Q3 2015 www.bmiresearch.com AUSTRALIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 2041-7160 Published by:BMI Research Australia Information Technology Report Q3 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: June 2015 BMI Research 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@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved. 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All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Australia Information Technology Report Q3 2015 CONTENTS BMI Industry View . SWOT IT SWOT Wireline SWOT . 11 Political . 13 Economic . 14 Operational Risk . 15 Industry Forecast 17 Table: IT Industry - Historical Data And Forecasts (Australia 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2015 Outlook 17 Macroeconomic Forecasts . 23 Economic Analysis . 23 Table: Economic Activity (Australia 2010-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Industry Risk Reward Index . 30 Table: Asia Pacific IT Risk/Reward Index - Q315 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Market Overview . 33 Hardware . 33 Software . 39 Services 44 Industry Trends And Developments 52 Regulatory Development 58 Table: Government Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Government Initiatives 58 Regulatory News 60 Competitive Landscape 62 International Companies . 62 Table: Dell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Table: Datacom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Table: SAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Table: Panasonic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Local Company . 65 Table: The Good Guys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Company Profile 66 Hewlett-Packard . 66 Table: Hewlett-Packard Financial Performance By Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 © Business Monitor International Ltd Page Australia Information Technology Report Q3 2015 SAP 74 Regional Overview 80 Demographic Forecast . 83 Table: Population Headline Indicators (Australia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Table: Key Population Ratios (Australia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Table: Urban/Rural Population & Life Expectancy (Australia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Table: Population By Age Group (Australia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Table: Population By Age Group % (Australia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Methodology 88 Industry Forecast Methodology 88 Sources 89 Risk/Reward Index Methodology . 90 Table: It Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 © Business Monitor International Ltd Page Australia Information Technology Report Q3 2015 BMI Industry View BMI View: Due to high labour costs, BMI believes Australian enterprises could be among the early adopters for AI applications such as IBM's Ask Watson service, which has already been trialled by ANZ Bank. Emerging technologies aside, the growth outlook is relatively weak in Australia. This is in part a consequence of market maturity, meaning growth will underperform the APAC average, which is weighted to emerging markets, but there is also macroeconomic downside as BMI expects economic growth to slow over the medium term. Headline Expenditure Projections: ■ Computer Hardware Sales: AUD8.185bn in 2014 to AUD8.499bn in 2015, up 3.8% in local currency terms. Slowdown in tablet demand due to market saturation will be offset by a stabilisation in desktop and notebook sales in 2015 due to design innovation in the hybrid notebook market. ■ Software Sales: AUD4.728bn in 2014 to AUD4.764bn in 2015, up 0.8% in local currency terms. Security software will outperform, particularly for small and medium-sized enterprises (SMEs) and consumers - but the effect of XP enterprise upgrades will be diminished. ■ IT Services Sales: AUD9.742bn in 2014 to AUD10.678bn in 2015, up 9.6% in local currency terms. IT services will be fastest growth area of the IT market over the medium term, with cloud services the key growth driver as local companies try to use efficiencies enabled by the national broadband network (NBN). Key Trends And Developments: After a sustained boom since 2012, the Australian tablet market appears to have peaked, in line with BMI's expectations. High street consumer electronics retailer JB Hi-Fi reported that sales in July 2014 fell by 5.5% year-on-year, mainly due to a significant slump in demand for new and replacement tablet computers. We believe this data reflects the level of consumer satisfaction with existing products and the slower rate of innovation by leading vendors such as Apple and Samsung that have produced iterative improvements rather than significant changes in recent announcements. Although a small uptick is expected in 2016 as mobile network operators seek to attract customers to their new 4G mobile broadband networks by including tablets in new service bundles, sales are expected to fall in the following years as the operational lives of high-spec devices - as well as their high cost - obviates the need to buy a replacement in the short to medium term. © Business Monitor International Ltd Page Australia Information Technology Report Q3 2015 In contrast to the slowdown in tablet demand, the Australian cloud computing growth story has plenty of momentum remaining. The latest research by the Australian Communications and Media Authority (ACMA) showed the adoption of cloud computing services continued in 2013. In March 2014, ACMA claimed that 36% of SMEs actively using cloud services believed that such services provided easier or more convenient access to data and key resources (36%), assisted in making key productivity tools accessible from multiple locations (15%) and that disaster recovery would be facilitated through the use of cloud-based platforms (11%). © Business Monitor International Ltd Page Australia Information Technology Report Q3 2015 SWOT IT SWOT SWOT Analysis Strengths ■ High incomes and strong supporting infrastructure drive high levels of IT spending per capita. ■ Strong government support for ICT programmes. ■ IT-literate population with high levels of PC ownership and a propensity for premium devices. ■ Strong financial sector, a large source of demand for enterprise software and services. Weaknesses ■ Tablet boom has offset the decline in desktop and notebook sales. ■ Australia has a relatively mature domestic market, with correspondingly slow growth rates. Opportunities ■ Sensitive to volatility in the global economy. ■ High labour costs and proximity of low-cost competition make Australia a fertile market for automation technologies such as IBM's Watson and other personal assistant products. ■ Considerable demand for cloud computing services from both the public and enterprise sector. ■ Government cloud computing strategy creates opportunities for vendors in the public and small- and medium-sized enterprise (SME) sectors. ■ Potential for a rebound in notebook sales as hybrid designs evolve. ■ Other major IT projects in areas such as healthcare, education and smart cards. © Business Monitor International Ltd Page Australia Information Technology Report Q3 2015 SWOT Analysis - Continued Threats ■ A cheaper Australian dollar would affect consumer and business demand in the import-dependent IT market, with downside weighted towards the latter years of our forecast. ■ Vendors face threat of parliamentary enquiry into product pricing and are coming under pressure regarding tax arrangements. ■ Data from retailers indicate a sharp slowdown in the tablet market in 2014, in line with our long-held view that saturation and slower rate of innovation would result in longer replacement cycles. © Business Monitor International Ltd Page 10 Australia Information Technology Report Q3 2015 currency basis). However, SAP's next-generation cloud subscriptions and support services generated revenue of EUR758mn in 2013, up by 121% y-o-y (130% on a constant currency basis). SAP AG reports that non-IFRS revenues from cloud subscription services grew by almost 121% y-o-y in 2013 and that its annual cloud revenue run rate now exceeds EUR1.06bn. SAP is focused on migrating existing users of its HANA real-time enterprise resources management software platform to cloud-based solutions. In terms of geographic revenue performance, Asia Pacific saw the strongest growth, with revenues increasing 22.5% y-o-y to EUR2.637bn in 2012. However, it continues to be the smallest region by revenues, at 16.3% in 2012. Americas revenue increased 19.9% in 2012 to EUR6.1bn, equal to 37.6% of the total, with the US continuing to be SAP's single largest market at 27.5% of the total. EMEA is the most important region at 46.1% of revenue, or EUR7.485bn, but growth was far lower at 7.1% in 2012. EMEA growth was limited by existing high penetration of SAP solutions, slower uptake of cloud and other growth services and the wider economic environment. SAP's run of strong financial performance continued in 2012 as annual revenue increased 14% to EUR16.223bn. The fastest growth by product line was for software support services, which continues to be the largest share of revenue, at EUR8.236bn in 2012, up by 14.5% year-on-year (y-o-y). Software revenues also showed strong growth, up 13.4% to EUR4.659bn in 2012, while cloud subscription and support revenues reached EUR270mn, up from just EUR18mn in 2011. Professional service revenue growth was weaker, with consulting revenue increasing 4.3% to EUR2.442bn in 2012 and other service revenue increasing 7.7% to EUR616mn. Margins remained healthy in 2012, but there was a narrowing compared to 2011 as a result of a reduced fine being ordered for settling the litigation with Oracle over SAP's TomorrowNow subsidiary. Operating profit for 2012 was down 15.7% to EUR4.267bn, corresponding to an operating margin of 26.3%, while profit after tax was down 16.8% to EUR2.966bn. Financial Data Revenue: ■ ■ ■ ■ 2010: EUR12.46bn 2011: EUR14.23bn 2012: EUR16.22bn 2013: EUR16.89bn Operating Profit: ■ ■ ■ ■ 2010: EUR2.59bn 2011: EUR5.06bn 2012: EUR4.27bn 2013: EUR4.97bn © Business Monitor International Ltd Page 78 Australia Information Technology Report Q3 2015 Net Income (Profit After Tax): ■ ■ ■ 2010: EUR1.81bn 2011: EUR3.56bn 2012: EUR2.97bn2013: EUR3.65bn Company Details ■ ■ SAP AG Dietmar-Hopp-Allee 16 69190 Walldorf Germany ■ Tel: +49 (0) 6227 743002 ■ www.sap.com © Business Monitor International Ltd Page 79 Australia Information Technology Report Q3 2015 Regional Overview BMI View: As the largest region by far, Asia remains a key target for consumer electronics vendors seeking to capture the household spending growth story. However, major markets such as China and India offer a plethora of home-grown device manufacturers to appeal to new entrants to the ICT market, challenging the strong position of regional powerhouses Samsung, Sony and LG. Key Features: ■ Asia is the largest addressable market globally, with over 1.05bn households in 2015, forecast to reach 1.1bn in 2019. ■ In China, and to a lesser extent India, huge numbers new global middle-class consumers are expected to emerge over the medium term. ■ Bangladesh, India, Indonesia, Pakistan, the Philippines and Vietnam are characterised by large-scale migration of households upwards to the USD5,000-USD10,000 band. In 2015, Asia Pacific markets will account for 56.3% of global households, a figure BMI expects to increase slightly to 57.8% in 2019. More significant however is the forecast for the continuation of the trend of households moving up the income scale across the most significant markets in the region. The most significant trends for 2015-2019 are the growth in USD25,000-USD50,000 households, a trend dominated by China, and large numbers of new households in the low end of the IT and consumer electronics devices market in the USD5,000-USD10,000 income bracket. The China growth story is of huge historical significance for the devices market, both as a consumer and producer. In line with economy-wide macro trends, including rising wages and political impetus towards a more consumption-centric model, BMI forecasts China's significance will skew towards the consumption side during the 2015-2019 period. We forecast a large migration of Chinese households up the income scale, with our forecast envisaging the addition of almost 64.6mn households in the USD25,000USD50,000 band between 2015 and 2019. This migration will see the number of USD1,000-USD5,000 and USD5,000-USD10,000 households decline markedly, but the pool of sub-USD1,000 households will increase slightly in China's more remote and undeveloped regions. © Business Monitor International Ltd Page 80 Australia Information Technology Report Q3 2015 Strongest Gains In The Middle APAC Change In Households By Income Level ('000), 2015-2019 Source: BMI BMI considers these medium-term household income trends to be supportive of the strategies of leading Chinese brands such as Lenovo, Huawei, Xiaomi and a host of others, to focus on brand development and maximising market share in recent years. This has allowed them to create a platform for capturing a share of higher value, and higher margin volume growth, over the medium term as vendors aim to become household fixtures in the smartphone, tablet, smart TV, notebook and wearables/home automation markets popularised by China's expanding middle class. Beyond China (and the premium markets of Australia, South Korea and Japan), the medium-term outlook differs considerably. In these markets, we expect households to have more in common with China's development pattern in the past decade as large numbers of consumers purchase their first devices as they reach the USD5,000-USD10,000 income level. This can benefit local and global brands with targeted strategies for price-sensitive consumers, including investment in local production (see 'Lenovo Growth Plan Highlights Market Appeal', March 2015) - and investment in distribution and marketing capabilities. However, there will be a huge challenge for local brands such as the Philippines' Cherry Mobile from lowcost Chinese handsets that have the advantage of scale after success in their domestic market, and have demonstrated capacity of improve quality. Meanwhile, global leader Samsung Electronics faces a continued strategic squeeze as it is undercut in terms of price and specification by Chinese brands targeting © Business Monitor International Ltd Page 81 Australia Information Technology Report Q3 2015 market share. Samsung's flexibility is hamstrung by the necessity of not undercutting its highly profitable flagship lines on price and specification. We expect brands such as Samsung, but also other product leaders from the region such as LG, Sony and others, to become increasingly premium- and component-focused over the medium term. One way of doing this is to develop brand- and device-specific services and applications, as Sony has been doing through leveraging its vast media empire. However, the competition is only a few steps behind in this regard and Xiaomi stands out as a prime example of a new player emulating its global peers by tying its devices to a burgeoning service and content business. © Business Monitor International Ltd Page 82 Australia Information Technology Report Q3 2015 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 essential to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy. Population (1990-2050) 40 30 20 10 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 Australia - Population, mn f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 83 Australia Information Technology Report Q3 2015 Australia Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (Australia 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 17,096 19,259 20,520 22,404 23,923 25,439 26,919 na 1.2 1.5 1.7 1.2 1.2 1.1 Population, total, male, '000 8,525 9,556 10,189 11,151 11,900 12,641 13,359 Population, total, female, '000 8,570 9,702 10,331 11,253 12,022 12,797 13,560 Population ratio, male/female 0.99 0.98 0.99 0.99 0.99 0.99 0.99 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast. Source: World Bank, UN, BMI Table: Key Population Ratios (Australia 1990-2025) Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 1990 2000 2005 2010 2015f 2020f 2025f 11,433 12,877 13,813 15,147 15,755 16,324 16,932 66.9 66.9 67.3 67.6 65.9 64.2 62.9 5,663 6,381 6,707 7,257 8,167 9,115 9,987 49.5 49.6 48.6 47.9 51.8 55.8 59.0 Page 84 Australia Information Technology Report Q3 2015 Key Population Ratios (Australia 1990-2025) - Continued Youth population, total, '000 1990 2000 2005 2010 2015f 2020f 2025f 3,766 3,994 4,054 4,244 4,584 4,948 5,186 32.9 31.0 29.3 28.0 29.1 30.3 30.6 1,897 2,386 2,652 3,012 3,582 4,167 4,800 16.6 18.5 19.2 19.9 22.7 25.5 28.4 Youth population, % of total working age Pensionable population, '000 Pensionable population, % of total working age f = BMI forecast. Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (Australia 1990-2025) 1990 Urban population, '000 Urban population, % of total 2000 2005 2010 2015f 2020f 2025f 14,600.7 16,787.4 18,095.6 19,950.3 21,476.7 22,992.5 24,465.7 85.4 87.2 88.2 89.0 89.8 90.4 90.9 2,496.1 2,471.9 2,425.1 2,454.2 2,446.4 2,447.0 2,454.0 Rural population, % of total 14.6 12.8 11.8 11.0 10.2 9.6 9.1 Life expectancy at birth, male, years 73.8 76.9 78.7 79.9 80.5 81.2 81.9 Life expectancy at birth, female, years 79.9 82.3 83.4 84.3 85.0 85.8 86.4 Life expectancy at birth, average, years 76.8 79.6 81.1 82.1 82.8 83.5 84.2 Rural population, '000 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group (Australia 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 1,262 1,289 1,298 1,457 1,604 1,664 1,696 Population, 5-9 yrs, total, '000 1,263 1,357 1,346 1,373 1,529 1,676 1,736 Population, 10-14 yrs, total, '000 1,241 1,346 1,408 1,413 1,450 1,607 1,753 Population, 15-19 yrs, total, '000 1,398 1,334 1,409 1,507 1,504 1,541 1,698 Population, 20-24 yrs, total, '000 1,365 1,302 1,443 1,651 1,607 1,604 1,642 Population, 25-29 yrs, total, '000 1,421 1,447 1,383 1,664 1,745 1,702 1,700 Population, 30-34 yrs, total, '000 1,397 1,442 1,516 1,535 1,746 1,827 1,784 Population, 35-39 yrs, total, '000 1,316 1,512 1,497 1,621 1,598 1,808 1,889 Population, 40-44 yrs, total, '000 1,259 1,457 1,550 1,558 1,657 1,635 1,845 Population, 45-49 yrs, total, '000 984 1,348 1,473 1,585 1,570 1,670 1,648 © Business Monitor International Ltd Page 85 Australia Information Technology Report Q3 2015 Population By Age Group (Australia 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 822 1,262 1,346 1,476 1,576 1,562 1,662 Population, 55-59 yrs, total, '000 728 968 1,242 1,330 1,453 1,553 1,542 Population, 60-64 yrs, total, '000 738 800 950 1,215 1,296 1,418 1,518 Population, 65-69 yrs, total, '000 662 681 765 911 1,165 1,247 1,368 Population, 70-74 yrs, total, '000 493 635 628 713 852 1,095 1,178 Population, 75-79 yrs, total, '000 375 510 551 554 635 766 992 Population, 80-84 yrs, total, '000 222 315 402 429 451 524 639 Population, 85-89 yrs, total, '000 100 171 204 272 297 318 377 Population, 90-94 yrs, total, '000 33 58 80 102 141 158 175 Population, 95-99 yrs, total, '000 12 17 25 34 49 57 Population, 100+ yrs, total, '000 10 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group % (Australia 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 7.38 6.70 6.33 6.51 6.71 6.54 6.30 Population, 5-9 yrs, % total 7.39 7.05 6.56 6.13 6.39 6.59 6.45 Population, 10-14 yrs, % total 7.26 6.99 6.86 6.31 6.06 6.32 6.51 Population, 15-19 yrs, % total 8.18 6.93 6.87 6.73 6.29 6.06 6.31 Population, 20-24 yrs, % total 7.99 6.76 7.04 7.37 6.72 6.31 6.10 Population, 25-29 yrs, % total 8.31 7.52 6.74 7.43 7.30 6.69 6.32 Population, 30-34 yrs, % total 8.18 7.49 7.39 6.85 7.30 7.18 6.63 Population, 35-39 yrs, % total 7.70 7.85 7.30 7.24 6.68 7.11 7.02 Population, 40-44 yrs, % total 7.37 7.57 7.55 6.96 6.93 6.43 6.85 Population, 45-49 yrs, % total 5.76 7.00 7.18 7.08 6.57 6.57 6.12 Population, 50-54 yrs, % total 4.81 6.55 6.56 6.59 6.59 6.14 6.18 Population, 55-59 yrs, % total 4.26 5.03 6.05 5.94 6.07 6.11 5.73 Population, 60-64 yrs, % total 4.32 4.16 4.63 5.43 5.42 5.57 5.64 Population, 65-69 yrs, % total 3.88 3.54 3.73 4.07 4.87 4.90 5.09 Population, 70-74 yrs, % total 2.88 3.30 3.06 3.18 3.56 4.31 4.38 Population, 75-79 yrs, % total 2.20 2.65 2.69 2.48 2.66 3.01 3.69 Population, 80-84 yrs, % total 1.30 1.64 1.96 1.92 1.89 2.06 2.38 © Business Monitor International Ltd Page 86 Australia Information Technology Report Q3 2015 Population By Age Group % (Australia 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.59 0.89 1.00 1.22 1.24 1.25 1.40 Population, 90-94 yrs, % total 0.20 0.30 0.39 0.46 0.59 0.62 0.65 Population, 95-99 yrs, % total 0.05 0.06 0.08 0.11 0.14 0.19 0.21 Population, 100+ yrs, % total 0.01 0.01 0.01 0.01 0.02 0.03 0.04 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 87 Australia Information Technology Report Q3 2015 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. They allow us to forecast a variable using more than its 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. We mainly use 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 Ltd Page 88 Australia Information Technology Report Q3 2015 BMI uses the selected best model to perform forecasting. 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 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, our 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 our 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 Ltd Page 89 Australia Information Technology Report Q3 2015 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Index Methodology BMI's Risk/Reward Index (RRI) 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 RRI 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 (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 (a country-specific category, factoring 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 broken down into two sub categories: ■ Industry Risks (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 (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 Score, 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 Score a weighted average of the total score. As most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our score is revised on a quarterly basis. This ensures the score draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Ltd Page 90 Australia Information Technology Report Q3 2015 Sector-Specific Methodology In constructing these indices, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk/Reward Index Indicators 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 spending Denotes spending boost provided by public sector, which can be a crucial 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 Urban-rural split Urbanisation is used as a proxy for development. Mainly rural states score lower. GDP per capita, USD 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. Country Short-term external risk Score from BMI's Country Risk Index (CRI). It evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Score from CRI, 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 Score from CRI to denote ease of trading with the state. Legal framework Score from CRI denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Score from CRI denotes ease of conducting business in the state. Corruption Score from CRI denotes the risk of additional illegal costs/possibility of opacity in tendering/ business operations affecting companies' ability to compete. Source: BMI © Business Monitor International Ltd Page 91 Australia Information Technology Report Q3 2015 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 Ltd Page 92 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... International Ltd Page 15 Australia Information Technology Report Q3 2015 SWOT Analysis - Continued implementation of a database to increase transparency around foreign-owned Australian assets will spur more regulation © Business Monitor International Ltd Page 16 Australia Information Technology Report Q3 2015 Industry Forecast Table: IT Industry - Historical Data And Forecasts (Australia 2012-2019) 2012... 32 Australia Information Technology Report Q3 2015 Market Overview Hardware BMI forecasts the Australian computer hardware market value will increase by 3.8% in 2015 to a total of AUD8.499bn, although in US dollar terms we forecast a contraction of 0.7% due to depreciation of the Australian dollar The outlook extends over the medium term as we forecast a compound annual growth rate (CAGR) of 3.2% 2015. .. at 2.3% in 2015, versus consensus expectations of 2.5% as the ongoing terms of trade shock continues As trend real GDP growth settles at around 2.3% over the coming years (or possible below), we expect continued low inflation, and further Australian dollar weakness © Business Monitor International Ltd Page 23 Australia Information Technology Report Q3 2015 Growth Slowing On Any Measure Australia -... both countries host numerous technology- dependent multinational businesses and pro -technology governments © Business Monitor International Ltd Page 31 Australia Information Technology Report Q3 2015 Japan's Country Risks score is lower than those for Singapore and Hong Kong, and this is linked to its less attractive economic growth outlook Our Country Risk team has a bearish 2015 real GDP growth forecast... AUD13.776bn © Business Monitor International Ltd Page 22 Australia Information Technology Report Q3 2015 Macroeconomic Forecasts Economic Analysis BMI View: Australia' s Q414 real GDP growth figures painted a mixed picture, but still show the Australian economy on a slowing trend We maintain our forecast for real GDP growth to come in at 2.3% in 2015, versus consensus expectations of 2.5% as the ongoing... Demand for wireless broadband services, including WiMAX, 3G datacard and USB modem-supported services is growing © Business Monitor International Ltd Page 11 Australia Information Technology Report Q3 2015 Australia Wireline SWOT - Continued ■ Australia' s leading broadband operators are investing in the development of higherspeed broadband services This has potential to drive demand for new data services.. .Australia Information Technology Report Q3 2015 Wireline SWOT Australia Wireline SWOT Strengths ■ Australia' s overall wireline sector is host to a large number of service providers, many of which offer a full range of voice, data and internet services... posting strong growth © Business Monitor International Ltd Page 25 Australia Information Technology Report Q3 2015 Tide Turns For Investment Spending Australia - Real GDP Growth, Percentage Point Contribution To Growth Source: BMI, ABS Swimming Against The Tide Amid Terms Of Trade Reversal That said, the ongoing terms of trade crunch that Australia is going through is rendering this rebalancing of trade... current levels © Business Monitor International Ltd Page 26 Australia Information Technology Report Q3 2015 Mirror Image Australia - Percentage Point Contribution To Growth Source: BMI, ABS Trend Growth Rate To Fall Our Commodities team continues to hold a downbeat view on these commodity prices, and we therefore do not expect a reversal in Australia' s terms of trade any time soon This will continue... Page 27 Australia Information Technology Report Q3 2015 income growth will expose the lack of affordability of the domestic housing market Manufacturing, meanwhile, is unlikely to see a revival any time soon Rural Exports To Outperform Australia - Rural Exports, % of Total Exports Source: BMI, ABS Non-Mining Export-Focussed Industries To Benefit It is certainly not all doom and gloom for the Australian . Q3 2015 www.bmiresearch.com AUSTRALIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 2041-7160 Published by:BMI Research Australia Information Technology Report Q3 2015 INCLUDES. longer replacement cycles. Australia Information Technology Report Q3 2015 © Business Monitor International Ltd Page 10 Wireline SWOT Australia Wireline SWOT Strengths ■ Australia& apos;s overall. USB modem-supported services is growing. Australia Information Technology Report Q3 2015 © Business Monitor International Ltd Page 11 Australia Wireline SWOT - Continued ■ Australia& apos;s leading broadband