Q1 2014 www.businessmonitor.com AUSTRALIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 2041-7160 Published by:Business Monitor International Australia Information Technology Report Q1 2014 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: December 2013 Business Monitor International Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2013 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 2014 CONTENTS BMI Industry View . Headline Expenditure Projections Key Trends And Developments IT SWOT 10 Wireline SWOT . Political . Economic . Business Environment 12 14 15 16 Industry Forecast 18 Table: Australia IT Sector - Historical Data And Forecasts (AUDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Broadband . 22 Table: Telecoms Sector - Broadband - Historical Data & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Macroeconomic Forecasts . 24 Ongoing Misallocation Of Capital Increases Risks . 26 Increasing Pressures For Greater Macro-Prudential Rules 27 Table: Australia - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Industry Risk Reward Ratings 30 Table: Asia Pacific IT Risk/Reward Ratings - Q1 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Market Overview . 34 Hardware . 34 Software . 40 Services 42 Industry Trends And Developments 49 Regulatory Development 52 Table: Government Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Government Initiatives 52 Regulatory News 54 Competitive Landscape 56 International Companies . 56 Table: Dell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Table: Datacom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Table: SAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Table: Panasonic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Local Company . 60 Table: The Good Guys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 © Business Monitor International Page Australia Information Technology Report Q1 2014 Company Profile 61 SAP 61 Hewlett-Packard . 66 Regional Overview 73 Hardware Sales Opportunity Remains 75 Demographic Forecast . 77 Demographic Outlook 77 Table: Australia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Table: Australia's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Table: Australia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Table: Australia's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Methodology 81 Industry Forecast Methodology 81 Sources 82 Risk/Reward Rating Methodology . 83 Table: It Risk Reward Rating Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 © Business Monitor International Page Australia Information Technology Report Q1 2014 BMI Industry View BMI View: Australian IT sales are expected to reach AUD26.413mn in 2013, up 4%, with the market continuing to offer opportunities despite business concerns about a domestic economic slowdown and the global economic situation. Tablet sales growth is compensating for the decline in desktop and notebook shipments, while investments in broadband infrastructure are boosting Australia's digital economy, and enabling wider adoption of services such as cloud computing, online banking and e-commerce. Highincome consumers make Australia a fertile ground for premium devices such as tablets and ultrabooks, while government tenders will also be supportive of spending levels in areas such as education, egovernment, transport and healthcare. Headline Expenditure Projections Computer Hardware Sales: AUD11.1bn in 2012 to AUD11.3bn in 2013, up 2.2% in local currency terms. Strong demand for tablets is compensating for a decline in desktops and notebook shipments. The release of new devices using Intel's latest Haswell chipset architecture could boost shipments in H213. Software Sales: AUD4.1bn in 2012 to AUD4.3bn in 2013, up 2.2% in local currency terms. Security software sales are increasing, particularly for small and medium-sized enterprises (SMEs) and consumers. Enterprise resource planning and other e-business products to the small and medium-sized enterprise market will be a key trend driving sales IT Services Sales: AUD10.2bn in 2012 to AUD10.8bn in 2013, up 5.8% in local currency terms. IT services will be the outperforming growth area, with cloud services the key growth driver as local companies try to use efficiencies enabled by the National Broadband Network (NBN). Risk/Reward Ratings: Australia's score is 68.0 out of 100.0. Australia's score has declined due to a lower growth outlook. The country ranks fourth in our latest Asia Risk/Reward Ratings table, behind Singapore, South Korea and Hong Kong, but still ahead of larger markets in the region such as China, India and Indonesia. Key Trends And Developments Cloud computing is expected to be one of the leading IT market trends globally, but in Australia there is potential for particularly fast growth thanks to the investments in improving connectivity via the NBN. This will extend the reach of services, as well as providing the faster upload speeds that are key to advanced © Business Monitor International Page Australia Information Technology Report Q1 2014 cloud computing services. Cloud computing has already gained traction in Australia, with the big four banks deploying solutions and leading international vendors such as IBM, Oracle and Amazon Web Services investing in the market. The NBN and the government's cloud computing strategy, announced in May 2013, are expected to catalyse the cloud market's development in the relatively underpenetrated areas of the public sector and with SMEs. In June 2013 it was reported that the Australian Communications and Media Authority (ACMA) was considering implementing regulatory measures to oversee the use of cloud technology. In a discussion paper, security, privacy and access to data were all identified as issues that might need regulating. Subsequently, the government outlined a policy for the adoption and use of cloud computing in official administrative processes. Its guidelines emphasise the importance of striking a balance between taking advantage of the cost, flexibility and scalability benefits of cloud computing, and of keeping large quantities of private data secure. Of vital importance is that the most sensitive of government-held information is not subject to any undue threats. Over the past quarter, there have been a number of important developments in the cloud computing sphere. Thus, in October, the Australia-based cloud services provider Bulletproof unveiled the country's first Amazon Web Services (AWS) pay-as-you-go support solution, called On Demand. The service will incorporate 24-hour customer support, including assistance in 15 minutes for critical issues. On Demand will have no fixed or ongoing costs, and will employ an as-a-service model whereby customers will instantly have access to Bulletproof's 24-7 support, but will only pay for the support time they use. Meanwhile, major new cloud services continue to be set up: in August 2013, US virtualisation software company VMware revealed that it was preparing to roll-out its hybrid cloud service in Australia, working with a local partner to launch the vCloud Hybrid Service. Australia will be the first Asia-Pacific region to receive the new VMware service due to its high rate of virtualisation and status as a mature market. Then, in November 2013, South Africa-based ICT services provider Dimension Data announced that over the next three months it would be setting up four new global cloud data centres, one of which would be in Melbourne, Australia. Australia has also been quick to embrace the growing bitcoin trend, with Australian-based start-up company CoinJar announcing in December 2013 that it will receive "Australia's first major bitcoin investment", after it signed a AUD455,000 deal with local venture capital firm Blackbird Ventures. Coinjar is a bitcoin buying/selling exchange that was founded in February 2013. © Business Monitor International Page Australia Information Technology Report Q1 2014 The latest data on Australia's hardware market show that tablets have made significant progress, while shipments of desktops and notebooks are in decline. BMI estimates tablet sales of 2.1mn in 2012, only just behind notebook shipments, and we expect tablets to overtake notebook shipments in 2013 as a wider range of form factors and price points deepen the market beyond premium/luxury devices. However, the trend of tablet sales replacing notebook purchases is less clear cut. Microsoft's partner vendors have demonstrated the potential for hybrids/convertibles, which combine productivity and content consumption use cases, in H113, and the release of Intel's latest Haswell chipset architecture in June 2013, enabling slimmer and longer battery life devices, is expected to accelerate this innovation and blur the distinctions between devices. © Business Monitor International Page Australia Information Technology Report Q1 2014 IT SWOT SWOT Analysis Strengths Weaknesses Opportunities ■ High incomes and strong supporting infrastructure support high spending. ■ Strong government support for ICT programmes. ■ IT-literate population with high levels of PC ownership. ■ Strong financial sector. ■ Tablet sales are compensating for decline in desktop and notebook sales. ■ Australia has a relatively mature domestic market, with relatively slow growth rates. ■ Sensitive to volatility in the global economy. ■ Government cloud computing strategy creates opportunities for vendors in the public and SME sectors. ■ Launch of Windows increases growth potential for Microsoft partners in the tablet and laptop hybrid market, particularly following the release of Haswell chips in June 2013. ■ Considerable demand for cloud computing services. ■ Phase two of the computers for schools project was expected to generate an additional US$800mn of spending. ■ Other major IT projects in areas such as healthcare and smart cards. © Business Monitor International Page 10 Australia Information Technology Report Q1 2014 demand for solutions. To execute this strategy, HP needs to continue to evolve its historically hardware-centric business model towards a model that includes more software and higher value services offerings. In addition, the company believes it needs to continue to evolve the focus of its organisation towards the delivery of integrated IT solutions for its customers. One step has been to move Technology Services within the storage and networking services division to offer end-to-end data solutions. Narrowing margins have increased HP's focus on cost control. In October 2012 it was announced there would be a restructuring of Personal Systems and Printing to improve efficiency. Supply chains would be consolidated, a reduction in sales teams from six to three and a reduction in functional support organisations from 12 to seven. Financial Data Net revenue ■ ■ ■ ■ FY10: US$126.033bn FY11: US$127.245bn FY12: US$120.357bn Q1 FY13: US$28.359bn Printing And Personal Systems revenue ■ ■ ■ ■ FY10: US$66.505bn FY11: US$65.75bn FY12: US$60.178bn Q1 FY13: US$14.13bn Enterprise Group revenue ■ ■ ■ ■ FY10: US$30.983bn FY11: US$32.606bn FY12: US$30.367bn Q1 FY13: US$6.984n Enterprise Services revenue ■ ■ ■ ■ FY10: US$24.902bn FY11: US$25.16bn FY12: US$30.367bn Q1 FY13: US$5.919bn Software revenue ■ ■ ■ ■ FY10: US$2.729bn FY11: US$3.367bn FY12: US$4.06bn Q1 FY13: US$926mn Operating profit or loss ■ ■ Operating profit FY10: US$11.479bn Operating profit FY11: US$9.677bn © Business Monitor International Page 71 Australia Information Technology Report Q1 2014 ■ ■ Operating loss FY12: US$11.057bn Operating profit Q1 FY13: US$1.752bn Net income ■ ■ ■ ■ Operational Data FY10: US$8.761bn FY11: US$7.074bn FY12: US$12.65bn Q1 FY13: US$1.232bn PC sales (calendar years) ■ ■ ■ 2010: 62.77mn (Gartner estimate) 2011: 60.554mn (Gartner estimate) 2012: 56.508mn (Gartner estimate) Number of employees Company Details ■ October 2011: 349,600 ■ Hewlett-Packard Company ■ 3000 Hanover Street Palo Alto California 94304 United States ■ Tel: +1 650 857 1501/ ■ www.hp.com © Business Monitor International Page 72 Australia Information Technology Report Q1 2014 Regional Overview Asia Pacific IT markets are on the whole developing rapidly, boosted by strong underlying economic growth and proactive government policy. However the region is diverse in terms of geography, levels of development and population, which is reflected in the makeup of IT markets and their medium term prospects. Cyber Security Could Derail Bright Outlook For Regional Leaders In terms of the contribution to GDP there is great diversity across APAC. The higher income markets generally have IT account for a greater share of GDP, as is the case at the global level. However a few lower income markets have carved a position out for themselves in global supply chains boosting the share of IT in GDP, for instance Thailand for production of semiconductors and the Philippines in outsourcing. Singapore is expected to have the largest IT sector relative to the size of its economy at 2.3% in 2014, slightly ahead of Hong Kong and Thailand at 2.1%. Singapore and Hong Kong share many similar characteristics, with both high-income city-states benefiting from domestic spending, as well as positioning themselves as regional hubs for IT services vendors in the wider APAC region. Hong Kong and Singapore are competing to become the leading regional cloud computing hub, with significant inward investment taking place from cloud vendors and telecoms providers such as NTT. The latest research from Rackspace shows that Hong Kong had the highest adoption rate for cloud services by mid-2013, boosted by demand from the financial services sector. However, it should be noted that Hong Kong and Singapore both trail leading global cloud markets in terms of the deployment of more complex cloud solutions such as hybrid clouds, disaster recovery, and testing and development. Singapore's government has put in place policies to close the gap with Hong Kong and global leaders by boosting local expertise in the emerging technology of Big Data applications. In August 2013 it was announced that the Infocomm Development Authority of Singapore (IDA) had partnered with Revolution Analytics, a commercial provider of software, services and support for the open source "R" project, to form a Business Analytics Centre of Excellence. The IDA's efforts will help Singaporean enterprises utilise Big Data, and tap into local demand. The outlook for Big Data is positive with 80% of enterprises surveyed by EMC stating that use of Big Data will lead to better decision making in their organisation. The survey, released in September 2013, questioned 130 respondents, of which 63% believed that Big Data will be a key factor determining winners and losers, while 37% stated they had already benefited from competitive © Business Monitor International Page 73 Australia Information Technology Report Q1 2014 advantage via the use of Big Data. The areas respondents believed Big Data will prove most beneficial were data centre automation (83%) and cyber security (64%). Other markets in APAC have also been able to carve out a position in global IT markets, for instance, Philippines and Vietnam are both growing centres for outsourcing. The Philippines has a more developed outsourcing industry and is now moving up the value chain to software and application development services, but Vietnam is developing rapidly and is well positioned to benefit from demand from Japanese enterprises. In January 2013 the Information Technology Promotion Agency survey of 1,100 Japanese IT firms showed Vietnam was the first choice outsourcing destination, with 31.5% of firms choosing it, ahead of India (20.6%), China (16.7%), Thailand (9.7%) and Philippines (7.4%). The Vietnamese government is developing policy to maximise the development of the outsourcing industry. In August 2013 a draft resolution from the Ministry of Information and Communications proposed allocating at least 2% of the state budget for boosting the IT sector each year. The fund will be used to help Vietnam catch up with regional rivals and move up the value chain in areas such as outsourcing and software development. Such a financial commitment from the government, combined with Vietnam's attractive cost profile, should see the IT market, and specifically outsourcing, continue on the recent trajectory of rapid development. The markets highlighted above are some of the regional outperformers, and cases where the industry is developing rapidly. However, there is a trend that BMI highlights as a major downside risk across the region - cyber security. Markets in Asia have among the highest incidences of cyber crime globally, and an additional factor is politically driven cyber attacks from North Korea. Many governments in the region updated cyber security policy and legislation in 2013, while also strengthening defensive capabilities, however these steps could prove insufficient. Even after state investment and policy reform we believe the potential for cyber security issues to slow IT market development exists, as the loss of confidence from a severely disruptive attack would be significant and long-lasting. It will be important over the medium term that governments pursue proactive rather than reactive cyber security policy to remain ahead of threats in terms of defensives and retaliatory capabilities. South Korea is the most exposed to this risk due to the activities of North Korea, as demonstrated by the number of attacks in 2013, and recent experience shows how state spending has had to be increased. In March 2013 South Korean banks -including Shinhan, Nonghyup and Jeju - and TV broadcasters were subject to an attack from North Korea which disrupted their operations. The attacks followed a February 2013 statement from North Korean leader Kim Jong-un, expressing confidence in the government's cyber © Business Monitor International Page 74 Australia Information Technology Report Q1 2014 warfare capabilities against South Korea. The government had set aside KRW240bn for information protection and less than KRW10bn for strengthening cyber warfare capabilities, but these plans came under pressure following another round of attacks. In late June and early July 2013 there were attacks during which 69 government offices, news outlets and other institutions, including the presidential office website were attacked. It was reported that 2.5 million members of the ruling Saenuri Party, 300,000 military personnel and 200,000 registered users of the presidential office's website had data stolen. The South Korean experience illustrates the scale of the potential threat, and the scope for spending increases. Hardware Sales Opportunity Remains The most advanced markets in APAC are geared towards IT software and services, deploying IT Market As % Of GDP emerging technologies and combating the associated 2014 risks of cyber security. However, in the two largest markets in the region - China and India - spending is still weighted towards hardware, and with low PC penetration a significant growth opportunity remains for vendors. Household PC penetration in Australia, Singapore, South Korea and Hong Kong at the end of 2011 was already high at around 80%. These mature markets are high income, and as such the upgrade/ replacement markets are still lucrative for vendors. However it is in the middle income markets that Source: BMI greater potential exists. China and India, with their huge populations and respective PC penetrations of 38% and 6.9% at the end of 2011 grab the attention, but Indonesia, Philippines, Vietnam and Sri Lanka are also notable opportunities. As incomes increase in these markets BMI expects the same pattern of rising PC penetration to occur. Increases in PC penetration will not be uniform as rising incomes are not the only driver of spending on PCs, with factors such as government policy ie PCs for students programmes and financial assistance for low-income families, also determinants. However, there is a strong relationship between higher incomes and PC penetration. We forecast strong growth in GDP per capita for all the catch-up markets to 2017, but the outlook for Vietnam, Sri Lanka and China are particularly strong. Vietnam and China are also markets © Business Monitor International Page 75 Australia Information Technology Report Q1 2014 where the government is promoting PC ownership, so we expect them to outperform. Despite the Akash2 initiative we expect India will continue to lag behind its regional peers over the medium term. The medium-term opportunities for hardware vendors in the large catch-up markets of APAC is in stark contrast to the recent experience in their core markets in North America and Europe where maturity, economic weakness and tablet cannibalisation have resulted in market declines. Consumers in APAC may also opt for tablets instead of traditional notebooks and desktops, but we believe the threat is less pronounced in the first time buyer market where productivity features will be important. So far tablet sales have predominantly been to existing PC owners, whereas to tap the emerging market opportunity in the first-time buyer market, BMI believes a mix of mobility and productivity could underpin outperformance, for instance via hybrids/convertibles or tablets with greater functionality. Rising Incomes Deepen The Market Household PC Penetration Vs GDP Source: BMI, national regulators, WEF © Business Monitor International Page 76 Australia Information Technology Report Q1 2014 Demographic Forecast Demographic Outlook Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail Australia's population pyramid for 2013, the change in the structure of the population between 2013 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split. Population Pyramid 2013 (LHS) And 2013 Versus 2050 (RHS) Source: World Bank, UN, BMI © Business Monitor International Page 77 Australia Information Technology Report Q1 2014 Population Indicators Population (mn, LHS) And Life Expectancy (years, RHS) Source: World Bank, UN, BMI Table: Australia's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2013e 2015f 2020f 17,097 18,124 19,259 20,521 22,404 23,343 23,923 25,440 0-4 years 1,262 1,302 1,290 1,299 1,458 1,555 1,604 1,664 5-9 years 1,263 1,298 1,358 1,347 1,373 1,459 1,530 1,677 10-14 years 1,241 1,299 1,347 1,409 1,413 1,423 1,450 1,607 15-19 years 1,398 1,277 1,335 1,409 1,508 1,510 1,504 1,541 20-24 years 1,366 1,427 1,303 1,444 1,651 1,638 1,608 1,605 25-29 years 1,422 1,388 1,448 1,383 1,665 1,739 1,745 1,703 30-34 years 1,398 1,464 1,442 1,517 1,536 1,659 1,746 1,827 35-39 years 1,316 1,429 1,512 1,498 1,622 1,596 1,598 1,809 40-44 years 1,260 1,338 1,458 1,550 1,559 1,625 1,658 1,635 45-49 years 985 1,255 1,348 1,474 1,586 1,573 1,571 1,670 50-54 years 822 974 1,262 1,346 1,476 1,549 1,576 1,563 55-59 years 729 804 969 1,242 1,331 1,401 1,453 1,554 60-64 years 738 712 801 950 1,216 1,272 1,296 1,418 65-69 years 663 691 681 766 911 1,073 1,166 1,247 70-74 years 493 595 636 629 713 783 852 1,096 Total © Business Monitor International Page 78 Australia Information Technology Report Q1 2014 Australia's Population By Age Group, 1990-2020 ('000) - Continued 1990 1995 2000 2005 2010 2013e 2015f 2020f 75-79 years 376 407 511 551 555 596 636 766 80-84 years 222 278 315 403 430 439 452 524 85-89 years 101 132 171 205 273 291 297 319 90-94 years 34 44 59 80 103 126 141 159 95-99 years 10 12 17 26 30 34 49 100+ years e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Australia's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2013e 2015f 2020f 0-4 years 7.38 7.19 6.70 6.33 6.51 6.66 6.71 6.54 5-9 years 7.39 7.16 7.05 6.56 6.13 6.25 6.39 6.59 10-14 years 7.26 7.17 6.99 6.86 6.31 6.10 6.06 6.32 15-19 years 8.18 7.05 6.93 6.87 6.73 6.47 6.29 6.06 20-24 years 7.99 7.87 6.76 7.04 7.37 7.02 6.72 6.31 25-29 years 8.31 7.66 7.52 6.74 7.43 7.45 7.30 6.69 30-34 years 8.18 8.08 7.49 7.39 6.85 7.11 7.30 7.18 35-39 years 7.70 7.88 7.85 7.30 7.24 6.84 6.68 7.11 40-44 years 7.37 7.38 7.57 7.55 6.96 6.96 6.93 6.43 45-49 years 5.76 6.93 7.00 7.18 7.08 6.74 6.57 6.57 50-54 years 4.81 5.38 6.55 6.56 6.59 6.64 6.59 6.14 55-59 years 4.26 4.44 5.03 6.05 5.94 6.00 6.07 6.11 60-64 years 4.32 3.93 4.16 4.63 5.43 5.45 5.42 5.57 65-69 years 3.88 3.81 3.54 3.73 4.07 4.60 4.87 4.90 70-74 years 2.88 3.28 3.30 3.06 3.18 3.35 3.56 4.31 75-79 years 2.20 2.25 2.65 2.69 2.48 2.55 2.66 3.01 80-84 years 1.30 1.54 1.64 1.96 1.92 1.88 1.89 2.06 85-89 years 0.59 0.73 0.89 1.00 1.22 1.25 1.24 1.25 90-94 years 0.20 0.24 0.30 0.39 0.46 0.54 0.59 0.62 95-99 years 0.05 0.05 0.06 0.08 0.11 0.13 0.14 0.19 © Business Monitor International Page 79 Australia Information Technology Report Q1 2014 Australia's Population By Age Group, 1990-2020 (% of total) - Continued 100+ years 1990 1995 2000 2005 2010 2013e 2015f 2020f 0.01 0.01 0.01 0.01 0.01 0.02 0.02 0.03 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Australia's Key Population Ratios, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f 49.5 50.2 49.6 48.6 47.9 50.0 51.8 55.8 5,664 6,056 6,381 6,707 7,257 7,779 8,167 9,115 Active population, % of total 66.9 66.6 66.9 67.3 67.6 66.7 65.9 64.2 Active population, total, '000 11,433 12,068 12,878 13,814 15,147 15,563 15,756 16,324 32.9 32.3 31.0 29.3 28.0 28.5 29.1 30.3 3,767 3,899 3,995 4,054 4,244 4,437 4,585 4,948 Pensionable population, % of total working age 16.6 17.9 18.5 19.2 19.9 21.5 22.7 25.5 Pensionable population, total, '000 1,897 2,158 2,387 2,653 3,013 3,342 3,583 4,167 Dependent ratio, % of total working age Dependent population, total, '000 Youth population, % of total working age Youth population, total, '000 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: Australia's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f Urban population, % of total 85.4 86.1 87.2 88.2 89.0 89.5 89.8 90.4 Rural population, % of total 14.6 13.9 12.8 11.8 11.0 10.5 10.2 9.6 Urban population, total, '000 14,601 15,606 16,787 18,096 19,950 20,888 21,477 22,992 Rural population, total, '000 2,496 2,518 2,472 2,425 2,454 2,455 2,446 2,447 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI © Business Monitor International Page 80 Australia Information Technology Report Q1 2014 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of 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. 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. BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact. Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account ■ Testing the directional movement and magnitude of coefficients ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity © Business Monitor International Page 81 Australia Information Technology Report Q1 2014 BMI uses the selected best model to perform forecasting. It must be remembered that human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience, expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Sector-Specific Methodology A number of criteria drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, BMI's quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments and diffusion rates; ■ Exogenous events. Estimates are calculated using BMI's own macroeconomic and demographic forecasts. Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication © Business Monitor International Page 82 Australia Information Technology Report Q1 2014 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Rating Methodology BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market. The RRR system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories: ■ Industry Rewards (this is an industry specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors) • Country Rewards (this is a country specific category, and the score factors in favourable political and economic conditions for the industry) Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. This is further broken down into two sub categories: ■ Industry Risks (this is an industry specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry, and the relative maturity of a market) • Country Risks (this is a country specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score). We take a weighted average, combining industry and country risks, or industry and country rewards. These two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country. For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Rating a weighted average of the total score. Importantly, as most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis. This ensures that the rating draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Page 83 Australia Information Technology Report Q1 2014 BMI's approach in assessing the risk/reward balance for infrastructure industry investors globally is fourfold: ■ First, we identify factors (in terms of current industry/country trends and forecast industry/country growth) that represent opportunities to would-be investors. ■ Second, we identify country and industry-specific traits that pose or could pose operational risks to would-be investors. ■ Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/ trends to avoid subjectivity. ■ Finally, we use BMI's proprietary Country Risk Ratings (CRR) in a nuanced manner to ensure that only the aspects most relevant to the infrastructure industry are incorporated. Overall, the system offers an industry-leading, comparative insight into the opportunities/risks for companies across the globe. Sector-Specific Methodology In constructing these ratings, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk Reward Rating Indicators Indicator Rationale Rewards Industry IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones. Sector value growth, % year-on-year (y-o-y) Denotes sector dynamism. Scores based on annual average growth over five-year forecast period. Government initiatives and Denotes spending boost provided by public sector, which can be a crucial determinant of spending sector development. Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales, compared to services/ software, indicates that the overall IT market is immature. Country Urban-rural split Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower. GDP per capita, US$ A high GDP per capita supports long-term industry prospects. Overall score for country rewards is also affected by the coverage of the power transmission network across the state. Risks Industry Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting. ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code. © Business Monitor International Page 84 Australia Information Technology Report Q1 2014 It Risk Reward Rating Indicators - Continued Indicator Rationale Country Short-term external risk Rating from CRR evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Rating from BMI's CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding. Trade bureaucracy Rating from CRR to denote ease of trading with the state. Legal framework Rating from CRR denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Rating from CRR denotes ease of conducting business in the state. Corruption Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies' ability to compete. Source: BMI Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. The following weighting has been adopted: Table: Weighting Of Components Component Rewards Weighting (%) 70 of which - Industry 65 - Country 35 Risks to 30 of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Page 85 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Page 16 Australia Information Technology Report Q1 2014 SWOT Analysis - Continued reduce the attractiveness of these assets It remains to be seen if the recent implementation of a database to increase transparency around foreign-owned Australian assets will spur more regulation © Business Monitor International Page 17 Australia Information Technology Report Q1 2014 Industry Forecast Table: Australia. .. throughout 2014 © Business Monitor International Page 32 Australia Information Technology Report Q1 2014 Table: Asia Pacific IT Risk/Reward Ratings - Q1 2014 Risks Rewards Country Industry rewards Country rewards Industry risks Country risks IT rating Rank Previous rank South Korea 70.0 80.0 75.0 65.4 72.2 1 2 Singapore 56.7 100.0 70.0 74.4 72.1 2 1 Hong Kong 55.0 100.0 45.0 77.7 68.9 3 3 Australia. .. raised our 2014 forecast, expecting real GDP growth to come in at 2.0% versus our previous estimates of 1.8% This upgrade, however, masks our downbeat medium-term outlook for the economy as risks of a sharp deflationary shock to the Australian economy continue to grow larger © Business Monitor International Page 25 Australia Information Technology Report Q1 2014 Households Driving Debt Demand Australia. .. their use of credit despite the Reserve Bank of Australia' s (RBA) easing its cash rate, cutting 50 basis points (bps) to bring the cash rate to 2.50% as of end-October © Business Monitor International Page 26 Australia Information Technology Report Q1 2014 Divergent Performance Unlikely To Persist Australia - House Price Indices For Queensland, Sydney, Australia Source: BMI; RP Data Indeed, attribution... in Australia is likely to put upward pressure on import growth over 2014- 2017 As such, we believe that the country's trade balance will see a much more gradual improvement in 2014, and we forecast real export and import growth to rise to 4.5% and 2.7% respectively, compared to estimates of 2.3% and 1.4% in 2013 © Business Monitor International Page 28 Australia Information Technology Report Q1 2014. .. environment in Australia' s health sector, including public hospitals Although the government is pursuing investments in IT in a number of areas, it is reviewing procurement procedures to reduce cost, which could squeeze vendor margins For instance, in early 2013 the Australian Government Information © Business Monitor International Page 20 Australia Information Technology Report Q1 2014 Management... Monitor International Page 23 Australia Information Technology Report Q1 2014 Macroeconomic Forecasts BMI View: Several domestic and external factors have served to boost the level of economic activity in Australia While we revised up our GDP growth forecasts for 2014 to 2.0% from 1.8% previously, this change masks our concerns for the ever-growing risks within the Australian economy Given that an increasing... further suggests that this recent up-tick in activity could persist in the near term © Business Monitor International Page 24 Australia Information Technology Report Q1 2014 Signs Of Life Australia - Performance Of Manufacturing, Services And Construction Sector Indices Source: BMI; Australian Industry Group Externally, efforts by the Chinese authorities to stimulate their economy and the decision of the... 9,739 43.5 2011 2012 2013f 2014f 2015f 2016f 2017f 17,859 18,752 19,690 20,675 21,502 22,362 23,256 78.5 81.4 84.4 87.5 89.9 92.3 94.8 11,123 12,161 12,647 13,090 13,483 13,887 14,304 48.9 52.8 54.2 55.4 56.4 57.3 58.3 f = BMI forecast Source: BMI, ITU, Australian Bureau of Statistics, operators © Business Monitor International Page 22 Australia Information Technology Report Q1 2014 BMI has made slight... devices © Business Monitor International Page 35 Australia Information Technology Report Q1 2014 The enterprise market is a stalwart for desktop sales, but PC penetration is high among Australian businesses, with around 95% of small businesses and 100% of medium-sized and large businesses having computers Small business comprises more than 99% of all Australian businesses and slightly more than 50% . Q1 2014 www.businessmonitor.com AUSTRALIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 204 1-7 160 Published by:Business Monitor International Australia Information Technology Report. foreign-owned Australian assets will spur more regulation. Australia Information Technology Report Q1 2014 © Business Monitor International Page 17 Industry Forecast Table: Australia IT Sector - Historical. could squeeze vendor margins. For instance, in early 2013 the Australian Government Information Australia Information Technology Report Q1 2014 © Business Monitor International Page 20