The Asia-Pacific IT and business services sector slipped 0.3 percent year-on-year to US$4.7 billion in Q2, according to global AI-centered technology research and advisory firm Information Services Group (ISG).
The 12 percent drop from Q1 marks the region’s first pullback since mid-2024.
ISG tracks commercial outsourcing contracts with annual contract values of at least US$5 million.
Amid the subdued overall performance, AI stood out as enterprises across Asia-Pacific doubled down on cloud services and sought the horsepower needed for enterprise-scale AI deployments.
As a result, cloud-based “anything-as-a-service” (XaaS) surged 16 percent year-on-year to reach US$3.9 billion. Even then, the AI segment could not totally shake off recent caution and declined 15 percent from Q1.
Infrastructure-as-a-service (IaaS) annual contract values soared 17 percent to US$3.4 billion, while software-as-a-service (SaaS) posted a respectable 13 percent gain at US$500 million.
However, managed services slumped 40 percent to US$823 million compared to last year. The silver lining is that there was a modest six percent sequential gain, suggesting the beginnings of a recovery.
IT outsourcing ACV fell 46 percent to US$539 million, with application development and management dipping by more than 30 percent. Business process outsourcing lagged too, off by 34 percent to US$133 million, with only customer engagement and facilities management showing any uplift.
Engineering, research and development services shrank 15 percent to US$152 million. In total, only 69 managed services contracts were signed in Q2, an 18 percent drop compared to last year.
For industry verticals, APAC’s perennial leader, banking, financial services and insurance, showed a modest 1.4 percent increase. Travel, transportation, leisure, and retail clocked double-digit growth, albeit from smaller foundations, while all remaining sectors logged double-digit declines.
Viewpoint across national markets was equally variegated. South Korea stood out as the only country posting growth, albeit from a low base, while Australia-New Zealand, India and Japan experienced drops of 33 percent, 16 percent and 35 percent respectively.
“Macroeconomic and geopolitical uncertainty is really taking a toll on the Asia Pacific market at the moment. Given the quarter-over-quarter improvement we saw in managed services, we hope to see a turnaround in the overall market during the second half,” said Michael Gale, Partner and Regional Leader of ISG Asia Pacific.
ISG is keeping to its forecast for the year, projecting managed services revenue to nudge up 1.3 percent — citing a stabilising tariff picture but ongoing weakness in discretionary spending.
By contrast, ISG has upgraded its cloud-based XaaS growth forecast by three percent to 21 percent, betting on sustained AI-driven investment.
Entelechy Asia 