Incumbents fight to retain IT deals, defend revenue

Following an expansion in large deal pipelines during 2022 and 2023, there is a noticeable decline in new large IT deals entering the market. However, with a slew of renewals coming up next year, incumbents will defend their business interests and revenue. Although these contracts are up for renewal, it does not automatically indicate a change in service providers. Whilst these contracts may not necessarily transition to new IT players, analysts expect portions of these deals might undergo restructuring with some of the work being moved inhouse.Some of the large deals coming up for renewal in the 2025 and 2026 calendar years include TCS, which secured $2.5 billion from audience measurement firm Nielsen. TCS was initially awarded a $1.2 billion, 10-year contract in 2008. Subsequently, the contract value increased to $2.5 billion in 2013, and the contract is expected to end next year-end. The SEC filing showed that if Nielsen wishes to renew this agreement following the initial term's conclusion, they must submit written notification to TCS expressing their renewal intention before December 31, 2023. Should the parties fail to reach a renewal agreement by December 31 this year, Nielsen may request termination-expiration assistance services, which TCS must provide as per the agreement. Additionally, Nielsen has the option to extend this agreement's duration three separate times, each for up to one year, provided Nielsen gives TCS written notice at least six months in advance, the SEC filing showed. Raytheon (DXC), Metro Group (Wipro), and Areva Group (Capgemini) are some of the other deals coming up for renewal next year.Recently, Xerox entered into fresh agreements with HCLTech and TCS, valued at $590 million for a five-year period and $490 million spanning seven years, respectively. HCLTech's arrangement encompasses the continuation of its strategic collaboration with Xerox, focusing on AI-powered engineering services and digital process operations (DPO). HCLTech will assist the Xerox Global Business Services organisation (GBS) to enhance crucial business indicators, including working capital, device connectivity, sales efficiency, and remote problem-solving effectiveness. However, new deals are a rarity.“With regard to mega or large deals changing hands, this is possible but unlikely to happen frequently. The risk for the client is very significant, and incumbents work hard to keep the revenue. For instance, the Vanguard-Infosys deal was already significantly restructured and is unlikely to change significantly at this time. Finally, we may see one of these large deals change hands completely given the market pressures,” said Peter-Bendor Samuel, CEO of IT research and advisory Everest Group.When asked whether IT firms are at the risk of losing out parts of the business due to insourcing, Yugal Joshi, partner at Everest Group, said GCCs are creating some headwind for service providers, especially for those who do not serve GCC as a strategic client segment. “Most service providers stay away from BOT (build,operate, transfer) models for GCCs, as that does not give long-term revenue visibility. Therefore, consulting companies such as the Big 4 may end up becoming a strong choice for such engagements.”Joshi cited several examples, including the National Australia Bank (NAB) reducing the share of its outsourced IT workforce from 70% in 2018 to 37% by 2023. "The plan is to bring it down to 20% over the next few years. NatWest , for instance, is shifting towards insourcing technology roles and achieved a 65:35 ratio of in-house to third-party service providers, which is a significant increase from its 50:50 ratio a few years back. Furthermore, there are plans to increase it to 70:30 by 2025. Deutsche Bank is focusing on insourcing its operations and aims to achieve a 70:30 ratio (70% of the work done inhouse) in the coming years. Transamerica ended its $2 billion, 10-year contract with TCS after five-and-a-half years, opting to insource its tech operations,” Joshi said.When asked about fewer large deals in the market, Bendor-Samuel said the belief that the US is headed for a soft landing and, therefore, the radical cost savings that drive the large deal market is less intense. "We may have worked through a pent-up demand which built up during Covid, but now is satisfied. GenAI and the uncertainty of the productivity which could and should come from it may be slowing some transactions," he said.