And while that is an improvement on previous periods over the past two years, it stands in sharp contrast to the picture at services companies with North American HQs, where revenue growth is running at around 10%. Look no further than Accenture‘s results for an illustration of that. In its third quarter ending 31 May 2004, the US-headquartered (but Bermuda-registered) IT services giant posted a year-on-year revenue increase of 21% to $3.69 billion (excluding $360 million in reimbursements paid by its former parent company Arthur Andersen). Reflecting that, net income increased by a stunning 59% from $132.1 million to $210.4 million.

The figures are exaggerated slightly by currency fluctuations. In local currency, revenues from the consulting arm, which makes up 63% of the company, increased 5% on the third quarter of 2003 – but nonetheless this was the first substantial growth in two and a half years. In terms of contribution to the overall business, outsourcing is closing the gap on consulting, with a 29% growth rate for the quarter.

Notably, Accenture’s Europe, Middle East and Africa operation expanded most rapidly. Its revenues of $1.78 billion for the quarter were up 27%, making it larger than the North American parent organisation where revenues rose 13%.

Business was good across all of its major target sectors. The largest of these, communications and high-tech, showed a revenue increase of 17% when measured in local currency. Revenues from financial services clients were up 24%. But it was government business that saw the greatest growth, with revenues jumping 31% to $548 million compared to the year-ago period.

Accenture may be leading its market, as its 25% share of recent services contracts shows, but taken by itself, financial analysts have suggested that the company could still do better. High staff turnover and a slowdown in new outsourcing bookings are particular sticking points.

This has been balanced somewhat by activity after the close of the third quarter. Most of that 25% share was made up of a controversial $10 billion contract with the US Department of Homeland Security and a $730 million contract to provide outsourced application development and management to Barclays Bank. This makes for a positive outlook for the full fiscal year, with the company’s management predicting net revenue growth of up to 16%.

Though a minnow compared to Accenture, Detica, the UK IT consultancy which derives much of its business from the public sector and particularly from security projects, also had reasons to be confident. Its full-year revenues increased 36% to $97.9 million, with net profits of $13.9 million. Government revenues soared 53% to $60.7 million, although this was partly due to the shifting of clients between business units.

The contribution from the public sector is vital for Detica – without the $5.3 million acquisition of content management system developer Rubus, commercial revenues would have fallen 6% on 2003 levels. Organic growth across the company is still a strong 25%. And the company’s management team says it plans further acquisitions in the enterprise information management space and an expansion of the company’s US presence.

European slippage

But for most European companies in IT services, the picture is not so healthy. Revenues at UK-based Xansa, for example, slipped 12% in the six months to 30 April to $354.7 million, with net losses rising 9% of $32.4 million.

Although Xansa’s sales fell short of expectations, CEO Alistair Cox pointed to a series of new contracts worth $640.5 million and claimed “stability is returning to the business after a period of challenging market conditions and organisational change”. Cautious optimism was the abiding tone as Cox told analysts he believed the IT services market was on the path to recovery, albeit at a modest pace.

Analysts, in turn, have praised Xansa’s development of offshore business process outsourcing (BPO) capabilities. Revenue from its Indian operations saw a 23% rise in the past year and Xansa plans to more than double its headcount there to capitalise on the offshoring trend. But ongoing management reorganisation after the closure of unprofitable operations in Europe and North America signals that the company is trying to establish clearer direction throughout its operations, although that uncertainty means it remains a potential acquisition target.

Xansa’s revenue decline was considerably larger than that of its competitor Atos Origin, which reported a 1% drop in revenues in its first quarter of 2004. Headlining areas of concern was a 9% fall in revenue from consulting and systems integration, although when modified to take into account the impact of currency fluctuations and the $520 million acquisition of Schlumberger-Sema’s core IT services business, the reduction becomes a more palatable 6%.

This picture is blamed on price pressure in the European services market, but elsewhere the company’s European focus has saved further blushes for the Franco-Dutch company – its smaller Americas and Asia-Pacific divisions accounted for much of its revenue decline, turning in 32.9% and 22.5% drops respectively.