination of projects, the disposition of business and completion of projects, besides a decrease in the number of run-rate projects volume.
The disposition of the US State and Local Health and Human Services (HHS) business and cost optimization enabled the company to reduce its net loss.
Fiserv, NetEase, Capgemini and Intuit – double-digit growth in revenue
But Fiserv, NetEase, Capgemini and Intuit were the four major companies within the top 20 rankings that reported double-digit revenue growth in 2020.
“Fiserv’s revenue growth was mainly due to the incremental revenue from the acquisition of First Data Corp in July 2019. While an increase in revenue from online gaming and higher-learning services helped NetEase clock over 24% YoY growth,” noted Jha.
“However, increase in revenue sharing costs with game developers, distribution channel providers and other third parties along with increasing tax liabilities led to a decline in NetEase’s net earnings,” added Jha.
“Besides the acquisition of Altran, growth in digital and cloud service businesses due to the prioritization of digital transformation projects by clients worldwide helped increase Capgemini’s Y-o-Y revenue. Intuit reported growth in revenue from TurboTax Live and TurboTax federal units, apart from its Online Ecosystem, in 2020,” concluded Jha.