Q1 2012 www.businessmonitor.com aUStraLIa information technology Report INCLUDES BMI'S FORECASTS ISSN 2041-7160 Published by Business Monitor International Ltd. AUSTRALIA INFORMATION TECHNOLOGY REPORT Q1 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI's Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: January 2012 Business Monitor International 85 Queen Victoria Street London EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 email: subs@businessmonitor.com web: http://www.businessmonitor.com © 2012 Business Monitor International. All rights reserved. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Australia Information Technology Report Q1 2012 © Business Monitor International Ltd Page Australia Information Technology Report Q1 2012 CONTENTS Executive Summary . SWOT Analysis . Australia IT Sector SWOT . Australia Political SWOT . Australia Economic SWOT Australia Business Environment SWOT 10 IT Business Environment Ratings 11 Regional IT Business Environment Ratings . 11 Asia IT Markets Overview 16 IT Penetration 16 IT Growth And Drivers 18 Market Overview . 23 Government Authority 23 Background 23 Hardware . 23 IT Services . 28 Industry Developments 30 Table: Computers For Schools Programme, Phase Two – Planned Spending By State . 32 Industry Forecast Scenario . 33 Table: Australia's IT Sector – Historical Data & Forecasts (US$mn Unless Otherwise Stated) . 35 Internet . 36 Table: Telecoms Sector – Internet – Historical Data & Forecasts 36 Competitive Landscape . 38 Computers . 38 Software 40 IT Services 42 Table: Australia Dial-Up And Broadband Internet Subscriptions, 2009-2010 44 Table: Australian Broadband Market, June 2009-June 2010 47 ADSL2+ 48 Macroeconomic Forecast 55 Table: Australia – Economic Activity 57 Company Profiles . 58 HP Australia 58 SAP (Australia) 59 Country Snapshot: Australia Demographic Data . 61 Section 1: Population . 61 Table: Demographic Indicators, 2005-2030 61 Table: Rural/Urban Breakdown, 2005-2012 . 62 Section 2: Education And Healthcare 62 Table: Education, 2002-2005 62 Table: Vital Statistics, 2005-2030 62 Section 3: Labour Market And Spending Power 63 Table: Employment Indicators, 2001-2006 63 © Business Monitor International Ltd Page Australia Information Technology Report Q1 2012 Table: Consumer Expenditure, 2000-2012 (US$) 63 Table: Average Annual Wages, 2000-2012 64 BMI Methodology . 65 How We Generate Our Industry Forecasts 65 Transport Industry . 65 Sources . 66 © Business Monitor International Ltd Page Australia Information Technology Report Q1 2012 Executive Summary Market Overview In 2012, BMI forecasts Austalian IT market growth of 5%, with spending of US$21.8bn, compared with US$20.8bn in 2011. Our forecasts for IT spending growth envisages a market value of US$27.0bn expected by 2016, a 5% CAGR for the market. New services such as cloud computing will pay a large part in the market's continued growth. The government's six-year cloud computing strategy has been joined by a number of private and public sector organisations launching their own initiatives. Several factors underpin our forecast of a 5% 2012-2016 CAGR for the Australian IT market. Government tenders will drive considerable spending in future. Banks will continue to need to spend on regulatory compliance and intense competition in the retail sector is spurring spending on customer relationship management (CRM) and back-office systems. Competition and new service platforms in the telecoms sector are driving the key IT spending segment. Industry Developments The Australian federal government is implementing a six-year plan to transfer government agencies' computing systems to a public cloud environment. According to the plan, public cloud adoption for public-facing websites began in 2011, with pan-governmental integration scheduled to take place from 2012 onwards. However, the plan requires government agencies to notify the Department of Finance Deregulation of their intention to move to the cloud. Government projects in sectors such as e-government, healthcare, and education are driving significant opportunities for IT vendors. The Australian government has announced plans for a standardised reporting system scheme, while the National E-Health Transition Authority has set the goal of creating a paperless environment in Australia's health sector, including public hospitals. Meanwhile, in Q411 education authorities in Queesland and New South Wales were rolling out IT initiatives. In 2010, the Australian Senate passed a bill to restructure Telstra, to increase competition as Telstra's infrastructure is incorporated in the new National Broadband Network (NBN). The NBN project aims to connect 93% of the population by 2017 and aims to rectify a situation that has led to Australian broadband charges being ranked the fifth most expensive among Organisation for Economic Cooperation and Development (OECD) countries. Company News Telecoms service providers in the Australian market are investing in infrastructure to provide cloud computing services. In Q111, telecoms company Telstra, in partnership with consulting leader Accenture, launched a 45-day free trial of its cloud infrastructure for government agencies. Meanwhile, © Business Monitor International Ltd Page Australia Information Technology Report Q1 2012 rival telecoms company Optus already claims a number of high profile customers for its trial services, including property company Savills and South Australia's Royal District Nursing Service (RDNS). In H111, one of SAP's largest Australian partners, Oxygen, launched a new SAP Software-as-a-Service (SaaS) offering that it called 'Oxygen on Demand'. The solution was touted as a total SAP cloud solution, offering flexibility and speed-of-deployment. Many of SAP's Australian clients, including Fairfax Media, Australia Post, CGU Insurance. and the Commonwealth Bank of Australia, already use cloud computing to provide services. HP has around a 20% share of the brand PC market, ahead of nearest rival Apple which, as a result of sales of the iPad, has a share of around 15%. The top four vendors, including Acer and Dell, together account for close to 60% of the market. The release of Apple's iPad created a new competitive battleground, with Apple's rival vendors releasing their own products. However, Apple has so far dominated tablet sales in the Australian market. Computer Sales Australian computer hardware sales are projected at US$9.5bn in 2012, with popularity of tablets helping to keep demand buoyant in 2011 despite a moderation compared with 2010. Sales are forecast to grow at a 2012-2016 CAGR of around 3% to reach US$10.5bn by 2016, with drivers including new products such as tablets, as well as government programmes, and growing broadband penetration. More than 90% of Australian households now have a PC and consumers appear willing to spend on upgrading their notebook computers. It is also becoming more popular to purchase a second household PC. Small businesses comprise more than 99% of all Australian businesses and slightly more than 50% of business PC sales. Software Software is expected to account for about 17% of the Australian IT market in 2012, with estimated spending of US$3.7bn. As the focus moves from hardware to services and solutions, the share of the market accounted for by software is forecast to rise by 2016, with businesses seeking greater leverage from their investments. Software sales are forecast to have a 2012-2016 CAGR of around 8%. Given many businesses' focus on controlling costs, cloud computing models have also grown in popularity and spread beyond initial core application areas. Over the forecast period, enterprise resource planning (ERP), CRM and other e-business products will be increasingly popular with the small and medium-sized enterprise (SME) market, as companies try to enhance productivity through automating essential functions. IT Services IT services are expected to account for about 40% of the domestic IT market in 2012, with spending of US$8.6bn, up from US$8.1bn in 2011. CAGR for the segment is estimated at 8% from 2012 to 2016. © Business Monitor International Ltd Page Australia Information Technology Report Q1 2012 In 2012, sectors such as government, telecoms, healthcare, and banking should continue to drive demand for implementation, consulting and managed services. Regulatory compliance will continue to require spending by banks, and intense competition in the retail sector is spurring spending on CRM and backoffice systems. E-Readiness Many alternative Australian internet service providers (ISPs) are in the process of expanding the coverage of their ADSL networks. Other broadband service providers, including Unwired, are rolling out WiMAX networks, which will ensure greater choice and flexibility in the type of broadband connection available. Australia is above the OECD average in terms of businesses purchasing online (49% compared to 33%) and selling online (27% compare to 17%). The central component of the government's ICT strategy and overall domestic economic policy is the construction of a National Broadband Network. The programme is expected to drive economic growth and foster the creation of a digital economy. The government has projected GDP gains of 1.4% after five years from the broadband project. Despite these investment commitments, our outlook for Australian broadband growth continues to be cautious. This is based partly on delays that have characterised government and operator efforts to address the problem of low broadband coverage in rural parts of Australia. Meanwhile, fixed penetration rates in urban areas are already high. © Business Monitor International Ltd Page Australia Information Technology Report Q1 2012 SWOT Analysis Australia IT Sector SWOT Strengths Strong government support for ICT programmes. IT-literate population. Strong financial sector. Relatively unaffected by global economic crisis compared with Europe and the US. Weaknesses Australia has a relatively mature domestic market, with relatively slow growth rates. Sensitive to volatility in the global economy. Opportunities The National Broadband Network programme will have many direct and indirect benefits for the IT market. Phase two of the computers for schools project is expected to generate an additional US$800mn of spending. Other major IT projects in areas such as healthcare and smart cards. Green IT as companies look to make power savings. Threats The biggest threat is the global economic slowdown affecting Australia's economic activity and leading to a scaling back of IT budgets. The cheaper Australian dollar will affect consumer and business demand in the import-dependent IT market. © Business Monitor International Ltd Page Australia Information Technology Report Q1 2012 Australia Political SWOT Strengths Australia is a mature democracy with a broadly stable party system. Economic stability over recent years supports the current political system and radical groups are unlikely to gain substantial support. Weaknesses As one of the region's largest and most stable states, the country attracts many refugees and economic migrants. The issue is a key source of domestic tension and one that is unlikely to disappear over the medium term. Opportunities Australia has historically enjoyed close military ties with the US. However, with the rise of regional economic powers such as China, it will need to balance competing military and economic ties. Threats Australia's early support for the US 'War on Terror', among other things, has made Australians abroad a target for Islamic extremists. Australia's close alliance with the US, particularly under John Howard, has left a lingering feeling among some Asian governments that Canberra is Washington's 'deputy sheriff' in the region. Australia Economic SWOT Strengths A free-market economy supported by a highly educated workforce. Blessed with rich natural resources, Australia's economic activity will be augmented by commodity exports, especially to China. Weaknesses The persistent current account deficit increases vulnerability to capital flows and, by extension, currency volatility. The export basket is highly concentrated in commodities, with the consequence that the economy and currency remain vulnerable to fluctuations in world prices for metals, coal and agricultural goods. Opportunities Threats The rapid expansion of Asian economies in recent years – notwithstanding the current global recession – offers new opportunities for diversifying trading ties from core European markets. A low level of government debt has provided a certain amount of flexibility in fiscal policy to support domestic demand through the downturn. The high level of private sector debt – especially mortgage loans – poses a threat to sustained growth. A collapse in exports from a drop in resource demand from China would severely impact headline GDP growth. Australia is vulnerable to extreme weather that may lead to droughts and floods, which have become increasingly severe in past years as a result of global climate change. © Business Monitor International Ltd Page Australia Information Technology Report Q1 2012 Meanwhile, alternative operators had originally welcomed the idea of a shared wholesale service provider, in which Telstra would have been a participant (willing or otherwise), because it would have obligated the incumbent to offer them access to its pan-Australian fibre and broadband networks at affordable rates, making it easier to offer own-brand services direct to customers on and off their networks through a white label scheme. However, in April 2010, alternative operator Optus said that 'drastic changes' needed to be made to the government's draft legislation before it would commit to the NBN project. Optus warned the government that, unless clauses allowing the government-owned network to compete in retail markets were removed, the venture could fail to get off the ground. Amid much criticism and controversy, it was reported in June 2010, that the government had amended its proposed legislation, following the revelation that fixed-line incumbent Telstra had reached a deal with NBN Co. As reported by iTWire, Communications Minister Stephen Conroy said that the revisions to the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009 would provide greater regulatory certainty during the transitional period when Telstra customers are migrated to the new fibre network. It is understood that the amendments include the provision of a clear mechanism for the Australian Competition and Consumer Commission (ACCC) to consider an enforceable undertaking from Telstra to structurally separate its business as it retires its copper network. Senator Conroy claims that the alterations made to the legislation address a number of issues that have been raised since the bill was first put forward for consideration in September 2009. Meanwhile, and also in June, it was revealed that Telstra had signed a 'heads of agreement' deal with the government regarding its participation in the NBN project. It is understood that the heads of agreement signed with the government will result in Telstra leasing its fixed network to the NBN, gradually phasing out its analogue copper cable network, and installing new fibre-optic cables and high-speed wireless systems to replace it. Telstra's voice and broadband traffic will be migrated onto the new platform. The deal with the government is potentially worth AUD11bn, reports Telstra, which negotiated up from the AUD9bn initially tabled as compensation for projected market share losses and costs associated with network separation. Although the agreement is certainly a major milestone in realising the long-awaited NBN, Telstra's full participation is still far from assured. Central to the NBN concept is the transfer of Telstra's copper access network to the infrastructure company that will manage the NBN project. Other broadband operators with copper and fibre infrastructure will also hand over their assets to the NBN company but, as most have only a few switches and limited transmission and access assets (many still rely heavily on Telstra's network), this does not substantially alter their business models. Telstra, on the other hand, has been earning significant revenue by opening up and leasing space on its network facilities to the smaller players. By removing this business, Telstra will have to change tactics quite significantly if it wants to keep growing, therefore its continued reluctance to fully commit to the project. © Business Monitor International Ltd Page 52 Australia Information Technology Report Q1 2012 Nevertheless, Telstra is understood to have a powerful incentive to remain committed to the project. The government may now allow the company to bid for next generation wireless spectrum, which would give it greater opportunities to act as a wireless broadband service provider, a market understood to be potentially more lucrative than the fixed broadband sector addressed by the NBN. Previously, the government said that Telstra could not bid unless it gave up its significant market power (SMP) in the fixed broadband arena. With interest in fixed telephone connections declining and use of fixed broadband connections slowing, BMI believes Telstra's long-term future may be more sure as a mobile broadband player, particularly as rivals such as SingTel Optus and VHA will also be active in the fixed-line and mobile broadband markets and regional ISPs such as iiNet and Vivid Wireless are using WiMAX as well as fixed lines to serve their broadband customers. In August 2010, it was reported that if elected in the forthcoming general elections, the Coalition, which comprises the Liberal Party of Australia and the National Party of Australia, proposes spending up to AUD6.25bn of public and private funding on broadband infrastructure upgrades, significantly less than the AUD43bn estimated for the Australian Labor Party (ALP)'s NBN. However, the plans fell through after the ALP successfully secured sufficient support from the rural independents to form the next federal government in November 2010. The drawn-out establishment of the NBN took a step forward after the country's senate passed competition legislation in end-November 2010 designed to structurally separate fixed-line incumbent Telstra. However, the actual separation of Telstra is still subject to the approval of the company's shareholders. The separation of Telstra's retail and wholesale functions plays a vital role in the establishment of Australia's AUD35.7bn NBN project. The cost of the high-speed broadband network was revised downwards from AUD43bn after the Prime Minister, Julia Gillard, released part of NBN's corporate plan in order to gain support for the Telstra separation bill. However, the NBN is far from concluded as two bills pertaining to the regulatory framework of the NBN will be debated in the House of Representatives in 2011. The Australian government announced in December 2010 it will require AUD40.9bn in debt and equity to fund Australia's National Broadband Network (NBN) plan. The Australian Labor Party said the project is expected to generate annual returns of 7.04% based on NBN's corporate plan that includes detailed financial and operational forecasts for 30 years. According to NBN Co, the 10-year broadband project will provide employment for thousands of people and install 181,000km of passive optical network and 57,000km of transit fibre to cover 13mn premises. The bulk of NBN's funding, AUD27.5bn through equity, will initially come from the government, and a further AUD13.4bn in debt will be raised through project finance or financial markets from July 2014. The project's operational earnings will provide additional funds required during the course of construction. The NBN Co forecasts AUD20.8bn in total revenue during the construction period, with © Business Monitor International Ltd Page 53 Australia Information Technology Report Q1 2012 annual revenue expected to reach AUD5.8bn in FY2020/21. NBN Co expects this will increase to AUD7.6bn in 2025. In February 2011 the NBN Co bought 3.4GHz and 2.3GHz wireless spectrum held by pay-TV operator AUSTAR. The deal is worth AUD120mn and will enable NBN to deploy wireless broadband services in regional and rural areas across Australia. Further, AUSTAR intends to expand its customer base across the country through VoIP and high-speed broadband offerings, according to the operator's group director of corporate development, Deanne Weir. © Business Monitor International Ltd Page 54 Australia Information Technology Report Q1 2012 Macroeconomic Forecast Remaining Bearish Despite Firmer Q211 Print BMI View: Despite a firmer economic growth print in Q211 – real GDP expanded by a seasonally adjusted 1.2% quarter-on-quarter in contrast to the 0.9% contraction in Q111 – we believe that Australia's economy will experience a further deceleration. Declining consumer confidence and uncertainty in overseas demand for Australian resources will place downward pressure on the country's headline growth figure. With this in mind, we are downgrading the country's 2011 growth forecast to 1.8% (from 2.4% previously) while maintaining a further deceleration towards 1.6% in 2012. Australia's real GDP expanded by a seasonally adjusted 1.2% quarter-on-quarter (q-o-q) in Q211, reversing the revised 0.9% contraction registered in Q111. The improved economic outturn was mainly due to the resumption of private consumption activity and resource exports (such as coal from Queensland), as Australian consumers and businesses recovered from devastating floods in early 2011. However, we highlight that replenishment of inventory stocks contributed a significant 1.3 percentage points (pp) to headline growth, an impact that will most likely be temporary, leading to slower expansion. We caution that the growth outlook for H211 and 2012 will be weighed down by weakening consumer confidence as well as deterioration in the economic prospects of Australia's key trading partners, especially China. We were ahead of the curve in calling for disappointing growth this year (see our online service June 1, 'Debt Deleveraging And China Slowdown Paint A Worrying Picture'). This was at a time when the Bloomberg consensus was calling for strong growth of 2.9%, and expectations have unsurprisingly been slashed since then. In view of the deterioration of Australia's export outlook, however, we are now lowering the country's 2011 real GDP growth forecast further to 1.8% from 2.4% previously. For 2012, we maintain our view that headline growth will decelerate further to 1.6%. This is because we expect consumption growth to remain weak on the back of an ongoing property price correction in addition to lower mining investment and export growth amid a slowdown in external demand. Weakening Consumer Confidence To Weigh Down On Growth Private consumption rose by a seasonally adjusted 1.0% q-o-q in Q211, accelerating considerably from the 0.6% figure recorded in the preceding quarter. We believe the post-flood bounce, however, will not be sustainable given that a weakening real estate sector should continue to place downward pressure on consumer confidence, suppressing private consumption growth. The latest RP Data-Rismark Median Home Value Index recorded a seasonally adjusted 0.6% month-on-month (m-o-m) decline in July, accelerating from the 0.4% dip in June. The latest figure marked the seventh consecutive monthly contraction, a bearish trend that will most likely persist into 2012. The national auction clearance rate for homes came in at 51% in July, indicating a large gap in price expectations between buyers and sellers. By contrast, the clearance rate was closer to 80% in 2009, at a © Business Monitor International Ltd Page 55 Australia Information Technology Report Q1 2012 time when young home buyers were given subsidies (known as the first home owners grant) to help boost economic growth. This supports our view that home prices would need to trend lower in order for the real estate market to clear. Consequently, we believe Australian consumer confidence will continue to be penalised by the negative wealth effect originating from the devaluation of residential assets. The Westpac-Melbourne Consumer Sentiment index has fallen precipitously over the past few months, with monthly growth dipping by a seasonally adjusted 4.8% m-o-m (three-month moving average) in August. In tandem, retail sales have also been sluggish with virtually no growth in Q211. This supports our view that private consumption growth will fall significantly in 2012, dipping to 1.5% from a forecast 2.8% in 2011. GFCF To Remain Weak Investment activity, as a whole, rose by a dismal 0.2% q-o-q in Q211, dragged down by the 3.8% contraction in public gross fixed capital formation (GFCF). Private GFCF, on the other hand, expanded by 1.3% q-o-q, decelerating from the 4.1% figure registered in Q111. These results were largely in line with our long-held view that investment growth in Australia will be penalised by weak credit lending as well as lower public investment. Business credit growth has remained in negative territory since June 2009. This has reduced overall corporate lending to AUD675.9bn (US$710.0bn) in July 2011 from a peak of AUD777.9bn in November 2008. With these factors in mind, we believe annual GFCF growth will plunge into the red to come in at -2.0% in 2012, compared with 4.0% in 2011. Government Spending To Provide Cushion Government consumption growth came in at 0.9% q-o-q in Q211, rising slightly from 0.8% in Q111. While we believe the government will have limited room to ramp up public spending due to fiscal constraints, official expenditure for the post-flood reconstruction phase will provide an important boost to headline growth. We are pencilling in respectable government consumption expansion in 2011, coming in at 3.3% before slowing to 2.8% next year. Over the longer term, the introduction of transfer tax mechanisms including the 30% mineral resource rent tax (to extract super profits generated from Australia's booming mining industry) and carbon pricing should ensure that the Australian government will play a more important role as a share of GDP over the long term. Shaky External Outlook The Australian external sector continued to serve as a drag on headline growth as import growth outstripped export growth in Q211, coming in at 4.3% q-o-q and 2.6% q-o-q. We maintain our view that a slowdown in Chinese economic growth will place downward pressure on the country's outbound shipments, as demand for Australian mineral resources falls (see 'PMI Release: Slowdown View Remains In Play', September 8). This should worsen real mining output, which has been in decline over the past four consecutive quarters, shrinking by 0.9% q-o-q in Q211. © Business Monitor International Ltd Page 56 Australia Information Technology Report Q1 2012 That said, we expect import growth to deteriorate more than export growth next year on the back of a steep depreciation in the Australian dollar. Weakness in resource exports and the decline in investor confidence due to a prolonged housing slump should lead to a significant drop in the value of the Aussie, averaging just US$0.9000/AUD in 2012 from US$1.0646/AUD currently. Consequently, we expect import growth to dip by 5.5% next year, outstripping the forecast 2.2% fall in exports to register a trade surplus. Table: Australia – Economic Activity 2011f 2012f 2013f 2014f 2015f 2016f Nominal GDP, AUDbn [2] 1,409.7 1,462.3 1,530.6 1,613.7 1,697.4 1,782.1 Nominal GDP, US$bn [2] 1,476.0 1,316.1 1,186.2 1,210.2 1,273.1 1,336.6 1.8 1.6 2.7 3.0 2.9 3.0 66,107 58,364 52,088 52,628 54,827 57,010 Population, mn [3] 22.6 22.9 23.2 23.5 23.8 24.1 Industrial production index, % y-o-y, ave [2] -1.1 1.5 2.0 2.1 2.2 2.1 5.3 5.4 5.2 5.0 4.8 4.8 Real GDP growth, % change y-o-y [1,2] GDP per capita, US$ [2] Unemployment, % of labour force, eop [2] f = BMI forecast. Base Year = FY2008/09 (July-June). Source: ABS/BMI Calculation. World Bank/UN/BMI. © Business Monitor International Ltd Page 57 Australia Information Technology Report Q1 2012 Company Profiles HP Australia Services Technology services, consulting, and integration. Recent Developments HP was the overall brand Australian PC market leader in 2011, followed by Dell. As of H111, HP had around a 20% share of the branded PC market. HP was also the combined PC market leader in 2009 and the company is continuing to focus on winning its share of government contracts. Back in 2008, HP acquired fellow US leader EDS, which subsequently announced it would cut around 75 staff from its Australian workforce of more than 6,000. By December 2008, EDS Australia claimed planned staff cuts had been completed locally. In the same year, HP bought one of Australia's most successful software groups, Tower Software, for AUD55.9mn. In September 2010 HP launched its range of TouchSmart devices Future Plans US IT leader HP is also moving to compete directly with Telstra, Optus, and Macquarie Telecom for a share of the cloud computing services market. In December 2010, HP revealed that it was opening its datacentres to local customers. HP will offer access to SAP, Oracle, and Microsoft software, providing customers with more flexibility. Revenues In the quarter ended July 31 2011, HP's fiscal third quarter, the company reported revenues of US$31.2bn, a 1% increase from the same quarter a year earlier. Services and personal systems group were the largest revenue generating units for the company. Services provided faster growth, increasing from US$8.772bn to US$9.918bn over the year. Of the company's total, Asia Pacific region, which includes Australia accounted for 20% of total revenues, with revenues increasing 9% y-o-y. Growth slowed compared with earlier quarters, but was more stable after early decreases. Presence Fully owned subsidiary. As of 2008, HP Australia had 3,028 staff, up from 2,464 in 2007 and close to 2006 levels of 3,063. HP employs more than 32,000 people across the Asia Pacific. Sectors HP is aiming to push its managed services business across the Asia Pacific region to take advantage of the growing demand for IT outsourcing. Another item on HP's current agenda is to push HP-branded services delivered by its channel partners beyond just warranty services; about 25% of resellers in Asia have this capability. © Business Monitor International Ltd Page 58 Australia Information Technology Report Q1 2012 SAP (Australia) Services Enterprise software, support, and services. Recent Developments German software leader SAP, which built its global dominance around the traditional onpremise software model, has been criticised for being slow to embrace the utility software model. In 2010, the company released its BusinessObjects BI OnDemand in Australia. SAP's full ByDesign ERP SaaS product was finally released in Australia in 2011, after a delay as the initial product was criticised following its release in the US and Germany back in 2007. In H111, one of SAP's largest Australian partners, Oxygen, launched a new SAP SaaS service called 'Oxygen on Demand.' The solution was touted as a 'total SAP' cloud solution, offering flexibility and speed-of-deployment. Heavy equipment manufacturer Komatsu has already migrated to an SAP-based cloud service after previously using Telstra, as part of a AUD35mn contract. In 2010, SAP released its BusinessObjects BI OnDemand in Australia for the first time. Despite the economic slowdown, SAP continued to win major tenders in 2009. SAP software was selected for a contract worth tens of millions of dollars from Origin Energy. SAP was also the selected software supplier for a major project by leading superannuation funds administrator Superpartners – the AUD70mn IT overhaul included new software to replace legacy systems that had become increasingly error-prone. Superpartners hired new IT staff with specific knowledge of SAP solutions. In 2009, the Commonwealth Bank of Australia was one year into a AUD580mn banking modernisation project, intended to replace 1960s-era software with new technology from SAP. Meanwhile, Woolworths announced in March 2009 that SAP would supply the software for its key merchandising systems. Other local clients in 2008 included 7-Eleven and Adelaide Brighton Limited. Future Plans Australia will remain an important market in the Asia Pacific for SAP. Due to language and cultural factors, less localisation is generally required of products already launched in the US and Western European markets, and so Australia (and New Zealand) is often an introductory point for products SAP would like to introduce in Asia Pacific. Back in 2009, SAP said it would work on overhauling its partnership plans with a more customer-focused ecosystem strategy. According to SAP, the new strategy has led to a restructuring and innovation in partner relations. Cloud computing is also a growing priority for SAP. Many of the company's Australian clients, including Fairfax Media, Australia Post, CGU Insurance, and the Commonwealth Bank of Australia, already use cloud computing as a means of providing services. Revenues In Q110, SAP reported non-IFRS software and software-related services revenues of EUR1.95bn, up 10% y-o-y in constant currency. In 2009, SAP reported US GAAP revenues of EUR8.2bn, down 3% on EUR8.48bn in 2008. While SAP does not release detailed region figures, SAP Australia and New Zealand reported a record growth year in 2008. Overall Australian market revenue growth was 36%, with 79% © Business Monitor International Ltd Page 59 Australia Information Technology Report Q1 2012 growth in software licence revenues. Presence In 2009, SAP laid off around 40 people from its local staff of about 500. The firm has several hundred software partners and 1,300 service partners as well as channel partners and technology partners in Australia. Sectors In 2008, SAP reported particularly strong growth in the retail, utilities, and mining industries. Other key sectors for SAP include banking and retail. © Business Monitor International Ltd Page 60 Australia Information Technology Report Q1 2012 Country Snapshot: Australia Demographic Data Section 1: Population Population by age, 2005:2030 (total) Population by age, 2005 75+ 75+ 70-74 70-74 65-69 65-69 60-64 60-64 55-59 55-59 50-54 50-54 45-49 45-49 40-44 40-44 35-39 35-39 30-34 30-34 25-29 25-29 20-24 20-24 15-19 15-19 10-14 10-14 5-9 5-9 0-4 0-4 -1.0 -0.5 0.0 Male 0.5 1.0 -2.0 -1.0 0.0 1.0 2030 Female 2.0 3.0 2005 Figures in millions. Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010 2020f 2030f Dependent population, % of total 32.1 32.1 35.5 38.5 Dependent population, total, ‘000 6,501 6,765 8,323 9,758 67.8 67.8 64.4 61.4 13,695 14,282 15,095 15,530 19.6 18.6 17.7 17.2 Youth* population, total, % of total 3,960 3,926 4,147 4,372 Pensionable population, % of total 12.5 13.4 17.8 21.3 2,541 2,839 4,176 5,386 Active population, % of total Active population, total, % of total Youth* population, % of total Pensionable population, total, % of total f = forecast. * Youth = under 15. Source: UN Population Division © Business Monitor International Ltd Page 61 Australia Information Technology Report Q1 2012 Section 2: Education And Healthcare Table: Rural/Urban Breakdown, 2005-2012 2005 2010 2020f 2030f Urban population, % of total 92.7 94.0 90.6 91.9 Rural population, % of total 7.3 6.0 9.4 8.1 Urban population, total, ‘000 18,679 19,927 21,217 23,239 Rural population, total, ‘000 1,476 1,274 2,201 2,048 20,155 21,201 23,418 25,287 Total population, '000 f = forecast. Source: UN Population Division Table: Education, 2002-2005 2002/03 2004/05 Gross enrolment, primary 103 104 Gross enrolment, secondary 149 149 72 73 Gross enrolment, tertiary Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. Source: UNESCO Table: Vital Statistics, 2005-2030 2005 2010 2020f 2030f Life expectancy at birth, males (years) 77.6 78.5 80.6 82 Life expectancy at birth, females (years) 82.8 83.4 84.8 85.9 Life expectancy estimated at 2005. f = forecast. Source: UNESCO © Business Monitor International Ltd Page 62 Australia Information Technology Report Q1 2012 Section 3: Labour Market And Spending Power Table: Employment Indicators, 2001-2006 2001 2002 2003 2004 2005 2006 9,796 9,943 10,067 10,207 10,492 10,665 1.1 1.4 1.2 1.3 2.8 1.6 50.6 50.8 51.0 51.2 51.6 51.9 Employment, '000 9,063 9,248 9,459 9,636 9,957 10,154 – % change y-o-y 1.2 2.0 2.2 1.8 3.3 1.9 – male 5,035 5,135 5,227 5,338 5,486 5,582 – female 4,028 4,113 4,232 4,298 4,471 4,572 — female, % of total 44.4 44.4 44.7 44.6 44.9 45.0 Total employment, % of labour force 92.5 93.0 93.9 94.4 94.9 95.2 Unemployment, '000 667 637 607 571 535 526 – male 384 364 330 309 287 284 – female 283 273 277 262 248 242 – unemployment rate, % 6.9 6.4 6.0 5.6 5.1 5.0 Economically active population, '000 – % change y-o-y – % of total population Source: ILO Table: Consumer Expenditure, 2000-2012 (US$) 2000 2007 2008 2009 2010 2012f 11,934.8 23,776 24,218 23,877 23,636 24,075 Poorest 20%, expenditure per capita 3,520.8 7,014 7,144 7,044 6,973 7,102 Richest 20%, expenditure per capita 24,645.4 49,097 50,010 49,305 48,808 49,715 Richest 10%, expenditure per capita 30,314.4 60,390 61,513 60,647 60,035 61,150 Middle 60%, expenditure per capita 10,502.6 20,922 21,312 21,011 20,800 21,186 14,987.1 19,531 20,505 na na na Poorest 20%, expenditure per capita 4,421.2 5,762 6048.9 na na na Richest 20%, expenditure per capita 30,948.3 40,332 42,343 na na na Richest 10%, expenditure per capita 38,067.1 49,609 52,083 na na na Middle 60%, expenditure per capita 13,188.6 17,187 18,044 na na na Consumer expenditure per capita Purchasing power parity Consumer expenditure per capita f = BMI forecast. na = not available. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 63 Australia Information Technology Report Q1 2012 Table: Average Annual Wages, 2000-2012 2000 2007 2008 2009 2010 2011f 2012f Non-agricultural, AUD 41,309 55,812 58,644 61,460 64,448 66,076 69,273 Manufacturing, AUD 37,773 55,181 57,981 60,765 63,720 65,329 68,490 Non-agricultural, US$ 23,959 45,844 46,704 45,922 45,406 44,145 45,213 Manufacturing, US$ 21,908 45,326 46,176 45,403 44,892 43,646 44,702 f = BMI forecast. Source: ILO, BMI © Business Monitor International Ltd Page 64 Australia Information Technology Report Q1 2012 BMI Methodology How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Our approach varies from industry to industry. Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part of all our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Transport Industry There are a number of principal criteria that drive our forecasts for each transport variable: GDP Growth As transport activity is heavily influenced by real GDP growth, this factor is examined to ascertain its relationship with overall trade volumes. Projected GDP growth is calculated using BMI’s own macroeconomic and demographic forecasts. Real Trade Volumes The sum of imports and exports plays a particularly important role in developing countries with a small © Business Monitor International Ltd Page 65 Australia Information Technology Report Q1 2012 domestic industrial sector. In particular, the focus is on goods, as services not employ transport. The volumes are forecast based on the following criteria: Trends manifested through historical data; The impact of future step changes to the economy (such as future membership of the EU or some other regional body). Port Traffic Port traffic levels act as a ‘second opinion’ on trade volumes. However, this check needs to be used with caution as trade values and volumes not always move over time in the same way. Market Share The market share of each mode (road, rail, inland waterway, coastal shipping) for future years is based upon: Trends in historical modal split data; Evidence of government policy favouring one or more modes over others; Government and or private sector investment plans in specific modes. Sources Sources used in transport reports include local transport ministries, officially released company results and figures, established think tanks and institutes and donor agencies such as the World Bank and the Asian Development Bank. © Business Monitor International Ltd Page 66 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... more features © Business Monitor International Ltd Page 19 Australia Information Technology Report Q1 2012 In mature markets such as Australia and Singapore, PC sales are dominated by replacement sales In Australia, upgrades are estimated to account for at least 80% of business purchases and more than 50% in the case of households More than 90% of Australian households now have a PC, but consumers have... International Ltd Page 30 Australia Information Technology Report Q1 2012 E-Government In addition to computers in schools, e-government projects continued to be rolled out in 2010, despite economic uncertainty In mid-2010, the Australian government expected to launch a standardised reporting system scheme The programme will involve implementation of a platform allowing business to submit reports to a range... Northern Territory 1.3 1,303 computers delivered to 37 secondary schools 2,041 State New South Wales Victoria South Australia Source: Official figures, BMI © Business Monitor International Ltd Page 32 Australia Information Technology Report Q1 2012 Industry Forecast Scenario In 2012, BMI forecasts Australian IT market growth of 5%, with spending of US$21.8bn, compared with US$20.8bn in 2011 According to our... The National E-Health Transition Authority aims to create a paperless environment in Australia' s health sector, including public hospitals © Business Monitor International Ltd Page 33 Australia Information Technology Report Q1 2012 Market Drivers Several factors underpin our forecast of a 5% 2012- 2016 CAGR for the Australian IT market Government tenders will drive considerable spending in future in... was managing by drawing on existing resources The Commonwealth Bank of Australia also revealed plans to © Business Monitor International Ltd Page 27 Australia Information Technology Report Q1 2012 deploy a cloud computing environment, with plans to outsource much of the infrastructure to an external provider Meanwhile, other large Australian institutions such as telecoms company Telstra are also exploring... top regional rating in Q11 2 The market is expected to remain in positive growth territory, despite business concerns about the domestic carbon tax and the global economic situation One leading area of opportunity is growing demand for cloud computing services A wide range © Business Monitor International Ltd Page 11 Australia Information Technology Report Q1 2012 of leading Australian private and public... and increased competition in this segment are expected to © Business Monitor International Ltd Page 12 Australia Information Technology Report Q1 2012 fuel growing demand for this technology IT outsourcing is also expected to show a strong demand trajectory Malaysia remains in fifth position in our Q11 2 regional ratings Demand is expected to stay resilient, even as economic growth moderates Government.. .Australia Information Technology Report Q1 2012 Australia Business Environment SWOT Strengths A highly educated workforce and comparatively modern transport infrastructure underpin economic prospects A number of free trade agreements with countries such as New Zealand, Thailand and the US serve as a boon for trading activities Weaknesses Despite its openness, Australia requires the... grow from US$9.5bn in 2012 to US$10.5bn in 2016, with PC sales © Business Monitor International Ltd Page 34 Australia Information Technology Report Q1 2012 (including accessories) forecast to rise from US$7.8bn to US$8.7bn, boosted by computer procurement for education Software spending is forecast to rise from US$3.7bn to US$5.0bn and IT services from US$8.6bn to US$11.6bn Table: Australia' s IT Sector... 'white box' unbranded PCs was credited with reducing the use of pirated software Meanwhile, some © Business Monitor International Ltd Page 26 Australia Information Technology Report Q1 2012 studies have found a rise in the use of illegal software among western Australian companies, particularly in the booming mining sector The overall trend, however, has been one of improved general awareness, backed . deadline: January 2012 Australia Information Technology Report Q1 2012 © Business Monitor International Ltd Page 2 Australia Information Technology Report Q1 2012 © Business. 200 2-2 005 62 Table: Vital Statistics, 200 5-2 030 62 Section 3: Labour Market And Spending Power 63 Table: Employment Indicators, 200 1-2 006 63 Australia Information Technology Report Q1 2012. information hereto contained. AUSTRALIA INFORMATION TECHNOLOGY REPORT Q1 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI's Industry Report & Forecasts Series Published