United states information technology report q1 2010

Q1 2010 www.businessmonitor.com UNIteD StateS information technology Report INCLUDES 5-YEAR FORECASTS TO 2014 ISSN 2041-7101 Published by Business Monitor International Ltd. United States Information Technology Report Q1 2010 Including 5-year industry forecasts by BMI Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Publication date: January 2010 Business Monitor International Mermaid House, Puddle Dock, London, EC4V 3DS, UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2010 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. United States Information Technology Report Q1 2010 © Business Monitor International Ltd Page United States Information Technology Report Q1 2010 CONTENTS Executive Summary .5 SWOTS United States IT Sector SWOT United States Political SWOT United States Economic SWOT United States Business Environment SWOT . Americas IT Business Environment Ratings 10 Table: Regional IT Business Environment Ratings 12 Market Overview .13 Industry Developments 23 Industry Forecast Scenario .25 Table: USA: IT Sector 27 Internet 28 Table: Telecoms Sector – Internet – Historical Data And Forecasts . 28 Competitive Landscape .30 Macroeconomic Forecast 37 Table: United States – GDP By Expenditure . 39 Company Profiles .40 HP 40 Dell 42 Microsoft 44 IBM 46 Country Snapshot: United States Demographic Data 47 Section 1: Population . 47 Table: Demographic Indicators, 2005-2030 47 Table: Rural/Urban Breakdown, 2005-2030 . 48 Section 2: Education And Healthcare 48 Table: Education, 2002-2005 48 Table: Vital Statistics, 2005-2030 48 Section 3: Labour Market And Spending Power 49 Table: Employment Indicators, 2001-2006 49 Table: Consumer Expenditure, 2000-2012 (US$) 49 Table: Average Annual Wages, 2000-2012 (US$) . 50 BMI Methodology .51 IT Ratings – Methodology . 51 Ratings Overview . 51 Table: IT Business Environment Indicators . 52 Weighting . 53 Table: Weighting Of Components 53 How We Generate Our Industry Forecasts 53 IT Industry . 54 © Business Monitor International Ltd Page United States Information Technology Report Q1 2010 Sources 54 © Business Monitor International Ltd Page United States Information Technology Report Q1 2010 Executive Summary Market Overview ƒ US spending on IT products and services is forecast to grow to US$514.5bn in 2010 and to reach a level of US$647.7bn by 2014. In BMI’s core forecast scenario, US IT market growth will increase to 5.5% in 2010 and then advance at a compound annual growth rate (CAGR) of 5.9% over our five-year forecast period. After three quarters of decline as a result of the global economic crisis, the second half of 2009 finally brought a return to growth in US PC shipments and signs of improvement in key IT spending verticals. Going forward, key market drivers are expected to include: ƒ Growing fixed and mobile broadband penetration ƒ Product innovation such as feature-rich netbooks ƒ Technology innovation such as GPS technology and services ƒ Business model innovations such as virtualisation and software-as-a-service (SaaS) ƒ Economic recovery The recession may have had a lasting impact on the IT market by creating the conditions for the popularity of low-cost netbooks and notebooks and encouraging consideration of new IT delivery models such as SaaS. In the light of these and other changes, major vendors have also adjusted their competitive strategies. Industry Developments ƒ In August 2009 the federal government reported on its 2009 calendar year IT spending. In full-year 2009, total IT spending including all federal IT investment was measured at US$74.2bn, up 1.99% on the previous year’s total of US$72.8bn. Looking forward to 2010, budgeted federal IT spending is set to rise to US$78.4bn. © Business Monitor International Ltd Page United States Information Technology Report Q1 2010 In September 2009, HP’s EDS unit won a US$30mn contract from the US Department of the Treasury’s Office of the Comptroller of the Currency (OCC) to provide and maintain end-user computing resources and mobility services. Competitive Landscape ƒ The US PC competitive landscape is dominated by two big domestic vendors, Dell and HP, which together have at least 50% of the US market. While Dell remained slightly ahead in PC market share in Q309, HP was particularly successful in using the lower priced notebooks trend to bolster its position. In July 2009 the company was selling a US$298 laptop at Wal-Mart stores, while a rival Dell product, also produced for Wal-Mart, retailed for US$398. Following the success of its Wal-Mart product, HP continued with its low-price strategy for the back-toschool season. ƒ The launch of Microsoft’s Windows operating system, in October 2009, was the most significant event for Microsoft since the launch of Windows 95. Microsoft has received credit for a much smoother launch of Windows compared with its previous operating system, due in large part to better cooperation with other players in the software value chain, including PC vendors and end-users. A wave of new PCs were released in Q409 with the new operating system, while Acer and Dell said that, as of launch date, there was zero inventory of Vista machines going into stores. ƒ Consolidation is expected to continue to shape the IT services landscape over BMI’s forecast period. In October 2009, computer hardware giant Dell made a US$3.9bn purchase of Perot Systems, while Xerox followed later in the month with its US$6.4bn acquisition of Affiliated Computer Services. Meanwhile, HP said that its integration of EDS was ahead of schedule. Computer Sales ƒ The US addressable market for PCs and accessories is estimated by BMI at US$116.1bn in 2010, with low single-digit growth compared with 2009. In H209, the US PC market finally showed signs of recovery, with positive growth of nearly 4% in Q309, following three consecutive quarters of shipments decline. In H109 PC shipments were down between 12%, compared with the same period of the previous year. © Business Monitor International Ltd Page United States Information Technology Report Q1 2010 Notebooks are the fastest growing PC market segment and were on course to account for around 58% of unit sales in 2009, rising to a projected 81% by 2014. Netbooks are forecast to account for around 12% of notebook sales in the US last year. However, the netbook growth trajectory should flatten as the price differential with fully featured notebooks becomes less significant. Software ƒ The US software market is estimated at US$149.2bn in 2010, with single-digit growth from 2009. Software CAGR for 2010-2014 is projected at around 6.8%, as the addressable market grows to around US$194.3bn. The launch of Windows is expected to provide a boost to the operating system market in 2010. 2010 should see a boost from systems upgrades deferred from last year when the economic crisis had an impact across sectors. Drivers of demand for enterprise software include increasing operational efficiency, coordinating global supply chains and modernising logistics and warehouse functions. More investment can be expected to be in utility software and serviced-oriented architectures rather than traditionally packaged PC software. IT Services ƒ The US IT services market is estimated at US$229bn in 2010 with a sharp deceleration in spending expected compared with 2006-2008. IT services spending is expected to record growth of 5.5% in 2010, after a sharp deceleration last year. Spending on IT services is quite closely correlated with GDP growth – bad news in a recession. In early 2009 many vendors reported that they were not seeing many major blow-offs on existing deals. The most severely hit area is likely to be softer project-type spending such as consulting and software development. In the near term, budgets had often already been commissioned, and so the effects were more likely to be felt in the second half of 2009 and in 2010. © Business Monitor International Ltd Page United States Information Technology Report Q1 2010 SWOTS United States IT Sector SWOT ƒ The largest IT market in the world with spending forecast to pass US$500bn in 2010. ƒ Despite currently challenging trading conditions, overall IT spending still expected to remain in positive growth territory. Weaknesses ƒ In H109 customers were postponing projects and cut back on short-term spending, particularly in areas such as consulting and software development. Opportunities ƒ Low base level of sales in H109 should allow for rapid growth at least in the first half of 2010. ƒ As the recession eases, vendors should see more growth in other traditional bigspending IT verticals such as banks and financial organisations, retail and manufacturing. ƒ Growing popularity of mobile broadband networks in the US driving netbook sales. ƒ New business models like SaaS and virtualisation will continue to make progress. ƒ A risk that recovery could be anaemic in 2010, in which case tech spending could have another hard year. Strengths Threats United States Political SWOT Strengths ƒ The US is an undisputed superpower, and therefore occupies centre-stage in most international diplomacy. Long-standing democracy with vigorous and open political debate; the US continues to attract large numbers of immigrants committed to citizenship and self-advancement. Weaknesses ƒ Political debate between Republicans and Democrats has historically shown tendency to become more polarised and divisive. As today’s superpower, the US attracts the enmity of a wide range of political groups opposed to the current international status quo. Opportunities ƒ The changing political mood (as evidenced by the popularity of unconventional candidates in the 2008 presidential election, including Obama’s), and the widespread dissatisfaction of the voting public, may encourage both major parties to experiment with more consensual approaches to certain policy areas. Threats ƒ The perception of inflexibility and bias in US foreign policy, particularly in the Middle East, may stiffen opposition and at worst provide fertile recruiting ground for radical anti-US groups such as Al Qaeda. Partly as a reaction to foreign policy difficulties, US public opinion may return to isolationist and protectionist modes. © Business Monitor International Ltd Page United States Information Technology Report Q1 2010 United States Economic SWOT Strengths ƒ The world’s largest economy with an impressive record of entrepreneurial dynamism, innovation, and a high research and development spend. Despite some threats to its reserve status, the US dollar is treated as an international currency, meaning that investors around the world are prepared to hold US debt. Because of this, the US is uniquely able to run large fiscal and current account deficits. Weaknesses ƒ Despite the dollar’s role as an international currency, excessive US debt levels are a risk. A decision by Japanese and Chinese central banks to reduce their larger dollar holdings could cause sharp falls in the value of the US currency. Low savings rate by US households, although this has begun to reverse. Opportunities ƒ Further liberalisation of international trade through the WTO, coupled with a more competitive dollar exchange rate, could boost export growth and help restore balance to the US’s external imbalances. Threats ƒ Intensified competition from China and other low-wage economies could accelerate the loss of manufacturing jobs. Large growth in public spending, coupled with tax cuts, will worsen the fiscal deficit, eventually forcing more restrictive monetary policy and slower growth. United States Business Environment SWOT Strengths Weaknesses Opportunities Threats ƒ The US boasts the world’s largest single internal consumer market, which presents tremendous opportunities for businesses of all types and sizes. ƒ Few countries offer better environments for entrepreneurial activity, with a highly flexible labour force, a legal system that is friendly to business, and significant centres of technological innovation (such as California’s Silicon Valley). ƒ Much of the country’s physical infrastructure is in need of improvement, with congested roads and airways. ƒ US corporate tax is, on average, among the highest in the OECD. ƒ The Obama administration is committed to improving the nation’s infrastructure, with stimulus package funds being dedicated to that purpose. ƒ The US has often been the origin of new drivers of economic growth booms, and sectors ranging from biotechnology to alternative energy are being discussed as possible catalysts. ƒ Government intervention in the economy puts the country’s reputation for free enterprise at risk. © Business Monitor International Ltd Page United States Information Technology Report Q1 2010 Company Profiles HP Services Technology services, consulting and integration. HP is currently organised into three main divisions: ƒ Personal Systems Group (PSG). Business and consumer PCs, mobile computing devices and workstations ƒ Printing and Imaging Devices. Inkjet, Laser Jet and commercial printing ƒ Technology Solutions. Software and managed services, EDS, storage and servers Recent Developments In September 2009, HP changed the name of its EDS unit, created following the acquisition of fellow IT services giant EDS, to HP Enterprise Services. In the same month, the EDS unit won a US$30mn contract from the US Department of the Treasury. HP’s third and fourth quarter positive performance was driven largely by services revenues, which in Q309 were up 93% compared with the same period of the previous year, reaching US$8.5bn. This was primarily due to HP’s acquisition of EDS. In Q309, HP said that its business was stabilising, making the company confident that it would be an early beneficiary of an economic turnaround. In H109 HP continued to contest with Dell for leadership position in the US computer market. In Q209, HP slipped into second place behind Dell, according to market research firm IDC, with 26% of the market to Dell’s 26.3%. Gartner put HP’s US market share at 25.7% in Q309, once again behind Dell. However, HP had previously dethroned Dell as the market leader in Q109, driven largely by the consumer notebook segment. In 2009 HP was particularly successful in using the low-price notebook trend to bolster its position. In July 2009 the company was selling a US$298 laptop at Wal-Mart stores, while a rival Dell product, also produced for Wal-Mart, retailed for US$398. Following the success of its Wal-Mart product, HP continued with its low-price strategy for the back-to-school season. In the software segment, HP is targeting SMEs with solutions that allow businesses to operate with fewer staff and less capital and technology resources. Solutions offered by HP to meet this need included storage, virtualisation, remote access and consolidation solutions. Future Plans For the full fiscal year 2010, HP expects revenue of approximately US$117.0bn to US$118.0bn. The company has said that it sees significant opportunities to invest in innovation and sales to expand its portfolio and market coverage. HP also plans to improve margins in 2010 and to increase margins by leveraging a leaner cost structure, while continuing to invest for growth. Revenues In Q409, HP reported revenues of US$30.8bn, down 8% on the same period of the previous year, but up 12% on Q309. Income was up y-o-y, from US$2.1bn in Q408 to US$2.4bn in Q409. © Business Monitor International Ltd Page 40 United States Information Technology Report Q1 2010 In Q309, HP reported net revenues of US$27.5bn, down 2% from the same period of the previous year, and up 4% in constant currency. The United States accounted for 38% of global revenues in the quarter. In FY08 HP reported revenues of US$118.4bn, up 13%. Presence 321,000 employees worldwide in 2008. Sectors In Q308 HP attributed record profit in services, double-digit revenue growth in China and solid cash flow as driving its bottom line growth. Services revenue increased 93% to US$8.5bn due primarily to the EDS acquisition. HP Software revenue declined 22% to US$847mn. Personal Systems Group (PSG) posted an increase of unit shipments of 2% and maintained the leading market position in PCs worldwide. PSG revenue declined 18% to US$8.4bn. Imaging and Printing Group (IPG) revenue declined 20% to US$5.7bn. © Business Monitor International Ltd Page 41 United States Information Technology Report Q1 2010 Dell Services Manufacture, marketing and sales of computer systems and services worldwide. In December 2008, Dell announced that it was re-organising itself into four global business units: ƒ Large Enterprise ƒ Public ƒ SME ƒ Consumer Recent Developments In October 2009 Dell made an offer to acquire IT services company Perot Systems. Dell expected the acquisition to close in Q409. The acquisition should position Dell to grow by expanding its offering of IT services and solutions. Perot Systems will in effect become Dell’s IT services unit. In Q309, Dell once again narrowly pipped HP for the market leader position, according to market research firm Gartner, taking 26.2% of the market to HP’s 25.7%. In Q209, Dell narrowly pipped HP for the US PC market leader position, according to market research firm IDC, taking 26.3% of the market to HP’s 26%. However, Dell reported disappointing profits in Q309 of US$727mn, down from US$15.2bn in the same period of the previous year as margins came under pressure. Globally Dell has suffered in the US downturn from the deep cuts in corporate spending, as well as the transition away from desktops. Dell Americas revenues from the corporate segment declined 17% in value terms (and 23% in units) in fiscal 2009. These trends have reinforced the logic of the company’s largely successful global transition towards a more retail-focused approach. In Q209 IDC reported that Dell achieved negative 18.9% shipments growth in the US market, compared with just -2.3% for major domestic rival HP. Future Plans In December 2008 four new global business units were created as the latest stage in an ongoing attempt to make Dell a more customer-focused company. Dell has mounted a strong global comeback in the past couple of years, from declining unit sales, by moving aggressively into the retail segment. The company has thus moved away from its ‘direct Dell’ strategy of selling direct to customers. In the US the company has done this by developing partnerships with leading retailers such as Best Buy. This strategy has provided with a fresh source of growth during a slowing market, enabling it to recover some of the market share that it had lost to HP, as well as Asian challengers like Acer, Lenovo and Toshiba. Revenues Dell reported revenues of US$61.6bn for FY09, unchanged from 2008. Net income, however, was US$2.5bn, down 16% from US$2.9bn in the previous year. Presence 76,500 employees. Sectors © Business Monitor International Ltd Page 42 United States Information Technology Report Q1 2010 Dell’s commercial business serves large corporations, public customers such as government, education, healthcare and SMEs. In Q309, Dell continued to report a slowdown in most business segments. Meanwhile, in Q309 Dell’s global consumer business reported a 10% y-o-y increase in revenues on a 32% increase in shipments. © Business Monitor International Ltd Page 43 United States Information Technology Report Q1 2010 Microsoft Services Software licences, support and services. Microsoft has five major business divisions: ƒ Client. Includes the Windows product family ƒ Server and tools. Includes software server products, services and solutions ƒ Online business services ƒ Microsoft Business Division. Includes Microsoft Office and Microsoft Dynamics ƒ Entertainment and Devices. Includes the Xbox video game system Recent Developments Microsoft suffered in H109 from a deceleration in sales of PCs bundled with its software due to the economic slowdown. In July 2009 Microsoft posted declines in profits and sales for its fourth 2009 fiscal quarter, blaming this on the weakness in global PC and server sales. However, the fourth quarter brought some significant product milestones including the release of Windows Server 2008 R2, as well as Bing, Microsoft’s new generation search engine. BMI projects that the release of Windows 7, scheduled for October 2009, will provide a boost to Microsoft. Future Plans The launch of Microsoft’s Windows operating system, scheduled for October 22 2009, will be the most significant event for Microsoft since the launch of Windows 95. Microsoft has a lot riding on the new operating release, given perceived problems with its previous operating system Windows Vista, and also because of the continuing global challenge from open source. Windows Vista ran into problems when business users found that many of their business applications could not run on the Vista operating system. Microsoft has taken a couple of steps to fix perceived problems with Vista. Regarding the compatibility problem, Microsoft has tackled this with a free extension to Windows called XP Mode. This allows users to run Windows XP applications on Windows 7. Secondly, Windows will use less processing power and memory than Windows Vista. Revenues Microsoft’s fourth quarter revenues were down 17% y-o-y to US$13.1bn. In the fiscal year ending June 2009, Microsoft reported net revenues of US$58.44bn, down 3% y-o-y. Presence As of June 2009, Microsoft reported 92,736 employees, of whom 55,843 were employed in the United States. Sectors Microsoft dominates the operating system segment but was threatened in 2007 with the emergence of the popularity of netbook computers. Most netbook computers originally came with open source Linux operating systems due to the heavy systems requirement of Windows Vista. Netbooks were therefore seen as a threat to Microsoft’s revenues. However, Microsoft has fought back by allowing netbooks to ship Windows XP, bringing its market share back up. © Business Monitor International Ltd Page 44 United States Information Technology Report Q1 2010 In the enterprise software segment, Microsoft competes with its Microsoft Dynamics suite of products. In April 2009 a survey by Panorama Consulting Group ranked Microsoft third in the manufacturing and distribution industry’s ERP segment, with a market share of around 14%. © Business Monitor International Ltd Page 45 United States Information Technology Report Q1 2010 IBM Services Manufacturer, distributor and provider of advanced IT solutions including hardware, software, peripherals and data processing equipment. IBM has three main business segments: ƒ Global Technology Services ƒ Global Business Services ƒ Software Recent Developments In 2008 IBM reported revenues growth of 5% despite the economic slowdown, while pre-tax income also rose. More than 90% of segment profits in 2008 came from software, services and financing. Approximately 65% of IBM’s 2008 revenues were generated outside the United States. In 2008 the company invested US$6.3bn for 15 acquisitions, 10 of them in software. IBM also invested US$6.3bn in R&D. Future Plans In 2009 IBM said that it had prioritised strategic investments in service-oriented architectures, business analytics and next generation data centres, relying on these areas to drive growth in 2010. IBM expected full-year 2009 pre-tax income for its software segment to grow at a double-digit rate to approximately US$8bn. The company’s goal is earnings of US$10-11 a share in 2010. Revenues In Q209 IBM reported revenues of US$23.3bn, down 13%, or 7% adjusting for currency. However, net income rose 12% to US$3.1bn. Revenues from the Americas region were US$9.9bn, down 9% on the same period of the previous year. In FY08, IBM reported total revenues of US$103.6bn, up 5%. Presence 410,097 employees. Sectors In 2008 IBM reported the following results by division: Technology services revenues were up 9%, 6% adjusting for currency; pre-tax income up 30%; Global business services revenues up 9%, 5% adjusting for currency; pre-tax income up 30%; Software revenues up 11%, 8% adjusting for currency; pre-tax income up 18%. Software pre-tax profits have doubled over the five years to 2008 when they were US$7bn. © Business Monitor International Ltd Page 46 United States Information Technology Report Q1 2010 Country Snapshot: United States Demographic Data Section 1: Population Population By Age, 2005 And 2030 (mn, total) Population By Age, 2005 (mn) 70-74 70-74 60-64 60-64 50-54 50-54 40-44 40-44 30-34 30-34 20-24 20-24 10-14 10-14 0-4 0-4 -15.0 -10.0 -5.0 0.0 Male 5.0 10.0 15.0 -30.0 -20.0 -10.0 0.0 10.0 2030 Female 20.0 30.0 40.0 2005 Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010f 2020f 2030f Dependent population, % of total 33.0 33.0 35.2 37.5 Dependent population, total, ‘000 97,335 101,433 120,863 137,659 Active population, % of total 67.0 66.9 64.7 62.4 Active population, total, ‘000 197,593 205,284 221,682 228,530 Youth population*, % of total 20.7 20.3 19.4 18.1 Youth population*, total, ‘000 61,255 62,348 66,606 66,599 Pensionable population, % of total 12.2 12.7 15.8 19.4 Pensionable population, total, ‘000 36,080 39,085 54,257 71,060 f = forecast. * Youth = under 15. Source: UN Population Division © Business Monitor International Ltd Page 47 United States Information Technology Report Q1 2010 Table: Rural/Urban Breakdown, 2005-2030 2005 2010f 2020f 2030f Urban population, % of total 80.8 82.2 84.9 87.0 Rural population, % of total 19.2 17.8 15.1 13.0 Urban population, total, ‘000 240,831 256,822 290,729 318,454 Rural population, total, ‘000 57,382 55,431 51,818 47,733 298,213 312,253 342,547 366,187 Total population, ‘000 f = forecast. Source: UN Population Division Section 2: Education And Healthcare Table: Education, 2002-2005 2002/03 2004/05 Gross enrolment, primary 99 98 Gross enrolment, secondary 95 94 Gross enrolment, tertiary 82 82 Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. Source: UNESCO Table: Vital Statistics, 2005-2030 2005 2010f 2020f 2030f Life expectancy at birth, males (years) 74.6 75.2 76.8 77.9 Life expectancy at birth, females (years) 80.0 80.6 82.1 83.3 Life expectancy estimated at 2005. f = forecast. Source: UNESCO © Business Monitor International Ltd Page 48 United States Information Technology Report Q1 2010 Section 3: Labour Market And Spending Power Table: Employment Indicators, 2001-2006 2001 2002 2003 2004 2005 2006 141,815 144,863 146,510 147,401 149,320 151,428 0.6 2.1 1.1 0.6 1.3 1.4 49.8 50.4 50.5 50.3 50.5 50.7 Employment, ‘000 135,073 136,485 137,736 139,252 141,730 144,427 – % change y-o-y -0.1 1.0 0.9 1.1 1.7 1.9 – male 72,080 72,903 73,332 74,524 75,973 77,502 – female 62,992 63,582 64,404 64,728 65,757 66,925 — female, % of total 46.6 46.5 46.7 46.4 46.4 46.3 Total employment, % of labour force 95.2 94.2 94.0 94.4 94.9 95.3 Unemployment, ‘000 6,742 8,378 8,774 8,149 7,591 7,001 – male 3,663 4,597 4,906 4,456 4,059 3,753 – female 3,079 3,781 3,868 3,694 3,531 3,247 4.8 5.8 6.0 5.5 5.1 4.6 2000 2007e 2008f 2009f 2010f 2012f 23,888 32,357 33,389 34,759 36,121 38,841 Poorest 20%, expenditure per capita 6,450 8,736 9,015 9,385 9,753 10,487 Richest 20%, expenditure per capita 54,703 74,097 76,461 79,598 82,716 88,946 Richest 10%, expenditure per capita 71,425 96,746 99,834 103,929 108,001 116,135 Middle 60%, expenditure per capita 19,429 26,317 27,157 28,271 29,378 31,591 Economically active population, ‘000 – % change y-o-y – % of total population – unemployment rate, % Source: ILO Table: Consumer Expenditure, 2000-2012 (US$) Consumer expenditure per capita e/f = BMI estimate/forecast. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 49 United States Information Technology Report Q1 2010 Table: Average Annual Wages, 2000-2012 (US$) 2000 2006 2007e 2008f 2009f 2010f 2012f Total 29,120 34,798 35,997 38,006 39,906 41,718 45,396 Manufacturing 29,786 34,944 36,591 38,634 40,565 42,407 46,146 3.9 3.8 3.4 5.5 5.0 4.5 4.3 Total wage growth, % y-o-y e/f = BMI estimate/forecast. Source: ILO, BMI © Business Monitor International Ltd Page 50 United States Information Technology Report Q1 2010 BMI Methodology IT Ratings – Methodology BMI has introduced new IT Business Environment Ratings. Our approach has been threefold. First, we have defined the risks rated in order to capture the operational dangers to companies operating in this industry. Second, we have attempted where possible to identify objective indicators that may serve as proxies for issues/trends. Finally, we have used BMI’s proprietary Country Risk Ratings (CRR) to ensure that only the aspects most relevant to the industry have been included. Overall, the new ratings system, which is integrated with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings Overview Ratings System Conceptually, the new ratings system divides into two distinct areas: Limits of potential returns: Evaluation of sector’s size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from the state’s political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. Indicators The following indicators have been used. Overall, the rating uses three subjectively-measured indicators, and numerous separate indicators/datasets. © Business Monitor International Ltd Page 51 United States Information Technology Report Q1 2010 Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Sector value growth, % y-o-y Denotes breadth of IT market. Large markets score higher than smaller ones 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 structure Urban-rural split GDP per capita, US$ Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower 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 ICT policy Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting 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 Legal framework Bureaucracy Corruption Rating from CRR to denote ease of trading with the state Rating from CRR denotes the strength of legal institutions in each state – security of investment can be a key risk in some emerging markets Rating from CRR denotes ease of conducting business in the state Rating from CRR 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 52 United States Information Technology Report Q1 2010 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all subcomponents 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 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 autogressions 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. © Business Monitor International Ltd Page 53 United States Information Technology Report Q1 2010 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 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: ƒ Overall economic context, and GDP and demographic trends; ƒ Underlying ‘information society’ trends; ƒ Projected GDP share of industry; ƒ Maturity of market structure; ƒ Regulatory developments and government policies; ƒ Developments in key client sectors such as telecommunications, banking and e-government; ƒ Technological developments, and diffusion rates; ƒ Exogenous events. Estimates are calculated using BMI’s own macroeconomic and demographic forecasts. Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Ltd Page 54 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... reach © Business Monitor International Ltd Page 28 United States Information Technology Report Q1 2010 around 105mn subscribers by the end of 2013, an increase of 28.6% between 2009 and 2013 pushing the penetration rate up to 33% by the end of our forecast period © Business Monitor International Ltd Page 29 United States Information Technology Report Q1 2010 Competitive Landscape Hardware The US PC competitive... the report © Business Monitor International Ltd Page 12 United States Information Technology Report Q1 2010 Market Overview Government Authorities Government Authority National Telecommunications and Information Administration (NTIA), Department of Commerce Assistant Secretary for Communications and Information Lawrence E Strickling The Department of Commerce (DoC) regulates various information technology. .. will remain relatively stable in 2010 © Business Monitor International Ltd Page 16 United States Information Technology Report Q1 2010 In 2010, the release of Microsoft’s new Windows 7 operating system has the potential to help trigger a new cycle of hardware upgrades, although much will depend on business and consumer confidence The launch of Windows 7, in October 2009, reportedly saw closer collaboration... require investor caution © Business Monitor International Ltd Page 11 United States Information Technology Report Q1 2010 Table: Regional IT Business Environment Ratings Limits Of Potential Returns Risks To Realisation Of Returns IT Market Country Structure Limits Market Risks Country Risk Risks IT BE Rating Regional Ranking United States 83 90 85 50 80 68 80 1 Brazil 72 55 66 45 58 53 62 2 Mexico 58... has rolled out a new feature, ‘IT Dashboard’ to monitor IT US Office of E-Government and Information Technology projects across the federal government This reflects pressure for cost cutting and increased efficiency in © Business Monitor International Ltd Page 23 United States Information Technology Report Q1 2010 government, as a result of the difficult financial climate, rising deficit and ambitious... the first half of 2010 BMI expects that IT spending could pick up quite quickly, once business confidence returns and the recession © Business Monitor International Ltd Page 25 United States Information Technology Report Q1 2010 has reached its trough Investment plans could be dusted off and resumed However, there remains a possibility that the economic recovery could be anaemic in 2010, or even that... itself are major purchasers of IT products and services © Business Monitor International Ltd Page 13 United States Information Technology Report Q1 2010 The US Treasury is in charge of tax issues affecting the US industry, including such issues as R&D tax subsidies The Office of E-Government and Information Technology within the Office of Budget Management is responsible for monitoring federal IT spending... acquisition, will have to redefine its relationship with Oracle © Business Monitor International Ltd Page 34 United States Information Technology Report Q1 2010 Software-As-A-Service Other Industries SaaS has emerged as one of the key growth areas of the worldwide software 2009 market, including in the United States Leading segment player Salesforce.com has now exceeded a US$700mn annual run rate and claims... larger companies, particularly in the technology sector, are also now experimenting with an ondemand software model Leading sector company Salesforce.com counts Cisco and Dell among its accounts, with around 30,000 and 40,000 subscribers at each company respectively as of mid-2009 © Business Monitor International Ltd Page 21 United States Information Technology Report Q1 2010 Services IT services spending... Monitor International Ltd Page 14 United States Information Technology Report Q1 2010 Software also comprises several segments The business software market PCs: Segments (packaged software), including enterprise 2009 resource management, customer relationship management, human resources management, financial applications and so on, as well as business intelligence and other information- enabling applications, . Publication date: January 2010 United States Information Technology Report Q1 2010 © Business Monitor International Ltd Page 2 United States Information Technology Report Q1 2010 © Business. Industry 54 United States Information Technology Report Q1 2010 © Business Monitor International Ltd Page 4 Sources 54 United States Information Technology Report Q1 2010 ©. the second half of 2009 and in 2010. United States Information Technology Report Q1 2010 © Business Monitor International Ltd Page 8 SWOTS United States IT Sector SWOT Strengths