United states information technology report q1 2014

Q1 2014 www.businessmonitor.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 2042-4205 Published by:Business Monitor International United States Information Technology Report Q1 2014 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: December 2013 Business Monitor International Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2013 Business Monitor International All rights reserved. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. United States Information Technology Report Q1 2014 CONTENTS BMI Industry View . SWOT IT SWOT Wireline SWOT . 11 Political . 13 Economic . 14 Business Environment 15 Industry Forecast 16 Table: US IT Industry - Historical Data And Forecasts (US$mn unless otherwise stated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Broadband . 21 Table: Telecoms Sector - Internet - Historical Data & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Macroeconomic Forecasts . 23 Economic Activity 23 Table: US - GDP By Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Industry Risk Reward Ratings 32 Table: Americas IT Risk/Reward Ratings, Q1 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Market Overview . 35 Hardware . 35 Software . 43 Services 48 Industry Trends And Developments 51 Regulatory Development 55 Table: IT Regulatory Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Competitive Landscape 57 Local Companies . 57 Table: CA Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Table: Splunk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Table: Symantec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Table: EMC Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Company Profile 60 Hewlett-Packard . Dell Microsoft Corporation IBM 60 67 73 81 Table: IBM Acquisitions, 2012 (Total Value, US$3.964bn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 © Business Monitor International Page United States Information Technology Report Q1 2014 Regional Overview 88 Demographic Forecast . 92 Demographic Outlook 92 Table: The United States' Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Table: The United States' Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Table: The United States' Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Table: The United States' Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Methodology 96 Industry Forecast Methodology 96 Sources 97 Risk/Reward Rating Methodology . 98 Table: It Risk Reward Rating Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 © Business Monitor International Page United States Information Technology Report Q1 2014 BMI Industry View BMI View: The outlook for US IT spending remains strong relative to the majority of developed markets over the medium term as a result of stronger economic performance and a greater appetite from enterprises for the latest products and solutions. Cloud computing, real-time enterprise software, security and Big Data are all areas of spending in which we expect to see rapid growth. We also expect continued demand growth for tablets in the retail market, however there is downside risk as desktop and notebook sales continue to be squeezed. There is also downside to this outlook from the potential for deeper fiscal retrenchment to hit government IT spending, the NSA PRISM scandal to disrupt the cloud computing market and a downturn in the wider economy. Total spending is expected to reach US$588bn in 2013, up 6.6% from 2012, and grow at a CAGR of 5.1% to 2017. Headline Expenditure Projections ■ Computer Hardware Sales: US$144bn in 2012 to US$152bn in 2013, an increase of 4.7%. Booming tablet sales are driving growth while desktop and notebook sales are under pressure from cannibalisation. ■ Software Sales: US$161bn in 2012 to US$173bn in 2013, an increase of 7.6%. Forecast in US dollar terms unchanged. Emerging technologies such as machine-to-machine and Big Data are being adopted by enterprises, while demand for cyber security solutions is also an area of growth. ■ IT Services Sales: US$246bn in 2012 to US$263bn in 2013, an increase of 7.2%. Cloud computing adoption is already high in the US but we expect strong growth to continue over the medium term. Key Trends & Developments The US retail hardware market fared better than other developed markets in 2013 as sales of tablets boomed while the squeeze on desktop and notebook sales was less pronounced, particularly compared to Europe where economic crisis has added to the detrimental impact of tablet cannibalisation. Overall tablet sales continue to drive the hardware market, with the latest data from Pew Research Centre showing penetration reached 34% of the adult population in May 2013, up from just 14% a year earlier. Although tablets offer continued growth potential as penetration rates rise, we expect growth to slow. Vendors will need to offer new features if consumers are to accept short replacement cycles and upgrade devices in quantities sufficient to offset the slowdown from diminished first-time buyer opportunities. Cloud computing has been a leading theme in the US IT market in recent years as local enterprises have adopted more complex solutions, however the market is subject to uncertainty as a result of revelations around the National Security Agency (NSA) PRISM intelligence gathering programme. Surveys in 2013 showed that the scandal has hurt the prospects of US cloud providers internationally, most notably in © Business Monitor International Page United States Information Technology Report Q1 2014 Europe; however, the domestic market appears to be relatively unscathed. Nonetheless, cloud providers are concerned about the impact of the government's activities on their growth prospects in a rapidly developing market. © Business Monitor International Page United States Information Technology Report Q1 2014 SWOT IT SWOT SWOT Analysis Strengths ■ The largest IT market in the world, with spending forecast to reach nearly US$705bn by 2017. ■ The US is the largest centre of global IT innovation, home to many leading companies, while most other global firms also have a research and retail presence. ■ Despite the challenging trading conditions, overall IT spending is still expected to remain in positive growth territory. Weaknesses ■ PC shipments have held up better than in other developed markets in 2012 and 2013. ■ Due to the recession and subsequent slow economic recovery, customers postponed IT investments and reduced short-term spending, particularly in areas such as consulting and software development. ■ Desktop and notebook sales appear to be in long-term decline due to longer replacement cycles and the preference for mobile devices including tablets, smartphones and convertibles/hybrids. Opportunities ■ Technologically savvy local population willing to spend on premium devices, with the US a particularly strong market for Apple's iPad and MacBooks. ■ As economic woes ease, IT vendors should see more growth from traditional bigspending sectors such as banks, financial services, retail and manufacturing. ■ Potential for growth in the hardware market through form factor evolution ie ultra-thin notebooks, hybrids/convertibles and tablets. ■ Cloud computing, with a large number of federal and state cloud computing programmes generating opportunities. ■ New business models such as software as a service and virtualisation will continue to claim a large share of IT budgets. © Business Monitor International Page United States Information Technology Report Q1 2014 SWOT Analysis - Continued ■ Growth from emerging technologies such as Big Data and machine-to-machine communications will drive innovation and spending. Threats ■ Enterprise and consumer concerns around data security and privacy could prove a drag on adoption of cloud services and big data solutions. ■ Privacy became a more pressing issue with the PRISM spying revelations, which is expected to damage US cloud computing providers. ■ The large federal budget deficit could lead to pressures on public sector IT spending. © Business Monitor International Page 10 United States Information Technology Report Q1 2014 IBM pledged to invest US$1bn developing Linux as it looks to push its Power System line of servers deeper into the enterprise world, it announced in September 2013. The company hopes the investment will help it secure a bigger market for its Power line of high-end server processors as boosting Linux application development for Power will make it easier for the company to bring new markets to that high-end chip set. IBM also hopes the investment will help it plan for Linux and IBM's own OS AIX to co-exist in data centres. In February 2013 IBM acquired two companies, first Star Analytics, a business analytics software firm, and also Stored IQ, which provides software for the disposal of information has outlived its purpose, lowering total data storage costs. In January 2012, IBM introduced new software to help organisations better manage and secure the increasing use of smartphones and tablets in the workplace, while also managing laptops, desktops and servers. In addition to the new mobile security and management software, IBM also announced the acquisition of Worklight. Worklight accelerates IBM's comprehensive mobile portfolio, as its services enable global organisations to leverage the proliferation of all mobile devices by developing different versions of their apps for multiple smartphone and tablet OS platforms. In January 2012, IBM launched the IBM Netezza Customer Intelligence Appliance. The new analytics appliance, which was jointly developed by IBM, Aginity and Cognos Software, analyses up to petabytes of big data including consumer sales data and online shopping trends to help retailers gain actionable insight on buying patterns. Clients can run complex real-time analytics in a matter of seconds to improve customer experience, shift marketing campaigns and boost sales. In December 2011, IBM announced plans to buy cloud-based analytics software provider DemandTec for US$440mn in an all-cash transaction. DemandTec has about 450 customers worldwide in retail and consumer products. The company also has 31 patents in the areas of pricing, response analysis and promotion analysis. DemandTec's pricing functionality would add to existing business analytics tools focused on marketing, mobile devices and other areas. The acquisition of DemandTec is part of IBM's wider strategy to build its 'Smarter Commerce' business segment, which the company has said could be worth US$20bn or higher by 2015. In December 2011, IBM agreed to buy Curam Software, a machine-to-machine (M2M), cloud and data analytics programme offering improved efficiency and new services to cities and governments to strengthen its Smarter Cities initiative. Curam Software provides organisational software to more than 80 government projects, improving efficiency in the provision of social programmes. Its customers are primarily health and human services, workforce services and social security organisations. Curam and its 700 employees will be integrated into IBM's software group and become a component of its Smart Cities initiative. IBM acquisitions in 2011 include the purchase of security intelligence software provider Q1 Labs in October 2011, crime data intelligence software developer i2 in © Business Monitor International Page 86 United States Information Technology Report Q1 2014 August 2011 and risk management analytics software developer Algorithmics for US $387mn in September 2011. IBM also announced US$100mn of internal investment to research the analysis of large unstructured datasets. However, while IBM has been active in 2011, it is nowhere near the 17 acquisitions it made in 2010 for a total of US $6bn. In September 2011, IBM and Intel Corp announced plans to invest US$4.4bn over five years to create a hub for next generation computer chip technology in New York. IBM will spend US$3.6bn to develop computer chips using 22-nanometer and 14-nanometer process technology. Financial Data ■ ■ ■ ■ ■ ■ Company Details ■ ■ Annual Revenues (2010): US$99.9bn Annual Revenues (2011): US$106.9bn Annual Revenues (2012): US$104.5bn Net Income (2010): US$14.8bn Net Income (2011): US$15.9bn Net Income (2012): US$16.5bn IBM Corporation New Orchard Road Armonk, New York 10504-1722 USA ■ Tel: +1914 499 1900 ■ www.ibm.com © Business Monitor International Page 87 United States Information Technology Report Q1 2014 Regional Overview The Americas IT markets can be broadly categorised into three groups. Leading the region are the highly developed North American markets of the US and Canada, which have among the highest value IT markets globally, as well as rapid adoption of emerging technologies. There is then a second group of middle income emerging markets in Latin America with strong growth prospects, including Argentina, Brazil, Chile and Mexico. Finally, the smaller less developed markets of Colombia, Peru and Venezuela are playing catch-up due to low incomes and small domestic markets. Tablet Opportunity Tempts Vendors The diversity of markets in the region means they have been impacted by trends in different ways. For IT Spending Per Capita (US$) instance, the shift in consumption away from 2013 relatively expensive desktops and notebooks to tablets has limited increases in market value in North America, especially as lower cost Android tablets account for a larger share of sales in 2013 and 2014. Meanwhile, low-cost Android tablets have been a boom for vendors in Latin America where the lower price points have deepened the market in cases where consumers did not have sufficient income to purchase traditional form factors. Tablets have been a major trend in Latin America, Source: BMI. and the region is a focus for vendors that are looking for growth to compensate for the declining desktop and notebook market. For instance, in October 2013 the leading global chipset manufacturer, Intel, announced its target of double-digit growth in Latin America by focusing on the tablet segment of the device market. Lower cost Android-based devices are proving popular with consumers in the region, and Intel was supplying chips in 30 devices from 11 manufacturers in Q413, which bodes well for its prospects. There is considerable growth potential in Latin American markets where there is not only an upgrade/ replacement market as in North America - but also large pools of untapped first-time buyers. Household PC penetration was below 50% in Argentina and Brazil in 2011, while in Mexico, Peru and Venezuela the © Business Monitor International Page 88 United States Information Technology Report Q1 2014 figure was below 30%. By hitting lower price points compared to notebooks vendors can tap into this potential in the short-to-medium term and offset the squeeze in the traditional form factor markets. Policies And Infrastructure Should Accelerate Catch-Up In the software and services segments there are indications that the least developed IT markets in Latin America will begin to close the gap with the rest of the region over the duration of BMI's medium term forecast. We expect the two major drivers of this trend will be strengthening of supporting infrastructure and government policy. The development of broadband infrastructure across the region will boost market growth by creating usecases for device ownership, incentivise enterprises to develop e-commerce and analytics capabilities, and enable new products and services such as outsourcing and cloud computing that rely on connectivity. Our forecasts envisage strong growth across the region, but the stand-out performers will be the less developed markets as they close the infrastructure gap to more developed markets. Supporting Infrastructure Strengthens IT Outlook Americas Broadband Subscription Growth ('000) e/f - BMI estimate/forecast. Source: BMI. © Business Monitor International Page 89 United States Information Technology Report Q1 2014 A second driver is government policy, which was a key factor in the rapid development of East Asian IT markets, but has traditionally been underutilised in the Americas (with the exception of the US and Canada). In recent years this trend has changed and governments have been much more proactive in a range of policy areas - from local production requirements for tablets in Brazil to attract investment in production facilities, through to promotion of emerging technologies such as cloud computing and smart infrastructure. In 2013 some of the most ambitious policy initiatives have come from the markets with the least developed IT markets. For instance, in October 2013 the Peruvian government announced it would provide PEN50mn (US$18mn) to launch the StartUp Peru program, aimed at boosting entrepreneurship in the country. The concept is modelled on Chile's program StartUp Chile, which has experienced a great level of success in fostering innovation among local technology companies. Meanwhile, Colombia is benefitting from its Vive Digital project, which aims to build a national fibre-optic network, through investment from cloud computing companies. In September 2013 IBM announced it was investing US$17mn in a new data centre in Bogotá, which followed the announcements from Level Communications and Telefónica in March and June 2013 respectively that they would open data centres in the country. Government policies are assisting technological upgrade and increasing investment in Latin America's least developed IT markets, however peers in the region are not standing still and as such we not expect rapid convergence over the medium term. While wider economic uncertainty in Argentina undermines confidence, the government continues to priorities the IT sector, driving development even in difficult times. The government most recently announced large tax incentives to boost software development companies in the country as it attempts to boost higher value services growth. Local consultancy Claves Información Competitiva estimates that 54% of Argentina's 3,600 IT companies produce hardware, 21% software and 25% produce IT services. The government policies should help to improve this mix in favour of higher value higher margin software and services. BMI expects these policy initiatives that target higher value activities will boost market development, however it should also be noted that the leading Latin American markets are deploying emerging technologies such as smart infrastructure, and not simply playing catch-up. In September 2013 Microsoft announced its first smart city deal in Brazil, as part of its CityNext initiative. The first contracts have been agreed with the Minas Gerais state government, with 23 other contracts signed with government © Business Monitor International Page 90 United States Information Technology Report Q1 2014 institutions. The contract follows on from the investments in smart infrastructure by Belo Horizonte and Rio de Janeiro with IBM and other technology companies. IT companies believe that these ventures could become multi-billion dollar businesses as they interconnect areas such as energy and water; buildings; planning and infrastructure; transportation; public safety and justice; tourism, recreation and culture; education; health and social services; and government administration. BMI shares this positive outlook, as we argue that the potential for smart infrastructure deployments, and associated investments in data analytics and real-time enterprise software, is strong over the medium term. A relative lack of legacy infrastructure combined with rapidly expanding urban population means that there should be demand from across the region that could even surpass the investments in developed markets. © Business Monitor International Page 91 United States Information Technology Report Q1 2014 Demographic Forecast Demographic Outlook Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail the US' population pyramid for 2013, the change in the structure of the population between 2013 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split. Population Pyramid 2013 (LHS) And 2013 Versus 2050 (RHS) Source: World Bank, UN, BMI © Business Monitor International Page 92 United States Information Technology Report Q1 2014 Population Indicators Population (mn, LHS) And Life Expectancy (years, RHS) Source: World Bank, UN, BMI Table: The United States' Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2013e 2015f 2020f 254,507 268,040 284,594 298,166 312,247 320,051 325,128 337,983 0-4 years 19,160 19,697 19,460 20,114 20,441 20,807 21,094 21,776 5-9 years 18,378 19,509 20,587 19,679 20,549 20,739 20,833 21,486 10-14 years 17,647 19,374 20,713 21,380 20,957 21,003 21,117 21,402 15-19 years 18,151 18,654 20,455 21,645 22,095 21,793 21,596 21,758 20-24 years 19,586 18,511 19,450 21,219 21,855 22,456 22,695 22,205 25-29 years 21,503 19,926 19,564 19,887 21,411 22,038 22,396 23,243 30-34 years 22,382 22,443 20,818 20,031 20,403 21,251 21,846 22,836 35-39 years 20,401 22,631 22,815 21,109 20,376 20,405 20,680 22,126 40-44 years 18,159 20,386 22,684 22,814 21,208 20,624 20,467 20,784 45-49 years 14,052 17,687 20,423 22,549 22,735 21,791 21,113 20,403 50-54 years 11,722 13,882 17,821 20,242 22,480 22,719 22,426 20,868 55-59 years 10,776 11,335 13,603 17,521 19,944 21,308 21,953 21,947 60-64 years 10,855 10,282 11,013 13,173 16,999 18,435 19,221 21,211 65-69 years 10,234 10,047 9,679 10,433 12,549 14,683 16,044 18,210 70-74 years 8,180 8,887 8,922 8,745 9,469 10,472 11,456 14,725 Total © Business Monitor International Page 93 United States Information Technology Report Q1 2014 The United States' Population By Age Group, 1990-2020 ('000) - Continued 1990 1995 2000 2005 2010 2013e 2015f 2020f 75-79 years 6,264 6,740 7,458 7,512 7,435 7,756 8,173 9,970 80-84 years 4,031 4,360 5,025 5,440 5,885 5,839 5,836 6,490 85-89 years 2,021 2,471 2,662 3,108 3,538 3,793 3,900 3,925 90-94 years 754 936 1,119 1,195 1,487 1,639 1,734 1,954 95-99 years 220 237 280 322 371 431 476 570 100+ years 32 44 45 49 61 67 73 96 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: The United States' Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2013e 2015f 2020f 0-4 years 7.53 7.35 6.84 6.75 6.55 6.50 6.49 6.44 5-9 years 7.22 7.28 7.23 6.60 6.58 6.48 6.41 6.36 10-14 years 6.93 7.23 7.28 7.17 6.71 6.56 6.49 6.33 15-19 years 7.13 6.96 7.19 7.26 7.08 6.81 6.64 6.44 20-24 years 7.70 6.91 6.83 7.12 7.00 7.02 6.98 6.57 25-29 years 8.45 7.43 6.87 6.67 6.86 6.89 6.89 6.88 30-34 years 8.79 8.37 7.31 6.72 6.53 6.64 6.72 6.76 35-39 years 8.02 8.44 8.02 7.08 6.53 6.38 6.36 6.55 40-44 years 7.13 7.61 7.97 7.65 6.79 6.44 6.29 6.15 45-49 years 5.52 6.60 7.18 7.56 7.28 6.81 6.49 6.04 50-54 years 4.61 5.18 6.26 6.79 7.20 7.10 6.90 6.17 55-59 years 4.23 4.23 4.78 5.88 6.39 6.66 6.75 6.49 60-64 years 4.27 3.84 3.87 4.42 5.44 5.76 5.91 6.28 65-69 years 4.02 3.75 3.40 3.50 4.02 4.59 4.93 5.39 70-74 years 3.21 3.32 3.14 2.93 3.03 3.27 3.52 4.36 75-79 years 2.46 2.51 2.62 2.52 2.38 2.42 2.51 2.95 80-84 years 1.58 1.63 1.77 1.82 1.88 1.82 1.79 1.92 85-89 years 0.79 0.92 0.94 1.04 1.13 1.19 1.20 1.16 90-94 years 0.30 0.35 0.39 0.40 0.48 0.51 0.53 0.58 95-99 years 0.09 0.09 0.10 0.11 0.12 0.13 0.15 0.17 © Business Monitor International Page 94 United States Information Technology Report Q1 2014 The United States' Population By Age Group, 1990-2020 (% of total) - Continued 100+ years 1990 1995 2000 2005 2010 2013e 2015f 2020f 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.03 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: The United States' Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 Active population, % of total Active population, total, '000 1990 1995 2000 2005 2010 2013e 2015f 2020f 51.9 52.5 50.9 48.9 49.0 50.4 51.7 55.5 86,919 92,302 95,949 65.8 65.6 66.3 97,978 102,741 107,231 110,736 120,602 67.1 67.1 66.5 65.9 64.3 167,587 175,737 188,645 200,188 209,506 212,820 214,392 217,381 Youth population, % of total working age 32.9 33.3 32.2 30.6 29.6 29.4 29.4 29.7 55,184 58,581 60,760 61,173 61,947 62,550 63,043 64,664 Pensionable population, % of total working age 18.9 19.2 18.7 18.4 19.5 21.0 22.2 25.7 Pensionable population, total, '000 31,735 33,722 35,190 36,804 40,794 44,681 47,692 55,939 Youth population, total, '000 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: The United States' Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f Urban population, % of total 75.3 77.3 79.1 80.7 82.1 82.9 83.3 84.4 Rural population, % of total 24.7 22.8 20.9 19.3 17.9 17.1 16.7 15.6 Urban population, total, '000 191,644 207,061 225,083 240,712 256,489 265,213 270,987 285,153 Rural population, total, '000 62,863 60,979 59,512 57,454 55,758 54,837 54,140 52,830 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI © Business Monitor International Page 95 United States Information Technology Report Q1 2014 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable's own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact. Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account ■ Testing the directional movement and magnitude of coefficients ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity © Business Monitor International Page 96 United States Information Technology Report Q1 2014 BMI uses the selected best model to perform forecasting. It must be remembered that human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience, expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Sector-Specific Methodology A number of criteria drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, BMI's quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments and diffusion rates; ■ Exogenous events. Estimates are calculated using BMI's own macroeconomic and demographic forecasts. Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication © Business Monitor International Page 97 United States Information Technology Report Q1 2014 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Rating Methodology BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market. The RRR system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories: ■ Industry Rewards (this is an industry specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors) • Country Rewards (this is a country specific category, and the score factors in favourable political and economic conditions for the industry) Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. This is further broken down into two sub categories: ■ Industry Risks (this is an industry specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry, and the relative maturity of a market) • Country Risks (this is a country specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score). We take a weighted average, combining industry and country risks, or industry and country rewards. These two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country. For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Rating a weighted average of the total score. Importantly, as most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis. This ensures that the rating draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Page 98 United States Information Technology Report Q1 2014 BMI's approach in assessing the risk/reward balance for infrastructure industry investors globally is fourfold: ■ First, we identify factors (in terms of current industry/country trends and forecast industry/country growth) that represent opportunities to would-be investors. ■ Second, we identify country and industry-specific traits that pose or could pose operational risks to would-be investors. ■ Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/ trends to avoid subjectivity. ■ Finally, we use BMI's proprietary Country Risk Ratings (CRR) in a nuanced manner to ensure that only the aspects most relevant to the infrastructure industry are incorporated. Overall, the system offers an industry-leading, comparative insight into the opportunities/risks for companies across the globe. Sector-Specific Methodology In constructing these ratings, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk Reward Rating Indicators Indicator Rationale Rewards Industry IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones. Sector value growth, % year-on-year (y-o-y) Denotes sector dynamism. Scores based on annual average growth over five-year forecast period. Government initiatives and Denotes spending boost provided by public sector, which can be a crucial determinant of spending sector development. Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales, compared to services/ software, indicates that the overall IT market is immature. Country Urban-rural split Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower. GDP per capita, US$ A high GDP per capita supports long-term industry prospects. Overall score for country rewards is also affected by the coverage of the power transmission network across the state. Risks Industry Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting. ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code. © Business Monitor International Page 99 United States Information Technology Report Q1 2014 It Risk Reward Rating Indicators - Continued Indicator Rationale Country Short-term external risk Rating from CRR evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Rating from BMI's CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding. Trade bureaucracy Rating from CRR to denote ease of trading with the state. Legal framework Rating from CRR denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Rating from CRR denotes ease of conducting business in the state. Corruption Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies' ability to compete. Source: BMI Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. The following weighting has been adopted: Table: Weighting Of Components Component Rewards Weighting (%) 70 of which - Industry 65 - Country 35 Risks to 30 of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Page 100 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Page 19 United States Information Technology Report Q1 2014 Summary The hardware market is predicted to grow from US$152bn in 2013 to US$168bn in 2017 Software spending should rise from US$173bn to US$214bn, and IT services from US$263bn to US$323bn, over the forecast period Industry Trends - IT Market 2010-2017 f = BMI forecast Source: BMI © Business Monitor International Page 20 United States Information. .. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f -3 Note: f=BMI forecast; Source: BEA © Business Monitor International Page 23 United States Information Technology Report Q1 2014 That said, there are growing political risks that could weigh on growth in the final quarter of the year and into 2014, posing downside risks to our 2013 and 2014 real GDP forecasts of 1.8% and 2.8% respectively.. .United States Information Technology Report Q1 2014 Wireline SWOT United States Wireline SWOT Analysis Strengths ■ A large proportion of households continue to have a fixed-line connection ■ Broadband growth remains robust despite a declining... ■ IPTV growth highlights opportunities for operators to bring subscribers over a single network offering considerable cost savings © Business Monitor International Page 11 United States Information Technology Report Q1 2014 United States Wireline SWOT Analysis - Continued Threats ■ Problems in US economy are driving subscribers to mobile substitution faster than ever, leading to a faster decline as... spending contracting at a seasonally adjusted annualised rate of 4.2% in Q11 3 and 0.4% in Q213 We forecast a contraction of 1.5% in 2013 and zero growth in 2014, but acknowledge that political dynamics in Washington present downside risk to these figures © Business Monitor International Page 29 United States Information Technology Report Q1 2014 Government Continuing To Weigh On Growth US - Real Government... USDbn 1 2012 2013f 2014f 2015f 2016f 2017f 2018f 2.5 Real GDP growth, % change y-o-y 1 2011 1.8 2.8 1.8 2.8 2.6 2.4 2.4 2.4 10,201.9 10,711.8 11,149.6 11,800.7 12,337.7 12,861.3 13,380.9 13,921.4 14,483.9 © Business Monitor International Page 30 United States Information Technology Report Q1 2014 US - GDP By Expenditure - Continued 2010 Private final consumption, US$bn 1 2011 2012 2013f 2014f 2015f 2016f... 6.5% per year over the same period © Business Monitor International Page 27 United States Information Technology Report Q1 2014 Domestic Energy Production Will Limit Need For Imports US - Oil Imports & Domestic Oil Production, '000bbl/day Source: BMI, EIA Additionally, we believe economic improvement in the eurozone and the UK in 2014, key trade partners for the US, will help bolster US exports We have... orders in the third quarter of 2013 (see chart, below), a trend we believe will continue to play out in 2014 and 2015, when we forecast real exports of goods and services to grow by 5.2% and 5.1% respectively © Business Monitor International Page 28 United States Information Technology Report Q1 2014 New Orders Uptick Shows Recovery In US Trade Partners US - Export Growth (3-Month MA) & New Export... growth booms, and sectors ranging from biotechnology to alternative energy are being discussed as possible catalysts Threats ■ The US's chronic fiscal deficits may force the federal government to find ways to raise effective corporate tax rates, following a multi-decade downtrend © Business Monitor International Page 15 United States Information Technology Report Q1 2014 Industry Forecast Table: US IT Industry... Real PCE Growth, % SAAR Source: BMI, FRED © Business Monitor International Page 24 United States Information Technology Report Q1 2014 A steady improvement in consumer confidence during the first nine months of 2013 also reinforces our view that private consumption will remain relatively robust this year and accelerate in 2014 As confidence improves, we expect consumers to be relatively more willing to . Q1 2014 www.businessmonitor.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 2042-4205 Published by:Business Monitor International United States Information Technology. US$3.964bn) 83 United States Information Technology Report Q1 2014 © Business Monitor International Page 4 Regional Overview 88 Demographic Forecast 92 Demographic Outlook 92 Table: The United States& apos;. pressures on public sector IT spending. United States Information Technology Report Q1 2014 © Business Monitor International Page 10 Wireline SWOT United States Wireline SWOT Analysis Strengths ■ A