Australia information technology report q4 2013

Q4 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 Q4 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: September 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 Q4 2013 CONTENTS BMI Industry View . Headline Expenditure Projections Key Trends And Developments SWOT 10 IT SWOT Wireline SWOT . Political . Economic . Business Environment 10 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 Table: AUSTRALIA - MACROECONOMIC FORECASTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Industry Risk Reward Ratings 26 Asia Risk/Reward Ratings . 26 Table: Asia Pacific IT Risk/Reward Ratings, Q413 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Market Overview . 30 Hardware . 30 Software . 36 Services 38 Industry Trends And Developments 45 Regulatory Development 48 Table: Government Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Government Initiatives 48 Regulatory News 50 Company Profile 52 SAP 52 Hewlett-Packard . 57 Demographic Forecast . 64 Table: Australia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Table: Australia's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Table: Australia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Table: Australia's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 © Business Monitor International Page Australia Information Technology Report Q4 2013 Methodology 68 How We Generate Our Industry Forecasts . 68 IT Industry 68 IT Ratings - Methodology 69 Table: IT Risk/Reward Ratings Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Weighting . 71 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Sources 71 © Business Monitor International Page Australia Information Technology Report Q4 2013 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. Rnterprise 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 Q4 2013 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. In July 2013 it was reported that US-based telecoms and broadband services company Verizon had signed a three-year, AUD15mn (US$13.8mn) contract to provide a dual internet gateway service to a number of Australian security agencies. The company will offer intrusion detection and firewall, anti-spam, anti-virus, and virtual private network services to the Australian Federal Police and its affiliated agencies. In the same month, Telstra secured a contract from the Australian government, worth around US$29mn, which will see the firm migrate 11 government agencies to a consolidated and secure gateway. Both deals are part of the government's effort to reduce the number of internet gateways used in the government, which should result in efficiency savings of around US$22mn by 2014. Major software and content companies face a number of measures that could hamper their business models if key recommendations of the Australian government's Inquiry in to IT Pricing are implemented. The inquiry, which looks to explain why some IT services cost a lot more in Australia than in similar countries, could also lead to measures that restrict the ability of IT companies to enforce regional restrictions, or 'geoblocking' on their products. IT companies such as Adobe, Apple and Microsoft have defended the prices they charge by highlighting the high cost of doing business in Australia and higher rates charged by copyright holders in the country. 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 © Business Monitor International Page Australia Information Technology Report Q4 2013 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 Q4 2013 SWOT 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. 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 10 Australia Information Technology Report Q4 2013 Hewlett-Packard SWOT Analysis Strengths ■ HP is the world's largest manufacturer of personal computers and enjoys global brand recognition. ■ Extensive distribution channels. ■ Strong presence in the enterprise and consumer markets, and a key government agencies supplier. Weaknesses ■ Strong inventory (negative cash conversion cycle) and supply chain management. ■ Failed acquisitions, including Autonomy most recently, have seen large impairment charges affect profitability. ■ Traditional desktop business under threat from mobile alternatives. Even so, notebook sales are also falling as the tablet form factor is increasingly favoured. ■ HP's own foray into the tablet market was badly handled and any future investment in tablets would be questioned by investors and analysts. ■ Low-cost rivals, mainly from Asia, undermine what little traction HP still has in the mobile computer field. ■ Expansion into the 'big data' and cloud computing sectors requires years of investment with few immediate returns. Opportunities ■ With deep expertise and a significant client base in the servers market, HP is well placed to benefit from growing demand for 'big data' and cloud computing. ■ Deep cash resources have allowed HP to round out key skills and knowledge areas formerly lacking, enabling it to compete on a broader front with key competitors or outpace other rivals. ■ Restructuring process announced in 2012 (and running through FY14) should deliver cost savings and improve margins. Threats ■ Double-digit declines in PC and printing unit shipments in FY12. © Business Monitor International Page 57 Australia Information Technology Report Q4 2013 SWOT Analysis - Continued ■ Margins in HP's PC-manufacturing arm continue to narrow under competition from Lenovo and others. Further deterioration in the global economy would dampen consumer and enterprise demand. ■ Multiple IT and new business acquisitions could take time fully to integrate as existing and prospective clients need reassurance that its strategy will not change further and that rivals will not produce more compelling solutions. Company Overview Hewlett-Packard Company (HP) is a global provider of products, technologies, software, solutions and services to individual consumers, small and medium-sized businesses and large enterprises, including customers in the government, health and education sectors. Key offerings span personal computing; multi-vendor customer services; imaging and printing-related products and services; and enterprise information technology infrastructure. The company is transforming itself to deal with the growing demands for 'big data' solutions and cloud computing platforms. This has led, in equal measure, to controversial and well received strategic decisions. The company continues to be scrutinised by analysts keen to see a successful reorientation. Analysts also see HP as a barometer for broader trends in technological development. HP's shares are primarily traded on the New York Stock Exchange. Business Structure At the time of writing, HP was organised around seven business segments, following a reorganisation in Q113: Personal Systems Group (PSG); Imaging and Printing Group (IPG); Enterprise Group; Enterprise Services; HP Software; HP Financial Services; and Corporate Investments. ■ ■ ■ PSG provides PCs (desktops, notebooks, tablets), calculators and related accessories, software and services. PCs predominantly use the Microsoft Windows OS and use processors supplied by Intel and AMD. IPG provides consumer and commercial printer hardware, supplies, media and scanning devices. IPG is also focused on imaging solutions for commercial markets. Enterprise Group consists of HP's server, storage and networking products in a number of categories, as well as the Q1 FY13 addition of most of the Technology Services business unit that was formerly part of the Services segment. HP's Converged Infrastructure portfolio of servers, storage and networking combined with HP Software's Cloud Service Automation software suite comprise HP's CloudSystem. ESSN aims to optimise the combined product solutions required by different customers and provide solutions for a wide range of environments. Products are © Business Monitor International Page 58 Australia Information Technology Report Q4 2013 ■ offered under the following categories: Industry Standard Servers; Technology Services; Business Critical Systems; Storage; and Networking. Enterprise Services provides consulting, outsourcing and application and business services across infrastructure, applications and business process domains. Services is divided into two main business units: infrastructure technology outsourcing, and applications and business services. HP Software provides enterprise IT management software, information management solutions and security intelligence/risk management services. Solutions are delivered in the form of traditional software licences or as software-as-a-service (SaaS). Including Autonomy, HP is the world's sixth largest software company. Mergers And Acquisitions The competitive and fast-changing nature of the technology markets HP serves means it is often necessary to acquire competitive or complementary businesses in order to keep pace with change, add key products and technologies to the solutions portfolio and to arm itself with the patents and knowledge necessary to evolve its offerings in line with customer requirements. Since 2001 HP has completed 59 mergers or acquisitions, including the following key businesses: ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Compaq Computer Corporation (2002, gave HP a thriving personal computer business that has become the leading provider of PCs globally); StorageApps (2001, US$350mn, storage virtualisation solutions); Extreme Logic (2003, e-business solutions provider); Snapfish (2005, an online photo service); SPI Dynamics (2007, web application security assessment software); EDS (2008, US$13.9bn, IT and business process outsourcing technology); 3Com (2009, US$2.7bn, networking switching, routing and security solutions); Palm (2010, US$1.2bn, connected multimedia devices, including smartphones and a next generation operating system, webOS); 3PAR (2010, US$2.35bn, utility storage solutions and related technology); and, Autonomy Corporation (2011, US$11bn, enterprise infrastructure software). In August 2011, however, then CEO Leo Apotheker announced a company transformation aimed at strengthening its capabilities in the enterprise sector and positioning it for the shift away from discrete internal networking solutions to cloudbased models. A key part of this transformation was the discontinuation of webOS devices, specifically the Palm Pre family of smartphones and the TouchPad range of tablet computers, the first of which had only been launched less than two months earlier. It was decided the long-term costs of developing webOS for smartphones and tablets also outweighed the likely return on investment at a time when Google's Android had quickly come to dominate the market where there were already four high-profile OSs. In January 2012 HP decided to turn webOS to the open source developer community as Open WebOS. In February 2013 HP sold WebOS to LG Electronics for use in the latter's smart-TVs. Investors and analysts, who were already concerned HP had overpaid for Palm in the first place and the TouchPad had not been given sufficient time to establish itself in the © Business Monitor International Page 59 Australia Information Technology Report Q4 2013 nascent tablet market were, alarmed by this turn of events. The announcement also coincided with the agreement to purchase Autonomy and came as many technology companies were buying rivals and peers for the patents they considered most useful in fending off competitors in the future. In this light, investors argued HP was overpaying for Autonomy products and assets that might never deliver a return on investment. By Q412 these doubts were confirmed, when HP was forced to take a US$8.8bn impairment charge on Autonomy. In fact, HP's acquisitions resulted in two impairment charges in FY12. In Q112 HP took a US$1.2bn impairment charge on the Compaq trade name acquired in 2002. More significant was the Q4 FY12 write-down of Autonomy (became part of HP's Software Division), resulting in an impairment charge of US $8.8bn. The accounting at Autonomy, which is reported to be behind the subsequent write-down, is being investigated by the Serious Fraud Office in the UK, with further details not available at the time of writing. Apotheker stepped down in late September 2011, less than a year after taking on the role, to be replaced by Meg Whitman, an HP director since January 2011. In October 2012 Whitman announced a restructuring programme to reduce costs and streamline the business processes, while maintaining R&D investments. While cutting costs by streamlining distribution and marketing channels across personal systems and printing divisions, Whitman is also identifying growth in cloud and information management. Competition HP faces intense price- and feature-driven competition in all of its markets, but claims to be the largest company offering general purpose computers and personal information, imaging and printing products for industrial, scientific, business and consumer applications, and IT services. Competitors in the PSG sector include Lenovo Group (which is challenging HP for global leadership), Dell, Acer, ASUSTeK Computer, Apple and Toshiba. In certain regions, HP also competes with local companies and generic 'white label' product manufacturers. IPG's consumer, SME, graphics and enterprise customer segments see competition from Canon USA, Lexmark International, Xerox Corporation, Seiko Epson Corporation, Samsung Electronics and Brother Industries. The Enterprise Services businesses competes in IT support services, consulting and integration, infrastructure technology outsourcing, business process outsourcing and application services. The IT support services and consulting and integration markets are under significant pressure as customers are reducing their IT budgets. However, this trend has benefited HP's outsourcing businesses and customers look to lower IT management costs. Key competitors include IBM Global Services, Computer Sciences Corporation, Accenture, Fujitsu, Wipro, Infosys Technologies and Tata Consultancy Services. © Business Monitor International Page 60 Australia Information Technology Report Q4 2013 The Enterprise Group competes with broad solutions providers such as IBM, as well as more focused competitors such as EMC Corporation and NetApp (storage) and Dell (servers). HP Software group markets enterprise IT management software in competition with IBM and BMC Software, among others. Its information management solutions compete with products from the likes of IBM, EMC and Symantec Corporation. It also delivers enterprise security/risk intelligent solutions that compete with offerings from Symantec, IBM, Cisco Systems and McAfee. Financial Performance HP reported weak financial performance in Q1 FY13 (three months to January 31 2013). Group revenues were down 5.6% year-on-year (y-o-y) to US$1.752bn, with revenues down across all the business divisions. Personal systems revenue was down 7.7% y-oy, with printing revenue down 5.3% y-o-y. This decline was the result of declining units sold, with personal systems units down 5% y-o-y and printing hardware units down 11% y-o-y. Enterprise group and enterprise services revenues were down 4.1% and 7.1% respectively, while software revenue declined 2.1% y-o-y. Revenue by region showed HP had been hit hard in Europe, with EMEA revenue down 12.8% to US$10.209bn. US revenue was flat y-o-y at US$10.209bn, but revenue from Canada and Latin America was down 15% to US$5.388bn. APAC was the only region where revenue increased, up 5.5% y-o-y to US$5.388bn. Operating profit declined 14.2% y-o-y to US$1.752bn, equal to an operating margin of 6.2% (down from 6.8% in Q1 FY12). Net income declined 16.1% y-o-y to US$1.232bn. For the financial year ended October 31 2012 HP reported revenue of US$120.357bn, down 5.4% from US$127.245bn in FY11. The decline was steepest in the personal systems division, with revenue down 9.8% to US$35.691bn. The printing and enterprise group also reported steep declines, of 6.5% and 6.9% to US$24.487bn and US $30.367bn, respectively. Enterprise services fared better, with revenue down 0.5% y-oy to US$25.036bn. Software and financial services were the only divisions to report growth, with revenues up 20.6% and 6.2% to US$4.06bn and US$3.819bn respectively. In FY12 HP reported declining revenues from each region. EMEA saw the steepest decline, with revenues falling 5.5% y-o-y to US$43.923bn, just ahead of America revenue, which fell 5.4% to US$42.121bn and APAC revenue which fell 5.3% to US $22.574bn. In FY12 HP reported a large operating loss of US$11.057bn, the result of the write down of two acquisitions (Autonomy, US$8.8bn and Compaq, US$1.2bn). This also results in a net loss in FY12 of US$12.65bn. 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 © Business Monitor International Page 61 Australia Information Technology Report Q4 2013 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 62 Australia Information Technology Report Q4 2013 ■ ■ 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 63 Australia Information Technology Report Q4 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 64 Australia Information Technology Report Q4 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 65 Australia Information Technology Report Q4 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 66 Australia Information Technology Report Q4 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 67 Australia Information Technology Report Q4 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, ie 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 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 © Business Monitor International Page 68 Australia Information Technology Report Q4 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 Risk/Reward 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 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:Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. 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. © Business Monitor International Page 69 Australia Information Technology Report Q4 2013 Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. Table: IT Risk/Reward Ratings Indicators Indicator Rationale Rewards Industry rewards 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 rewards 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 Industry 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 risks 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 70 Australia Information Technology Report Q4 2013 IT Risk/Reward Ratings 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 71 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...].. .Australia Information Technology Report Q4 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 11 Australia Information Technology Report Q4 2013 Wireline SWOT Wireline SWOT Strengths ■ Australia' s overall wireline sector is... Business Monitor International Page 18 Australia Information Technology Report Q4 2013 2013 Outlook We expect growth in 2013 to be slower than 2012, dropping 0.4 percentage points (pps) to 4% The key factor behind this slowdown is the more downbeat IT Market Industry Trends 2010-2017 economic outlook for Australia in 2013 We expect real GDP growth will fall to just 2.1% in 2013 from 3.2% in 2012, with the... 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 Q4 2013 Management... momentum in Australia from its aggressive retail store expansion as well as the Source: Statcounter launch of the MacBook Air Sandy Bridge refresh model However, Apple has so far dominated tablet sales in Australia, with the Apple iPad 2 featuring new cameras and an 8.8mm slim body © Business Monitor International Page 34 Australia Information Technology Report Q4 2013 The iPad has received a boost in Australia. .. law could make it more complicated and costly for businesses to hire and fire workers © Business Monitor International Page 17 Australia Information Technology Report Q4 2013 Industry Forecast Table: Australia IT Sector - Historical Data And Forecasts (AUDmn) 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f IT market value 23,383 24,318 25,390 26,413 27,943 29,530 31,045 32,578 of which hardware 10,569... International Page 21 Australia Information Technology Report Q4 2013 cloud computing strategy in 2013 Opportunities will exist in telecoms, healthcare and utilities verticals Cloud computing will be key as businesses look for opportunities to reduce cost and increase flexibility, and has already gained traction in the market and spread beyond initial core application areas, with around one-third of Australian... 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 22 Australia Information Technology Report Q4 2013 BMI has not... ex gold, US$bn 8 Import cover, months 8 Total external debt stock, US$mn 8 © Business Monitor International Page 24 Australia Information Technology Report Q4 2013 AUSTRALIA - MACROECONOMIC FORECASTS - Continued 2011 Total external debt stock, % of GDP 8 2012 87.0 90.7 Latest Period - 2013f 2014f - 79.4 75.3 Notes: e BMI estimates f BMI forecasts 1 Calendar Years; 2 Calendar Years, Base Year = FY2008/09... calendar-year basis; 6 RBA/ BMI calculation; 7 BMI; 8 ABS/BMI © Business Monitor International Page 25 Australia Information Technology Report Q4 2013 Industry Risk Reward Ratings Asia Risk/Reward Ratings There are several positional changes in BMI's Asia Pacific IT Risk/Reward Ratings (RRR) in the Q4 2013 update, as well as minor adjustment to country scores Our ratings compare the potential of a selection... a regional datacentre and cloud services hub as vendors expand into the Asia Pacific market © Business Monitor International Page 26 Australia Information Technology Report Q4 2013 Australia sits in fourth position in the Asia Pacific IT ratings with a score of 68.0 Australia has an ambitious National Broadband Network plan, which will vastly improve broadband coverage and speeds throughout the country, . Q4 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. could squeeze vendor margins. For instance, in early 2013 the Australian Government Information Australia Information Technology Report Q4 2013 © Business Monitor International Page 20 . 71 Sources 71 Australia Information Technology Report Q4 2013 © Business Monitor International Page 5 BMI Industry View BMI View: Australian IT sales are expected to reach AUD26.413mn in 2013, up