IT service sector Q4’25 summary: Looking up

Translation: Original published in Finnish on 3/17/2026 at 8:48 am EET.

The Q4 earnings season in the IT services sector showed positive signs for the first time in a long while. While the sector as a whole continued to face challenges in Q4, it was an improvement from before. For the first time in seven quarters, organic revenue turned slightly positive. There are tentative signs of improvement in the market, particularly in the private sector – the public sector remains challenging due to savings measures, but doing business there is possible as well. Compared to previous quarters, profitability improved slightly, and with the turnaround in revenue, there is now a better chance that this trend will continue. We expect revenue to return to modest growth and profitability to improve slightly in 2026. However, if the war in Iran drags on or escalates, it will put pressure on the forecasts. At the start of the year, investors' fears of disruption from artificial intelligence weighed down several sectors, including IT services. This threat has been widely recognized within the IT services sector in operational terms for a couple of years now, however. In our view, therefore, this threat of disruption is somewhat exaggerated when it comes to the IT service sector. The decline in stock prices has slowed, but there has not yet been a significant recovery.

Source: Companies and Inderes

Source: Inderes

Viewed through the "Rule of 20," Q4 was weak at sector level but better than previous quarters

The difficult market situation in Q4 is illustrated by the fact that one listed IT service sector company achieved a good performance, and two achieved a satisfactory performance, as measured by the Rule of 20. On the other hand, no company achieved this in Q2, and Q3 performance was also weaker than in Q4. The best performers in the sector were Digia (15%), Gofore (14%), and Digital Workforce (11%), which is still only a good/satisfactory performance in our range that looks beyond cycles. The performance of the remaining companies in the sector can be considered poor or very poor. Q4 is also a seasonally strong quarter in terms of profitability.

Two years ago, we launched our own Rule of 20 for the IT service sector, which we believe works well, or even as the best single indicator, to measure the sector's and especially companies' operational performance, especially when viewed 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.

Rule of 20, Q4'25

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

Organic revenue turned to slight growth in Q4 and was relatively in line with our expectations

Overall, the revenues of the Finnish IT service sector developed in line with our expectations. After seven quarters of decline, the revenue of the companies we cover finally returned to organic growth of +0.5%. There has been cautious anticipation of improving development in terms of market commentary for a few quarters now. These cautiously positive comments increased slightly now, as reflected in the figures as well. However, many companies remain cautious in their market commentary, reflecting the continued fragility of the market situation and the fact that improvement in market conditions remains relatively narrowly focused. 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. While achieving new sales is still challenging due to today's lower price level and companies' profitability targets, it is possible. Overall, revenues developed relatively well in line with expectations in Q4, with 1 company above, 5 in line with and 2 below our forecast.

We have removed Tieto from the peer group, as we discontinued our coverage of the company at the time of the Q4 report. Additionally, we excluded Loihde from the comparison because the company has changed significantly in recent years, and its IT service business now accounts for only a small portion of its overall operations. However, our peer group remains comprehensive and consists of 8 companies.

Listed IT service sector in Finland, revenue

Source: Inderes

 Revenue vs. expectations

Source: Inderes

Overall, the market outlook for the IT service sector appears to be showing more concrete signs of improvement in Q4 for the first time in a long while. The public sector market situation remains difficult as a whole due to the need for savings, though the sector’s top performers are still able to operate there. The private sector appears to have picked up somewhat. However, we note that this was the situation prior to the outbreak of war in Iran, and it is difficult to assess its long-term effects. 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 Q4, the leading companies experienced relatively steady development, with four companies achieving slight organic growth (Witted, Digia, Digital Workforce, and Solteq). On the weaker side, Siili (-9 %), Vincit (-18%), and Netum (-22%) were clear underperformers.

Organic revenue growth Q4'25

Source: Inderes

The market weakness has already progressed to such an extent that there are no longer clear differences; instead, all companies have suffered in one way or another, regardless of customer focus or offering. There is a slight positive sentiment in the private sector, while austerity pressures continue to limit development in the public sector. 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 start of the year, investors' fears of disruption from artificial intelligence weighed down several sectors, including IT services. This threat has been widely recognized within the IT services sector in operational terms for a couple of years now, however. In our view, therefore, this threat of disruption is somewhat exaggerated when it comes to the IT service sector. The decline in stock prices has slowed, but there has not yet been a significant recovery.

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, we now estimate that due to rapid AI development and decreased demand for tailored software development, the need for successful productization is more critical than before.

Price competition due to overcapacity is still fierce, especially in the public sector, and this remains our main concern for the 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.  

Also signs of continued positive turnaround in profitability

The sector's average adjusted EBIT margin was 6.3% in Q4 (Q3: 4.8%), which was above both the comparison period's margin of 4.8% and the previous quarter's margin. Median profitability was 3.9%, which is at the same level as in the comparison period (4.3%). Those whose revenue levels have stabilized now have an easier time managing profitability. This creates good opportunities for a positive profitability trend, as there is room for improvement in utilization rates overall and fixed cost structures are partially scalable. Managing profitability is still very challenging for those whose revenues are falling across the board and for whom efficiency measures are inevitably "always" lagging behind. Several companies have continued to require efficiency improvements and have announced new measures, the effects of which are still expected in the coming quarters. In our view, naturally depending on the company's profile, EBITA levels below 5% should raise questions about possible adjustment measures.

Thus, there was slight positive profitability sentiment in Q4. Digia and Gofore achieved excellent levels in the sector context, significantly surpassing the sector's historical performance (7-8%). However, Q4 is the strongest quarter of the year seasonally. In our view, the underperforming companies in the sector have potential to improve their profitability once the revenue decline is overcome. Improving figures can also be expected in the coming quarters in the sector context, as several companies have stabilized revenues (and even seen growth), leading to better profitability management.

EBITA-% (adj.)

Source: Inderes

EBIT-% (adj.) Q4'25

Source: Inderes

As a whole, profitability levels were well in line with our expectations, with 1 company above, 6 in line (within a margin of 1 percentage point or less), and 1 below our forecast. Overall, the net effect of the differences in profitability expectations was -1.6 percentage points, which is minimal (Q3’25: -17.6%). 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 are becoming a normal way to adjust to changes in the market situation, and they are 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.

adj. EBITA vs. expectations

Source: Inderes

2025 was weak year by many indicators, but things are looking up

2025 can be described as a very weak year by several indicators. The median revenue of the Finnish IT service sector fell by 3%, and adjusted EBIT was 4%, which is slightly weaker than the previous year and the lowest figure of the entire monitoring period. We kept Tieto on board throughout the entire monitoring period.

Finland's listed IT service sector, revenue

Source: Inderes

Source: Inderes

Only one company (Digia) in the IT services sector achieved satisfactory performance as measured by the Rule of 20. This reflects the difficult market conditions very well. Gofore and Digital Workforce achieved positive figures, though this still represents a weak performance. The differences were significant for other companies, and their performance can even be considered very weak when measured by the Rule of 20, which looks beyond cycles.

Rule of 20, 2025

Source: Inderes

In 2026, we forecast modest organic growth and slight improvement in profitability

As for market outlooks, a slight positive trend was evident for some companies at the end of 2025, as discussed above. In 2026, we expect organic revenue to turn to modest 1% growth (2025: -3%), a trend that Q4’25 already gave us a glimpse of. We expect profitability to rise slightly and reach 5.3% (median) in 2026 (3.7% in 2025). This improvement is driven by efficiency measures and improved utilization rates due to a slight increase in revenue. However, we note that these estimates were prepared primarily before the outbreak of war in Iran. If the war were to continue for a longer period of time or expand in a way that significantly affects the global economy, it would naturally also have an indirect negative impact on the investment willingness of customers of Finnish IT service companies and thus on our estimates.

Source: Inderes

Company-specific Q4 comments and forecasts: 

Digia

Digital Workforce

Gofore (in Finnish)

Loihde (in Finnish)

Netum (in Finnish)

Siili (in Finnish)

Solteq (in Finnish)

Tietoevry

Vincit (in Finnish)

Witted (in Finnish)