IT service sector Q1’26: Clear dichotomy

Translation: Original published in Finnish on 5/13/2026 at 7:00 am EEST.

At the end of last year, we saw positive signs in the IT services sector for the first time in a long while, and organic revenue returned to growth after a long period. However, Q1'26 did not confirm this turnaround across the entire sector; instead, company-specific differences widened further. In our view, the challenging market conditions seen in recent years and the market disruption created by AI will more clearly separate the winners from the losers in the sector.

Overall, organic revenue returned to a downward trend in Q1, as developments became very polarized and the decline was driven by very weak performances. However, profitability improved slightly year-on-year. Over half of the companies we cover carried out change negotiations in Q1, which in our view partly reflects the continued challenging market situation. This will support profitability if the decline in revenue can be halted. On the more positive side of this dichotomy, there is still positive momentum, and revenues have returned to a growth trajectory, although overall growth remains largely moderate. Q1 also brought a few positive profitability surprises relative to our forecasts. In our view, good or even strong organic growth has also continued in Europe and in the unlisted sector in Finland. The situation is not as gloomy across the entire sector as one might infer from some of the listed companies we follow. By market segment, there are cautiously positive signs, especially in the private sector. The public sector remains challenging due to cost-cutting measures, but it is still possible to operate there, as Gofore and Digia have shown. At the beginning of the year, several sectors, including the IT services sector, have been weighed down by the threat of AI disruption, which investors fear. However, this threat has been operationally known in the IT services sector for a couple of years already. Thus, we believe this disruption threat is partly exaggerated in the IT services sector. However, technological development is now faster than before, thus keeping uncertainty elevated. The share price decline has stabilized, but no significant recovery has yet been seen.

Source: Companies and Inderes

Source: Inderes

Viewed through the "Rule of 20", Q1 was weak in the sector and the divergence widened

The IT services market situation remained weak in Q1, and the sector's median Rule of 20 figure was only 1, which in our view is still a very weak level. However, one of the listed IT service sector companies (Digital Workforce) clearly exceeded the excellent level (29). Three companies (Gofore, Witted, and Digia) were at a near satisfactory level. The remaining companies were clearly at a very weak level of -11 to -21 (Solteq, Vincit, Siili, and Netum).  

A couple of years ago, we introduced our own Rule of 20 for the IT services sector, which we believe is the best single metric for evaluating companies' operational performance, especially over the cycle. The current market situation is more challenging than in the previous 10 years, and achieving an excellent level in the Rule of 20 is more difficult, whereas in the past, more companies achieved excellent performance.

Source: Inderes 
Rule of 20 = Organic growth-% + adj. EBITA-%

Organic revenue returned to decline in Q1, weighed down by a few very weak performances.

Overall, the revenues of the Finnish IT service sector developed more weakly than we had expected, with a median organic decline of 3%. At the end of last year, revenue briefly saw slight growth for the first time in a long time. However, what we believe was a very weak start to the year for four companies pushed the entire sector back into a clear decline. This reflects a clear dichotomy in performance. Digital Workforce achieved the best growth in the sector, with organic growth of as much as 22%. Witted (+4%) and Gofore (+2%) have also started on a path to growth. Revenue continued to decline significantly at Solteq (8%), Siili (14%), Vincit (15%), and Netum (25%). Of these companies, we believe the strategic transformation is still clearly ongoing at Solteq, Siili, and Vincit. Netum's performance is weighed down by the completion of three major projects at the end of last year, and thus, in our view, there does not appear to be a need for a major strategic change. In our view, Netum was too late in investing more heavily in sales, which has since yielded results starting from Q4'25 but has not yet been clearly reflected in the figures. Seasonally, Q1 is generally a weaker quarter, as more projects are completed at the end of the year than usual, and there is timing uncertainty associated with starting new ones. The number of working days in Finland was the same as in the comparison period, so this had no impact on revenue development.

Source: Inderes

In the big picture, many companies are still cautious in their market commentary, which reflects the continued delicate market situation and the fact that an improved market situation is still relatively narrow. For several companies, progress was still constrained by customers' need to save money, which has led to IT projects being scaled down, put on hold, or new launches being postponed. We believe that achieving new sales is still challenging, but possible, given the current lower price levels and companies' profitability targets. Overall, revenues were weaker than expected in Q1, with one company above, two in line with and five below our forecast. The fact that five out of eight companies held change negotiations in the first half of the year to adjust their personnel structure also largely reflects the continued weak/uncertain market situation.

Source: Inderes

However, even in a weak market, there are companies that can still achieve good growth, such as the aforementioned Digital Workforce. In addition, Netcompany, which has profiled itself as a long-term star in the sector, has continued its strong performance in Europe. Despite its large size of nearly 10,000 employees, it managed to grow organically by a strong 13%. For comparison, Gofore's headcount is approximately 1,900, which is one-fifth of Netcompany's personnel.

In addition to organic growth, acquisitions have once again begun to support growth more strongly last year and this year. Half of the companies we follow have made one or more acquisitions, which supports this year's growth.

Source: Inderes

By sector, the public sector market situation remains difficult overall due to the need for savings, but even there, good operators in the sector are able to operate. The private sector appears to have partially recovered, which depends on the demand situation within each customer vertical. However, we note that the effects of the war in Iran could still worsen the situation. If the war were to continue for an extended period or spread, it would naturally have an indirect negative impact also on the willingness of customers of Finnish IT service companies to invest. For example, a rapid rise in interest rates is also a sign of heightened inflation expectations, which we believe would be detrimental to the Finnish economy in the current weak economic climate.

In general, we expect companies with clear competitive advantages and/or extensive service offerings to stand out more prominently in the future. The losers will be companies that lack critical (e.g., data, AI) or differentiating capabilities, deep customer relationships (management consulting, integration and continuity services contribute), or a deep understanding of the customer's business through industry focus.

AI has been a hot topic for quite some time now. It is an opportunity, but on the other hand, the disruptive threat it brings is also a significant risk, especially in software development. In our view, the AI transformation will further separate the winners from the losers, and AI expertise will be a mandatory area of expertise in the future. Companies with strong existing customer relationships will continue to succeed in the market, even if they are not at the forefront of AI expertise. These companies already know their customers well and understand better how to utilize AI in those particular customer relationships. We estimate that new sales and thus "infiltrating" customer relationships will continue to be challenging in the future, unless you have a broad service offering or cutting-edge AI expertise. Once again, we also emphasize the adaptability of companies as a key source of competitive advantage, which we believe is particularly important in the age of AI as customer needs that companies aim to meet are likely to vary significantly in the coming years.

We predict that companies without existing strong customer relationships or with average-to-weak AI skills are the ones that won't make it. At the beginning of the year, several sectors, including the IT services sector, have been weighed down by the threat of AI disruption, which investors fear. However, this threat has been operationally known in the IT services sector for a couple of years already. Thus, we believe this disruption threat is partly exaggerated in the IT services sector. However, technological development is now faster than before, thus keeping uncertainty elevated. The share price decline has stabilized, but no significant recovery has yet been seen.

Recently, productization has also emerged as a stronger strategic trend. Good examples of this are the Danish company Netcompany, which is strongly striving to transform into a platform company, and Tieto, which continues to focus on the software business. Productization has been on the agenda for many companies before, but now we believe productization has been put higher on the strategic priority list, and companies seem to be driving a larger part of the business in this direction. In a sense, Gofore is also moving more in this direction. One could partly say that even those specializing in customer verticals are, in a sense, trying to "productize" their offerings according to customer verticals. Productization has historically been difficult for companies in the sector, and there has not been a particularly strong need for it due to customer purchasing behavior and strong demand. However, with the rapid development of AI and the decreased demand for custom software development, successful productization is now more critical than before.

In our view, price competition due to overcapacity remains fierce, especially in the public sector. In the private sector, price pressure no longer appears to be tightening significantly, but drawing more precise conclusions is very difficult. The most important driver for price development would naturally be a pick-up in demand, which we believe requires a stronger economic environment to increase customer companies' willingness to invest. Meanwhile, IT suppliers have also been reducing their workforce (supply) for several years, which should, in theory, reduce price competition. However, this naturally depends on the balance between supply and demand, and as demand has fallen, we do not yet see these two factors (supply and demand) as aligned.  

Slight improvement in profitability

The average adjusted EBIT margin for the sector was 3.4% in Q1, which is slightly lower than the comparison period (Q4: 3.8%) and significantly weaker than the seasonally strong Q4'25 (6.3%). Median profitability was 4.2%, again better than the comparison period (2.9%). Managing profitability is easier for those whose revenue levels have stabilized. This offers good opportunities for a positive profitability trend, as there is room for improvement in utilization rates and fixed cost structures are partially scalable. In our view, managing profitability remains very challenging for companies experiencing widespread revenue declines, as efficiency measures inevitably "always" lag behind. Five out of eight companies implemented efficiency measures in Q1, and their effects are expected in the coming quarters. In our view, an EBITA level below 5% should prompt consideration of adjustment measures.

Source: Inderes

At the company level, Digia, Digital Workforce, and Gofore reached the sector's historical average levels (7–8%). However, the profitability of Digia and Gofore was a slight disappointment to us, and they should have the means for better profitability. Digital Workforce's profitability was good, but there should be opportunities for even better profitability as growth scales. Witted also made a good profitability turnaround, with its profitability rising to just over 4%, which we believe is already a reasonably good performance given the company's structure, its history, and our expectations. We believe that the underperforming companies in the sector have definite potential to improve their profitability once the revenue decline is overcome. Overall, in the context of the sector, improving profitability figures can be expected in the coming quarters, as revenues have stabilized (and are even growing) for some companies, and recent efficiency measures are supporting profitability improvements for several others.

Source: Inderes

Relative to our forecasts, profitability levels were slightly weaker than we expected, with two companies above, two in line (within 1 percentage point), and four below our forecasts. Together, the net effect of the differences in profitability expectations widened again significantly to -10 percentage points (Q4'25: -1.6%), driven by the weak profitability of Siili and Solteq. If the revenue decline and difficult market situation persist, companies will naturally be under additional pressure to also adjust their more fixed cost items. Now, almost everyone has adjusted their operations to some extent (or more often) in recent years. Thus, change negotiations have become a normal way to adjust to changes in the market situation, and it is not that dramatic anymore. In our view, this also creates an opportunity for more steadily developing companies to profile themselves as secure workplaces and strengthen their employer image.

Source: Inderes

In 2026, we forecast sector-level revenue to continue to decline, but profitability to improve

Regarding the market outlook, some companies are still showing slight positive momentum, but at the sector level, several challenges and weak performances are weighing down the overall picture. In 2026, we expect organic revenue to decline by 1% (2025: -3%). We expect profitability to rise slightly and reach 4.8% (median) in 2026 (3.7% in 2025). The improvement is driven by efficiency measures and improved billing rates as several companies' revenues stabilize or show slight growth. If the war in Iran were to expand, it would significantly impact the global economy and naturally have indirect negative effects on the investment appetite of Finnish IT service companies' customers, and thus on our forecasts.

In the big picture, we have been saying for some time that the current market situation and the market disruption created by artificial intelligence will more clearly separate the winners and losers in the sector. Now that the market disruption has continued for about three years, and companies have had time to adapt to the new situation, we believe we can begin to categorize the current (preliminary) market winners and losers. In terms of operational figures from recent years, we believe that Digia, Digital Workforce, Gofore, and Witted have either continued to perform well relative to the sector and/or succeeded strategically in their transformation. From the perspective of operational figures and strategic effectiveness, the current losers in the sector are Siili, Solteq, and Vincit. Netum's categorization is still a question mark, as three major contracts have ended and are slowing down development. Strategically, the company does not have a great need for change or demonstration, but rather it is about understanding realistic margin levels for sales. This has yielded results in recent quarters in the form of successful sales.

Source: Inderes

 

Company-specific Q1 comments and forecasts:

Digia

Digital Workforce

Gofore (in Finnish)

Netum (in Finnish)

Siili (in Finnish)

Solteq (in Finnish)

Vincit (in Finnish)

Witted (in Finnish)