Is it time for massive IT services consolidation as falling sales puts industry on its knees?

Just when you thought it was safe to go back in the water Ovum drops a bombshell.

I was getting more positive vibes about IT services spending, which was great news after the collapse of recent years.

The Indian outsourcing bellwethers have all been posting big increases in revenues and profits and there have been some significant investments made in new technologies including cloud computing capabilities.

But Ovum says the combination of the death of the mega deal in the private sector and a drying up of spending in the public sector has meant that global IT services sales in the second quarter of this year were 40% lower than the same period last year. That sort of figures would put any industry on its knees.

Sales were pretty low last year but I would have expected sales to increase. Perhaps there will be a huge rebound when governments start outsourcing IT to cut costs en masse. But we all know that government are trying to avoid this for as long as possible to avoid public opinion backlashes.

But the figures cry out for consolidation. Could we be on the verge of a massive round of mergers and acquisitions in the IT services sector?

This could be the perfect storm for the BPO and ITO industries to become fully integrated.

I was talking to Genpact Asia CEO Charles Hunting last week. We discussed the BPO giant’s acquisition of IT services firm Headstrong. Genpact was an internal shared services operation at General Electric (GE) before it was spun off in 1997. Genpact is traditionally very strong in the financial services with HR and finance and accounting BPO. In fact it is one of the world’s biggest.

He believes it is a certainty that BPO and IT suppliers will consolidate and he expects acquisition activity.