Q3 2013 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 Q3 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: June 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 Q3 2013 CONTENTS BMI Industry View . Headline Expenditure Projections Key Trends & Developments . SWOT IT . Wireline . 11 Political . 13 Economic . 14 Business Environment 15 Industry Forecast 17 Table: Australia IT Sector - Historical Data & Forecasts (AUDmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Broadband . 21 Table: Telecoms Sector - Broadband - Historical Data & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Macroeconomic Forecasts . 23 Signs Of Overheating Weigh on Infrastructure Investments 24 Weakness In Other Sectors Further Weighing Down Economy 25 Austerity Measures To Be Reversed . 26 Table: Australia - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Industry Risk Reward Ratings 29 Industry Risk/Reward Ratings 29 Table: Asia Pacific IT Risk/Reward Ratings - Q3 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Market Overview . 33 Hardware . 33 Software . 39 Services 44 Industry Trends And Developments 50 Regulatory Development 53 Table: Government Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Government Initiatives 54 Regulatory News 55 Company Profile 57 SAP 57 Hewlett-Packard . 62 Regional Overview 69 © Business Monitor International Page Australia Information Technology Report Q3 2013 Demographic Forecast . 74 Table: Australia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Table: Australia's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Table: Australia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Table: Australia's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Methodology 78 How We Generate Our Industry Forecasts . 78 IT Industry 78 IT Ratings - Methodology 79 Table: IT Business Environment Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Weighting . 81 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Sources 81 © Business Monitor International Page Australia Information Technology Report Q3 2013 BMI Industry View BMI View: Australian IT sales are expected to reach AUD26.413bn 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, +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 2012, +2.2% in local currency terms. Security software sales are increasing, particularly for SMEs and consumers. Meanwhile, 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, +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 utilise efficiencies enabled by the NBN. Risk/Reward Ratings: Australia's score is 68.0 out of 100.0 in the Q3 2013 update. Australia's score has declined this quarter due to a lower growth outlook and now ranks fourth in our latest Asia region RRR table, behind South Korea, Hong Kong and Singapore, but still ahead of larger markets in the region such as China, India and Indonesia. Key Trends & 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 National Broadband Network. Crucially, this will extend the reach of services, as well as providing the faster upload © Business Monitor International Page Australia Information Technology Report Q3 2013 speeds that are key to advanced 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. However, 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. 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 Q3 2013 SWOT IT 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. Threats ■ Other major IT projects in areas such as healthcare and smart cards. ■ The biggest threat is of an economic slowdown in 2013, leading to a scaling back of IT budgets. ■ A cheaper Australian dollar would affect consumer and business demand in the import-dependent IT market. © Business Monitor International Page Australia Information Technology Report Q3 2013 SWOT Analysis - Continued ■ Vendors face threat of parliamentary enquiry into product pricing and are coming under pressure regarding tax arrangements. © Business Monitor International Page 10 Australia Information Technology Report Q3 2013 Strategy HP states that its long-term strategy is focused on leveraging its portfolio of hardware, software and services as the company adapts to a changing/hybrid model of IT delivery and consumption driven by the growing adoption of cloud computing and increased demand for solutions. To successfully execute on 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 further 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 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Operational Data ■ ■ ■ Net Revenue FY2010: US$126.033bn Net Revenue FY2011: US$127.245bn Net Revenue FY2012: US$120.357bn Net Revenue Q1 FY13: US$28.359bn Printing And Personal Systems Revenue FY10: US$66.505bn Printing And Personal Systems Revenue FY11: US$65.75bn Printing And Personal Systems Revenue FY12: US$60.178bn Printing And Personal Systems Revenue Q1 FY13: US$14.13bn Enterprise Group Revenue FY10: US$30.983bn Enterprise Group Revenue FY11: US$32.606bn Enterprise Group Revenue FY12: US$30.367bn Enterprise Group Revenue Q1 FY13: US$6.984n Enterprise Services Revenue FY10: US$24.902bn Enterprise Services Revenue FY11: US$25.16bn Enterprise Services Revenue FY12: US$30.367bn Enterprise Services Revenue Q1 FY13: US$5.919bn Software Revenue FY10: US$2.729bn Software Revenue FY11: US$3.367bn Software Revenue FY12: US$4.06bn Software Revenue Q1 FY13: US$926mn Operating Profit FY2010: US$11.479bn Operating Profit FY2011: US$9.677bn Operating Loss FY2012: US$11.057bn Operating Profit Q1 FY13: US$1.752bn Net Income FY2010: US$8.761bn Net Income FY2011: US$7.074bn Net Loss FY2012: US$12.65bn Net Income Q1 FY13: US$1.232bn PC Sales, Calendar 2010: 62.77mn (Gartner estimate) PC Sales, Calendar 2011: 60.554mn (Gartner estimate) PC Sales, Calendar 2012: 56.508mn (Gartner estimate) © Business Monitor International Page 67 Australia Information Technology Report Q3 2013 Company Details ■ Employees (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 68 Australia Information Technology Report Q3 2013 Regional Overview IT markets in the Asia Pacific region are incredibly IT Market As % Of GDP diverse in terms of the contribution to GDP, the 2012 extent of local production and innovation, and the reach of supporting infrastructure such as broadband penetration. For instance, PC penetration in the most developed markets such as Singapore is above 50%, while in the least developed markets such as Indonesia, it is below 5%. As a result of these different levels of development the growth rates forecast across the region vary, as the major market trends. Singapore, Thailand and Hong Kong are the only markets in the region where the IT market accounts for 2% or more of GDP. Meanwhile, in Indonesia Source: BMI. and Sri Lanka the IT market is far smaller, accounting for just 0.7% of GDP. The difference separating these markets is not only in terms of the spending of consumers and enterprises in the market, but also in the policies of government and the development of local IT production and research facilities. For instance, Thailand is a key part of the global semiconductor market, while IT software and services companies have chosen Singapore and Hong Kong as hubs for regional operations. Most recently, SAP opened a co-innovation lab in Singapore in March 2013, its fourth in Asia-Pacific and 21st globally. The Singapore innovation lab is part of SAP's Global Research and Business Incubation centre in Singapore, the research HQ for its Asia-Pacific operations. BMI expects the gap to narrow over the medium term as the less developed IT markets experience a period of catch-up on regional leaders. This will be the result of a wide range of factors, including the strong economic performance of the lower income catch-up group, the falling average price of PCs bringing them into line with the purchasing power of middle income consumers in emerging markets, improvements in the reach of wireless and wireline broadband infrastructure, and government policies to promote the development of local IT sectors and the adoption of IT systems by enterprises. © Business Monitor International Page 69 Australia Information Technology Report Q3 2013 The two most important catch-up markets in the region, and globally, are China and India. Taking these markets as a whole, they are relatively undeveloped, with for instance, computer ownership remaining the preserve of a minority. However, the sheer size of the markets in terms of population and the inequality between regions and within cities means they are, in a sense, representative of the variety across the whole region. In China, PC penetration was only around 30% in 2012 - although it is far higher in cities such as Shanghai and Beijing and urban PC penetration is projected to pass 60% by 2017. In India, less than 5% of people own a computer. However, about 45% of the population is under 25, which provides a promising demographic context for increased PC ownership. Another market worthy of specific mention is Vietnam, which has been developing rapidly and we expect to continue outperforming many of its peers as the outsourcing segment is well positioned to expand. 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%). However 75-80% of the outsourcing contract value still goes to Chinese firms, with Vietnam estimated to account for 5%. Vietnam has significant cost advantages, which we expect to result in a shift of outsourcing from China to Vietnam, which will gain momentum through 2013 and 2014 as local firms such as Global Cyber Soft, TMA Solutions and FPT Software continue to expand their operations. A key trend driving the development of IT markets in Asia Pacific is the increase in internet and broadband penetration. Like IT's contribution to APAC Broadband Penetration (%) 2010-2017 GDP and PC penetration, there is a broad range of penetration rates across the region and there is rising penetration forecast across the region over the medium term to 2017. Looking at the region as a whole, broadband penetration is forecast to rise from 8.6% at the end of 2012 to 11.3% at the end of 2017. However, this figure is for population penetration of subscriptions, with the figure for those with access to broadband services considerably higher, given the prevalence of shared subscriptions. Asia Pacific internet penetration is forecast to rise from 28.5% at the end of 2012 to 34.2% by the end of 2017. f - BMI forecast. Source: BMI. © Business Monitor International Page 70 Australia Information Technology Report Q3 2013 The development of broadband services will be uneven across the region, with implications for the demand of hardware, as well as the scope for the development of IT services such as data analytics and cloud computing. The higher income markets will lead in terms of internet and broadband penetration, including Australia, Hong Kong and Japan. There will, however, be substantial improvements in broadband penetration in other key markets, most notably China, but also Sri Lanka, Malaysia and the Philippines. The underperformer in terms of broadband development is expected to be India, which BMI forecasts to have the lowest broadband penetration in 2017 at 1.6%, up by just 0.4pps. The lack of broadband and internet infrastructure development in India will be a drag on the development of the hardware and services market. However, in addition to the sheer scale of the market, there are government initiatives in place we believe will catalyse the markets development over the medium term. In February 2013 the MCIT published its GI Cloud Adoption and Implementation Roadmap, with the aim of creating a government private cloud environment available for use by central and state government departments, districts and municipalities to accelerate ICT service improvements. The GI cloud will form the basis of adoption of e-government and cloud services in public administration including Infrastructureas-a-Service, Platform-as-a-Service and Software-as-a-Service. Another notable development is the Akash tablet, manufactured by UK company DataWind, that will be available to low-income Indian citizens to be used in the education system. In January 2013 it was reported the cost of the tablet could drop to US$20, with the Indian government subsidising half the total cost of the device to ensure widespread affordability. This initiative could be the foundation for a much wider utilisation of IT hardware in Indian society, where tablets and notebooks have previously been too expensive for large swathes of the population. © Business Monitor International Page 71 Australia Information Technology Report Q3 2013 APAC PC Browsing Traffic By OS (%) March 2012-March 2013 Source: Statcounter The Akash is at the bottom end of the market, and government support for the scheme has been critical. However, elsewhere in the region low-cost tablets are also beginning to have a major impact on the PC market. The OEM devices, predominantly running Google's Android operating system and produced in China, have been popular with consumers due to the demand for mobile computing devices and the low price points. For instance in Vietnam these cheap tablets have been popular and have gained traction after being promoted by local dealers, that are able to generate high margins on the product. The availability of low-cost Android tablets will be a major trend in lower income markets in future. While Microsoft Windows dominates the region in March 2013, with Microsoft's Windows 7, XP, Vista and combining to account for over 93% of PC browsing traffic, according to Statcounter data, Android has the potential to increase its share markedly in the coming years. This has implications for Microsoft and its partner vendors. Tablets have previously been above the price points for mass market adoption in much of Asia Pacific, for instance Apple's iPad and Samsung's Galaxy range. However, the arrival of OEM tablets, as well as competition in the branded segment for Apple and Samsung from lower cost alternatives such as Google's Nexus and Amazon's Kindle Fire range will place downward pressure on prices that will see tablets take a far larger share of the market. The tablet market will not be unchallenged, with reports from several markets © Business Monitor International Page 72 Australia Information Technology Report Q3 2013 that vendors of notebooks and ultrabooks have already moved to produce lower cost models and accept lower margins to remain price competitive. Rising incomes and expansion of broadband penetration underpins a bright outlook for hardware sales across the region as a whole. This outlook is not shared right across the region however, with recent developments in Australia focusing on lowering costs - which will reduce margins for IT vendors. In Q113 the Australian parliament summoned Apple, Microsoft and Adobe to challenge them over the high prices charged in the local market. Meanwhile, reform of the government's procurement procedures are targeting cost reductions via the consolidation of contracts and coordinated negotiation. The Asia Pacific region offers IT vendors huge rewards, given the potential arising from large populations and rising incomes. As households purchase PC hardware, enterprises modernise and public authorities move to IT systems there is scope for large increases in market value. However, the rewards will not be distributed evenly, with notebook and desktop manufacturers vulnerable to the rise in popularity of tablets. There is also downside risk posed by economic crisis and the potential for fiscal austerity drives hitting government spending. There are great opportunities, but vendors will still need to target their strategies in the region to succeed. © Business Monitor International Page 73 Australia Information Technology Report Q3 2013 Demographic Forecast 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. Source: World Bank, UN, BMI © Business Monitor International Page 74 Australia Information Technology Report Q3 2013 The accompanying charts detail Australia's population pyramid for 2011, the change in the structure of the population between 2011 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. Table: Australia's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012f 2015f 2020f 17,096 18,118 19,164 20,404 22,268 22,919 23,793 25,241 0-4 years 1,260 1,300 1,276 1,289 1,458 1,535 1,588 1,661 5-9 years 1,262 1,293 1,354 1,339 1,365 1,413 1,523 1,645 10-14 years 1,244 1,296 1,337 1,400 1,406 1,413 1,426 1,576 15-19 years 1,396 1,276 1,328 1,399 1,505 1,508 1,500 1,505 20-24 years 1,369 1,420 1,299 1,426 1,643 1,647 1,629 1,602 25-29 years 1,419 1,394 1,447 1,389 1,626 1,690 1,742 1,714 30-34 years 1,391 1,454 1,432 1,510 1,498 1,557 1,693 1,802 35-39 years 1,315 1,425 1,495 1,488 1,630 1,608 1,557 1,745 40-44 years 1,259 1,332 1,450 1,538 1,536 1,593 1,679 1,600 45-49 years 985 1,258 1,342 1,469 1,586 1,578 1,563 1,703 50-54 years 818 974 1,258 1,339 1,471 1,531 1,588 1,565 55-59 years 730 803 968 1,239 1,319 1,364 1,453 1,570 60-64 years 735 707 791 942 1,233 1,271 1,285 1,419 65-69 years 660 689 678 760 905 1,020 1,181 1,236 70-74 years 489 589 630 628 702 745 844 1,108 75+ years 765 907 1,079 1,247 1,387 1,444 1,543 1,790 Total years f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 75 Australia Information Technology Report Q3 2013 Table: Australia's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012f 2015f 2020f 0-4 years 7.37 7.17 6.66 6.32 6.55 6.70 6.67 6.58 5-9 years 7.38 7.14 7.06 6.56 6.13 6.17 6.40 6.52 10-14 years 7.28 7.15 6.98 6.86 6.31 6.17 5.99 6.24 15-19 years 8.16 7.04 6.93 6.86 6.76 6.58 6.30 5.96 20-24 years 8.01 7.84 6.78 6.99 7.38 7.19 6.85 6.35 25-29 years 8.30 7.70 7.55 6.81 7.30 7.38 7.32 6.79 30-34 years 8.14 8.03 7.47 7.40 6.73 6.79 7.11 7.14 35-39 years 7.69 7.87 7.80 7.29 7.32 7.02 6.54 6.91 40-44 years 7.36 7.35 7.57 7.54 6.90 6.95 7.06 6.34 45-49 years 5.76 6.94 7.00 7.20 7.12 6.89 6.57 6.75 50-54 years 4.78 5.38 6.57 6.56 6.61 6.68 6.67 6.20 55-59 years 4.27 4.43 5.05 6.07 5.92 5.95 6.11 6.22 60-64 years 4.30 3.90 4.13 4.62 5.54 5.54 5.40 5.62 65-69 years 3.86 3.80 3.54 3.72 4.06 4.45 4.96 4.90 70-74 years 2.86 3.25 3.29 3.08 3.15 3.25 3.55 4.39 75+ years 4.48 5.00 5.63 6.11 6.23 6.30 6.49 7.09 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 76 Australia Information Technology Report Q3 2013 Table: Australia's Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 Active population, % of total Active population, total, '000 Youth population, % of total working age Youth population, total, '000 Pensionable population, % of total working age Pensionable population, '000 1990 1995 2000 2005 2010 2012f 2015f 2020f 49.7 50.4 49.6 48.5 48.0 49.3 51.7 55.6 5,679 6,074 6,355 6,663 7,222 7,571 8,104 9,016 66.8 66.5 66.8 67.3 67.6 67.0 65.9 64.3 11,417 12,045 12,809 13,740 15,046 15,348 15,689 16,224 33.0 32.3 31.0 29.3 28.1 28.4 28.9 30.1 3,766 3,889 3,967 4,028 4,228 4,362 4,537 4,883 16.8 18.1 18.6 19.2 19.9 20.9 22.7 25.5 1,914 2,185 2,388 2,635 2,994 3,209 3,568 4,134 f = BMI forecast; 0>15 plus 65+, as % of total working age population; 0>15 plus 65+; 15-64, as % of total population; 15-64; 0>15, % of total working age population; 0>15; 65+, % of total working age population; 65+. Source: World Bank, UN, BMI Table: Australia's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012 2015 2020 Urban population, % of total 85.4 86.1 87.2 88.2 89.1 89.4 89.9 90.6 Rural population, % of total 14.6 13.9 12.8 11.8 10.9 10.6 10.1 9.4 Urban population, '000 14,573.6 15,560.0 16,701.4 17,988.2 19,841.1 20,493.9 21,390.2 22,868.0 Rural population, '000 2,491.5 2,512.0 2,451.6 2,406.6 2,427.3 2,424.8 2,403.1 2,372.6 Source: World Bank, UN, BMI © Business Monitor International Page 77 Australia Information Technology Report Q3 2013 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, however, 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 in all of 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. IT Industry Forecasts There are a number of criteria that 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 © Business Monitor International Page 78 Australia Information Technology Report Q3 2013 methodology. In addition, forecasts are naturally 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. IT Ratings - Methodology Our approach in BMI's IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI's proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas:Limits of potential returns: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: 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. © Business Monitor International Page 79 Australia Information Technology Report Q3 2013 Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones Sector value growth, % year-on-year Denotes sector dynamism. Scores based on annual average growth over five-year (y-o-y) forecast period Denotes spending boost provided by public sector, which can be a crucial Government initiatives and spending determinant of 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 structure 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 structure is also affected by the coverage of the power transmission network across the state Risks to potential returns Market risks 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 Country risk 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 © Business Monitor International Page 80 Australia Information Technology Report Q3 2013 IT Business Environment Indicators - Continued Indicator Rationale 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. Consequently, the following weight has been adopted. Table: Weighting Of Components Component Weighting Limits of potential returns 70% - IT market 65% - Country structure 35% Risks to realisation of potential returns 30% - Industry risks 40% - Country risk 60% Source: BMI 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 Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Page 81 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... © Business Monitor International Page 17 Australia Information Technology Report Q3 2013 2013 Outlook We expect growth in 2013 to be slower than 2012, dropping 0.4pps to 4% The key factor behind this Industry Trends - IT Market slowdown is the more downbeat economic outlook 2010-2017 for Australia in 2013 We expect real GDP growth will fall to just 2.1% in 2013 from 3.2% in 2012, with the real terms... environment in Australia' s health sector, including public hospitals Although the government is pursuing investments in IT in a number of areas, it should be noted that it is reviewing procurement procedures to reduce cost, which could squeeze vendor margins For instance, in early 2013 the Australian © Business Monitor International Page 19 Australia Information Technology Report Q3 2013 Government Information. .. 24 Australia Information Technology Report Q3 2013 More Structural Changes Due In The Labour Market? Australia - Labour Force By Industry In 1992 (LHS) & 2012 (RHS) Source: BMI, Australian Bureau of Statistics Weakness In Other Sectors Further Weighing Down Economy The historical ramp-up in capital employed in the mining sector came at the expense of growth in noncommodity sectors, and has left Australian... capital and labour to other sectors of economy lead us to maintain a languid outlook for the Australian economy © Business Monitor International Page 25 Australia Information Technology Report Q3 2013 Austerity Measures To Be Reversed Given the upcoming elections in September 2013, we believe that the ruling Australian Labor Party (ALP) will reverse its previous austere fiscal plans, but still maintain... year (July 2013 to June 2014) in an effort to stave off any economic deterioration that may affect voters' decisions to the detriment of the ruling ALP Therefore, we forecast a 2.0% growth in government consumption in 2013, increasing from an estimated 1.0% in 2012 © Business Monitor International Page 26 Australia Information Technology Report Q3 2013 Signs Of Import Contraction On The Way Australia. .. external demand conditions in H113 to help boost export growth slightly to 2.0% for the full year in 2013, from a weak estimated growth rate of 1.5% in 2012 © Business Monitor International Page 27 Australia Information Technology Report Q3 2013 Table: Australia - Economic Activity 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f Nominal GDP, AUDbn 2 1,353.40 1,440.50 1,513.00 1,571.50 1,630.80 1,713.90... expansion for 2013 (up from our previous forecast of 5.4%) We are likely to see renewed headline © Business Monitor International Page 31 Australia Information Technology Report Q3 2013 weakness through H113, before the economy turns up in the second half of the year Looking further ahead, we still see growth improving from 2014 onwards Table: Asia Pacific IT Risk/Reward Ratings - Q3 2013 Rewards Country... International Page 32 Australia Information Technology Report Q3 2013 Market Overview Hardware BMI forecasts Australian computer hardware will increase to a total of AUD11.3bn in 2013, with the popularity of tablets keeping total PC shipments in positive growth territory by countering the decline in desktop and notebook sales We expect the hardware market to grow at a CAGR of around 3% 2013 to 2017 and... 43.7 2011 2012e 2013f 2014f 2015f 2016f 2017f 17,859 18,752 19,690 20,675 21,708 22,685 23,706 79.0 81.8 84.8 88.0 91.2 94.2 97.2 11,123 12,013 12,613 13,118 13,643 14,461 15,474 49.2 52.4 54.3 55.8 57.3 60.0 63.5 e/f = BMI estimate/forecast Source: BMI, ITU, Australian Bureau of Statistics, operators © Business Monitor International Page 21 Australia Information Technology Report Q3 2013 BMI has not... forecast to 2.1% for the full year in 2013 on expectations that investment growth will be stronger than our previous forecast, but we are still expecting economic activity to slow from the 3.2% pace of expansion estimated in 2012 © Business Monitor International Page 23 Australia Information Technology Report Q3 2013 Rising Prices Lift Mining Sector Sentiment Australia - Iron Ore Fines, USD/Dry MT . Q3 2013 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. vendor margins. For instance, in early 2013 the Australian Australia Information Technology Report Q3 2013 © Business Monitor International Page 19 Government Information Management Office (AGIMO). 81 Sources 81 Australia Information Technology Report Q3 2013 © Business Monitor International Page 5 BMI Industry View BMI View: Australian IT sales are expected to reach AUD26.413bn in 2013, up