Q2 2012 www.businessmonitor.com UNIteD StateS information technology Report INCLUDES BMI'S FORECASTS ISSN 2041-7101 Published by Business Monitor International Ltd. UNITED STATES INFORMATION TECHNOLOGY REPORT Q2 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI's Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: April 2012 Business Monitor International 85 Queen Victoria Street London EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2012 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 Q2 2012 © Business Monitor International Ltd Page United States Information Technology Report Q2 2012 CONTENTS Executive Summary . SWOT Analysis . US IT Sector SWOT . US Political SWOT US Economic SWOT US Business Environment SWOT . IT Risk/Reward Ratings . Table: Regional IT Risk/Reward Ratings . 12 Americas IT Markets Overview . 13 IT Penetration 13 Sectors And Verticals . 17 United States Market Overview . 21 Government Authorities . 21 Overview 22 Hardware . 24 Software . 29 Services 32 Industry Developments 34 Industry Forecast . 37 Table: USA IT Sector – Historical Data & Forecasts (US$mn Unless Otherwise Stated) . 40 Industry Forecast Internet . 41 Table: Telecoms Sector – Internet – Historical Data & Forecasts 41 Macroeconomic Forecast 43 Table: United States – GDP By Expenditure, Real Growth % . 47 Competitive Landscape . 48 Hardware . 48 Tablets . 49 Software . 52 Company Profiles . 58 Hewlett-Packard 58 Dell 64 Table: Selected Dell Mergers And Acquisitions . 69 Microsoft Corporation . 70 IBM 75 Country Snapshot: US Demographic Data 80 Section 1: Population . 80 Table: Demographic Indicators, 2005-2030 80 Table: Rural/Urban Breakdown, 2005-2030 . 81 Section 2: Education And Healthcare 81 © Business Monitor International Ltd Page United States Information Technology Report Q2 2012 Table: Education, 2002-2005 81 Table: Vital Statistics, 2005-2030 81 Section 3: Labour Market And Spending Power 82 Table: Employment Indicators, 2001-2006 82 Table: Consumer Expenditure, 2000-2012 (US$) 82 Table: Average Annual Wages, 2000-2012 (US$) . 83 BMI Methodology . 84 How We Generate Our Industry Forecasts 84 Transport Industry . 84 Sources . 85 © Business Monitor International Ltd Page United States Information Technology Report Q2 2012 Executive Summary Market Overview BMI View:USA IT spending is expected to reach US$558bn in 2012, up 5.5%, with BMI upwardly revising its forecast due to macroeconomic factors. Overall moderate growth in budgets is expected in 2012, but much depends on the economic situation. Despite a drive to cut expenses across government, many public sector organisations have appeared willing to continue to spend on IT. US businesses remain cautious, but there is pent-up demand from projects delayed as a result of the economic situation and cloud computing is expected to be increasingly important. Headline Expenditure Projections Computer hardware sales: US$142bn in 2011 to US$147bn in 2012, +3.6% in US dollar terms. Forecast in US dollar terms upwardly revised due to macroeconomic factors, but parts shortages could restrain growth in H112. Software sales: US$153bn in 2011 to US$163bn in 2012, +6.4% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst modification, with more investment in utility software and serviced-orientated architectures rather than traditionally packaged PC software. IT services sales: US$235bn in 2011 to US$249bn in 2012, +6.0% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst modification as spending on IT services is quite closely correlated with GDP growth Risk/Reward Ratings: The USA's score was 76.25 out of 100.0. The USA ranks first in our latest Americas RRR table, ahead of Canada, as well as Latin American giants such as Brazil and Mexico. The country ranking was secured by its global highest Industry Rewards score of 82.50, while its rating was also boosted a relatively high Country Rewards score of 90.00. Key Trends & Developments. IT vendors will be concerned when it comes to the effect of the ongoing US federal deficit issue and the failure of politicians to agree a deficit reduction programme. If automatic federal spending cuts kick in during the next fiscal year, this could hit IT projects. The November 2012 elections will also create uncertainty about the trajectory of future government IT spending. In 2012 there are expected to be many more contracts for provision of cloud services, following contracts awarded in 2011 by the cities of New York and Los Angeles, and the General Services © Business Monitor International Ltd Page United States Information Technology Report Q2 2012 Administration (GSA) of the federal government. The recession may have had a lasting effect on the IT market by encouraging consideration of cloud computing models such as SaaS. US PC sales are forecast to report single-digit growth in 2012, after an annualised contraction in Q411, closing off a difficult year. The market slowdown was due in part to base effects, but a contributory factor was disappointing sales in the consumer segment, particularly notebooks. Meanwhile, a shortage of harddisk drives resulting from floods in Thailand is forecast to restrain market growth in H112, with faster growth likely in H212. © Business Monitor International Ltd Page United States Information Technology Report Q2 2012 SWOT Analysis US IT Sector SWOT The largest IT market in the world, with spending forecast to pass US$529bn in 2011. Despite the challenging trading conditions, overall IT spending is still expected to remain in positive growth territory. Weaknesses During the recession in 2009, customers postponed projects and reduced shortterm spending, particularly in areas such as consulting and software development. Opportunities Demand for new IT strategies to take advantage of innovations such as virtualisation, data centre consolidation, and cloud computing. As economic woes ease, IT vendors should see more growth from traditional bigspending sectors such as banks, financial services, retail and manufacturing. The growing popularity of mobile broadband networks is driving netbook sales. New business models such as SaaS and virtualisation will continue to make progress. There is a risk that recovery could be anaemic in 2011, in which case spending on technology could have another hard year. A large federal budget deficit could lead to pressures on public sector IT spending. Strengths Threats US Political SWOT Strengths 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 Political debate between Republicans and Democrats has historically been 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 The changing political mood (as evidenced by the popularity of unconventional candidates in the 2008 presidential election, including President Barack 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. Though we are not optimistic, the ongoing budget debates will provide a pertinent test of the degree to which bipartisan cooperation is possible. Threats 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 Q2 2012 US Economic SWOT Strengths 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 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 on a historic basis, although this has begun to reverse. Opportunities 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 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. US Business Environment SWOT Strengths Weaknesses Opportunities Threats The US boasts the world's largest single internal consumer market, which presents tremendous opportunities for businesses of all types and sizes. 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). Much of the country's physical infrastructure is in need of improvement, with congested roads and airways. US corporate tax is, on average, among the highest in the OECD. The Obama administration is committed to improving the nation's infrastructure, with stimulus package funds being dedicated to that purpose. 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. 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 Q2 2012 IT Risk/Reward Ratings BMI's Americas IT Risk/Reward Ratings (RRRs) compare the potential of a selection of the region's markets over our forecast period to 2016. The ratings reflect our consideration of political and economic risks, as well as risks associated specifically with IT intellectual property rights protection and the implementation of government information and communications technology (ICT) projects. The US retains its top position in our regional rankings as by far the largest IT market in the region and the world, accounting for about 25% of global IT spending. In the 'Limits of potential returns' arena, Industry Rewards has fallen marginally while Country Rewards has not changed. This reflects our view that the relatively strong growth witnessed in 2011 will slow slightly through 2012, while there has been little change to the demography of the country. The US is likely to retain its position at the top of our table through 2012, given the sheer size and advanced nature of its IT market. However, in 2012, it is expected that the IT sector as a % of GDP will drop 0.1pps, but return to its current level in 2013 (0.6%). We believe this year will be a stormy one for IT firms, with economic uncertainty affecting IT investments. However, there will be opportunities for expansion in this market, and one major possibility will be demand from private and public sector organisations aiming to use cloud computing services. In 2012 further contracts for cloud computing provision are likely to be signed, while the rate of growth in traditional big-spending IT verticals such as financial services, retail and manufacturing will depend on confidence in a sustainable economic recovery. During the next few years, across consumer and business segments, US IT spending is expected to be driven by a number of factors including product and technology innovation, and investment in fixed and mobile broadband infrastructure as well as economic recovery. It is likely to be the second fastest growing market worldwide, second only to China. Canada is in second place for another quarter in our IT RRRs. The country maintains this position from Q112. The country's Industry Rewards score fell this quarter, however, as we predict the IT market to deteriorate over the course of the year. The Canadian IT market revenues expanded by 6% in 2011, but we believe this number will drop to just 0.2% in 2012, as the country struggles to bolster demand. However, there may be growth in IT expenditure driven by Canada's broadband plan. One key initiative is Broadband Canada, which has a mandate to expand broadband coverage to underserved areas. Further, despite Canada being relatively mature, BMI believes software vendors across industries such as consumer products, telecommunications, energy, engineering, construction, transport and food and © Business Monitor International Ltd Page United States Information Technology Report Q2 2012 productivity and efficiency. Products and services under this divisioninclude Windows Server, Microsoft SQL Server, Windows Azure, Visual Studio, System Centre products, Windows Embedded device platforms and Enterprise Services. Enterprise Services comprise Premier product support services and Microsoft Consulting Services. It also covers developer tools, training and certification. Around 50% of this segment's revenue comes from multi-year volume licensing agreements, 30% is purchased through transactional volume licensing programs, retail packaged product and licences sold to OEMs, and the remainder comes from Enterprise Services. Online Services Division (OSD) The OSD develops and markets information and content designed to help simplify tasks and improve utility of online services. It also helps advertisers connect with their target audiences. OSD products include Bing, MSN, adCenter and advertiser tools. Bing and MSN generate revenue through the sale of search and display advertising, which accounts for nearly 100% of OSD's annual revenue. Microsoft Business Division (MBD) This division is the development and marketing arm for software and online services designed to increase productivity in teams, organisations and on a personal level. MBD offerings include Microsoft Office (comprising mainly SharePoint, Exchange, Lync and Office 365), which generates over 90% of MBD revenue. The other 10% comprises Microsoft Dynamics business solutions. Revenues are divided into business revenue, which includes Microsoft Office system revenue, generated through volume licensing agreements and Microsoft Dynamics revenue, and consumer revenue, which includes revenue from retail packaged product sales and OEM revenue. Entertainment and Devices Division (EDD) This area focuses on the development and marketing of entertainment and connectivity services. EDD products include the Xbox 360 (which includes gaming and entertainment consoles, Kinect, Xbox 360 video games, Xbox LIVE, and accessories). It also includes Mediaroom IPTV software, Skype and Windows Phone. Microsoft acquired Skype on October 13 2011. In Q112, the EDD recorded 8.2mn consoles sold, an increase of 25% y-o-y. Xbox live subscribers came to 40mn, up 33% y-o-y and the Kinect reached an installed base of 18mn units. Skype registered 200mn users. Strategy The main pinnacle of Microsoft's strategy is to increase connectivity between its products and services. Its main strategy for 2012 is expanding cloud computing, Windows Phone and the launch of Windows 8. All these elements are interconnected, and will become increasingly so. Cloud Computing and Interconnectivity In April 2011, Microsoft announced it was to spend 90%, or US$8.64bn, of its R&D budget on developing cloud computing services. Microsoft's shift towards Software-as-a-Service (SaaS) is enabling applications and services that historically have been separate to become more integrated, working to connect PCs, phones, cameras, game consoles and video and music players through client software and high-speed internet services using a combination of © Business Monitor International Ltd Page 71 United States Information Technology Report Q2 2012 Windows, Windows Live and Windows Phone OS. Windows Phone The Windows Phone was released in Europe, Singapore, Australia, New Zealand, the US, Canada and Mexico in H210 and in Asia in H111. Microsoft and Nokia formed a strategic partnership in February 2011 to build a global mobile ecosystem based on complementary assets. Microsoft would provide developer tools, making it easier for application developers to leverage Nokia's global scale while Nokia's application and content store would be integrated into Microsoft Marketplace. The Windows Phone will play a prominent role in Microsoft's 2012 strategy. In December 2011, it revealed it was investing in a range of exclusive apps for the device, incompatible with other smartphones. The company hopes this exclusivity will tempt users to switch phones, although it has struggled to secure a number of apps popular on iOS, which will leave it disadvantaged. Windows There is also focus on Windows 8, the next version of the Windows Operating System. The beta version will be released in late February 2012. The company is aiming to have the product ready for general release in 2012, most likely Q312. Company History Microsoft was officially established on April 1975, by Paul Allen and Bill Gates, but entered the operating system business in 1980 with a version of Unix, called Xenix. They licensed this to hardware manufacturers such as Intel, Tandy and Altos. However, it was the DOS system that proved the key to Microsoft's success. In November 1980, IBM awarded a contract to Microsoft to provide a version of the system to be used in the upcoming IBM Personal Computer. While IBM rebranded the system PC-DOS, Microsoft retained ownership of the MS-DOS system, and it soon became the leading PC OS vendor. In 1984, the company released Microsoft Windows, a graphical extension for MS-DOS. In 1986, the company launched an IPO, which made 12,000 Microsoft employees instant millionaires. In 1990, the company launched the Microsoft Office suite, which joined Windows as being a dominant player in its field. However, this led to numerous legal wrangles, as Microsoft was accused of anticompetitive practices. As the internet began to gain popularity in 1995, the company expanded into computer networking and online services. This year saw the release of Windows 95, online service MSN and the web browser Internet Explorer, which set Microsoft as a pioneer in the internet era. The company moved into the video games market in 2001, with the release of the Xbox, providing a challenger to Sony and Nintendo in that market. In March 2004 the company was involved in an antitrust case against the EU which resulted in Microsoft paying EUR497mn for abuse of market dominance. The company was forced to produce new versions of Windows XP without Windows Media Player, Windows XP Home Edition N and Windows XP Professional N. Windows Vista and Microsoft 2007 were released in January 2007, which led to a record profit for Microsoft in that year. However, the legal wrangles continued and the company was fined © Business Monitor International Ltd Page 72 United States Information Technology Report Q2 2012 an additional EUR899mn for lack of compliance with the 2004 ruling. Bill Gates stepped down as chief software architect in 2008, although continues to hold positions within the company to today. In 2008, the company launched its Azure Services Platform, its first foray into the cloud computing market. In 2010, it focused on reforming its operating system for mobile telephony, named Windows Phone OS, and refined its strategy for entering the smartphone industry. Financial Data Revenue (2008): US$61.981bn Revenue (2009): US$58.689bn Revenue (2010): US$66.69bn Revenue (2011): US$72.996bn Revenue (Q111): US$16.428bn Revenue (Q211): US$17.367bn Revenue (Q311): US$17.372bn Revenue (Q411): US$20.885bn Operating Profit (2008): US$21.912bn Operating Profit (2009): US$21.42bn Operating Profit (2010): US$26.384 Operating Profit (2011): US$28.571bn Operating Profit (Q111): US$5.709bn Operating Profit (Q211): US$6.171bn Operating Profit (Q311): US$7.203bn Operating Profit (Q411): US$7.994bn Net Income (Profit After Tax) (2008): US$17.232bn Net Income (2009): US$16.258bn Net Income (2010): US$20.568bn Net Income (2011): US$23.974bn Net Income (Q111):US$5.232bn Net Income (Q211): US$5.874bn Net Income (Q311): US$7.203bn Net Income (Q411): US$6.624bn Employees (2011): 90,000 *nb the above data is for the calendar year – Microsoft reports data according to its financial © Business Monitor International Ltd Page 73 United States Information Technology Report Q2 2012 year which ends June 30. So FYQ112=Q311 Operational Data Company Details Consoles Sold (Q411): 8.2mn Xbox Live Subscribers (Q411): 40mn Skype Subscribers (Q411): 200mn Microsoft Corporation One Microsoft Way Redmond Washington United States WA 98052 Click here to enter text. www.microsoft.com © Business Monitor International Ltd Page 74 United States Information Technology Report Q2 2012 IBM Strengths Technology firm with a century-long history and operations across the globe. Strong presence in high-growth emerging markets such as Brazil, China and India helps offset the impact of economic slowdown the US and Europe. Diversified portfolio of products and services across computer hardware, computer software, IT services and IT consulting. Large client base among leading companies across many industry verticals. Large IP portfolio covering most industries and every discipline of science and technology. Diverse team of skilled scientists, researchers, engineers, developers and technologists. Weaknesses Strong revenue and profit growth despite high operating expenses. High operating costs squeeze profit margin. Large number of employees (about 426,751 at the end of 2010). Communication across different countries is challenging in view of the size of the company. Opportunities Strong brand aids acquisition and retention of high-value customers. Global reach improves prospects for local opportunities. Continued investment in R&D will help maintain leading position in technology and innovation. Threats Increasing competition in services market from major players including Dell, Accenture, HP and Oracle. Heavy dependence on Microsoft in computer services division could be a weakness should Microsoft's strategy change. Overview Increasing generic competition is impacting IBM's margins. International Business Machine (IBM) is a global provider of information technology (IT) products and services. IBM manufactures and sells computer hardware and software, as well as a wide range of IT and consulting services. The company was founded in 1910 as the Computing Tabulating Recording Corporation (CTR) through the merger of three companies: the Tabulating Machine Company, the International Time Recording Company and the Computing Scale Corporation. CTR changed its name to IBM in 1924. IBM offers its products through its global sales and distribution organisation as well as through a variety of third party distributors and resellers. IBM is listed on the New York Stock Exchange and is ranked among the largest publicly traded technology companies in the world with a market capitalisation of more than US$222bn as of January 2012. Some of the company's biggest institutional shareholders as of © Business Monitor International Ltd Page 75 United States Information Technology Report Q2 2012 September 20 2011 included State Street Corp (5.59%), Berkshire Hathaway Inc (4.49%), Vanguard Group Inc (4.33%) and Blackrock Institutional Trust (2.52%). Business Divisions The company's main services are divided into: Global Technology Services – provides IT infrastructure and business process services, including strategic outsourcing, process, integrated technology and maintenance services, as well as technology-based support services. Global Business Services – offers consulting and systems integration and application management services. Software – offers middleware and operating systems software, such as WebSphere software to integrate and manage business processes; information management software for database and enterprise content management, information integration, data warehousing, business analytics and intelligence, performance management and predictive analytics; Tivoli software for identity management, data security, storage management and datacentre automation; Lotus software for collaboration, messaging and social networking; rational software to support software development for IT and embedded systems; business intelligence software, which provides querying and forecasting tools; SPSS predictive analytics software to predict outcomes and act on that insight; and operating systems software. Systems and Technology – provides computing and storage solutions, including servers, disk and tape storage systems and software, point-of-sale retail systems and microelectronics. Global Financing – provides lease and loan financing to end-users and internal clients, commercial financing to dealers and remarketers of IT products and remanufacturing and remarketing services. IBM's solutions serve public institutions, private business and not-for-profit organisations across more than 20 industry verticals. Strategy IBM intends to be a major player in the enterprise mobility market. In January 2012, the company announced plans to buy mobile enterprise application platform (MEAP) vendor Worklight. Worklight's software supports HTML5, hybrid and native applications for smartphones and tablets with industry standard technologies and tools. IBM's move follows a study of more than 3,000 CIOs conducted by the company in 2011 in which 75% of respondents identified mobility solutions as one of their top spending priorities. With the acquisition of Worklight, IBM is well placed to compete with some of its biggest rivals in the enterprise mobility arena. In 2010, SAP acquired mobile applications development company Sybase while Oracle is expected to buy an MEAP vendor in 2012. IBM reported EPS of US$13.44 in 2011, up by 15.2% y-o-y from US$11.67 in 2010. By focusing on key growth initiatives, including growth markets, business analytics, 'Smarter Planet', and cloud computing, IBM forecasts EPS of over US$14.85 in 2012 and at least US$20 in 2015. © Business Monitor International Ltd Page 76 United States Information Technology Report Q2 2012 Recent Financial For the three months ended December 31 2011, IBM recorded a 2% y-o-y increase in Performance revenue to US$29.5bn. An increase in software sales helped to offset slumping hardware demand as a result of the slowdown in the global economy. A breakdown of the performance of each business segment shows that Global Technology Services segment revenues increased by 3% y-o-y to US$10.5bn and Global Business Services revenue were also up 3% y-o-y to reach US$4.9bn while revenues from the Software segment were US$7.6bn, an increase of 9% y-o-y. The company's Systems and Technology segment, which includes hardware sales, and Global Finance segment experienced a different fortune with revenue decline of 8% y-o-y and 13% y-o-y to US$5.8bn and US$548mn respectively. In terms of geography, the Americas Q411 revenues were US$12.5bn, an increase of 3% y-o-y. Revenues from Europe, Middle East and Africa (EMEA) were US$9.6bn, up by 1% y-o-y. Asia Pacific revenues increased by 2% y-o-y to US$6.7bn, while OEM revenues were US$714mn, down 9% y-o-y. Despite IBM's modest revenue growth for Q411, the company reported a net profit of US$5.5bn, up 11% y-o-y during the same period. Fourth quarter profits were driven by tighter expenses and strong revenue growth in the Software segment, especially in the focus areas of smarter commerce, business analytics and storage. IBM recorded total revenue of US$106.9bn for the full year ended December 31 2011. This represented an increase of 7% y-o-y compared with US$99.9bn in 2010. Revenues from Global Technology Services increased 7% y-o-y to US$40.9bn. Revenues from Global Business Services were up 6% y-o-y at US$19.3bn. The Software segment recorded the highest growth in 2011 with an increase of 11% y-o-y US$24.9bn. Systems and Technology segment revenues increased 6% y-o-y, despite a slowdown in Q411, to reach US$19bn, while the Global Financing segment saw a decrease of 6% y-o-y to reach US$2.1bn. From a geographic perspective, the Americas' full-year revenues were up by 7% y-o-y at US$44.9bn. Revenues from EMEA were US$34.0bn, representing an increase of 7% y-o-y. Asia Pacific revenues increased 9% y-o-y to US$25.3bn, while OEM revenues were down by 2% y-o-y at US$2.7bn. Revenues from growth markets increased by 16% y-o-y (11%, adjusting for currency), and represented 22% of IBM's total geographic revenue. Revenues in the BRIC countries – Brazil, Russia, India and China – increased by 19% y-o-y (16%, adjusting for currency). Net profit for the year ended December 31 2011 was US$15.9bn, an increase of 7% y-o-y compared with US$14.8bn in 2010. In January 2012, the IBM board of directors declared a regular quarterly cash dividend of US$0.75 per common share, payable March 10 2012 to stockholders of record February 10 2012. IBM has paid consecutive quarterly dividends every year since 1916. Recent Activities In February 2012, IBM acquired Emptoris Inc to build its smarter commerce business, which helps companies manage and analyse supplies and spending. Emptoris' tools help companies manage supply chains and purchasing. In January 2012, IBM introduced new software to help organisations better manage and © Business Monitor International Ltd Page 77 United States Information Technology Report Q2 2012 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 program 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 programs. 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 August 2011 and risk management analytics software developer Algorithmics for US$387mn in September 2011.Meanwhile, 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 Annual Revenues (2006): US$91.4bn Annual Revenues (2007): US$98.8bn Annual Revenues (2008): US$103.6bn © Business Monitor International Ltd Page 78 United States Information Technology Report Q2 2012 Company Data Annual Revenues (2009): US$95.8bn Annual Revenues (2010): US$99.9bn Annual Revenues (2011): US$106.9bn Net Income (2006): US$9.4bn Net Income (2007): US$10.4bn Net Income (2008): US$12.3bn Net Income (2009): US$13.4bn Net Income (2010): US$14.8bn Net Income (2011): US$15.9bn IBM Corporation New Orchard Road Armonk, New York 10504-1722 USA www.ibm.com © Business Monitor International Ltd Page 79 United States Information Technology Report Q2 2012 Country Snapshot: US 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 2030 Female 10.0 20.0 30.0 40.0 2005 Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010 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 80 United States Information Technology Report Q2 2012 Table: Rural/Urban Breakdown, 2005-2030 2005 2010 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 2010 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 81 United States Information Technology Report Q2 2012 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 2007 2008 2009 2010 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 f = BMI forecast. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 82 United States Information Technology Report Q2 2012 Table: Average Annual Wages, 2000-2012 (US$) 2000 2006 2007 2008 2009 2010 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 f = BMI estimate/forecast. Source: ILO, BMI © Business Monitor International Ltd Page 83 United States Information Technology Report Q2 2012 BMI Methodology How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Our approach varies from industry to industry. Common to our analysis of every industry, 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 of all 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. Transport Industry There are a number of principal criteria that drive our forecasts for each transport variable: GDP Growth As transport activity is heavily influenced by real GDP growth, this factor is examined to ascertain its relationship with overall trade volumes. Projected GDP growth is calculated using BMI’s own macroeconomic and demographic forecasts. © Business Monitor International Ltd Page 84 United States Information Technology Report Q2 2012 Real Trade Volumes The sum of imports and exports plays a particularly important role in developing countries with a small domestic industrial sector. In particular, the focus is on goods, as services not employ transport. The volumes are forecast based on the following criteria: Trends manifested through historical data; The impact of future step changes to the economy (such as future membership of the EU or some other regional body). Port Traffic Port traffic levels act as a ‘second opinion’ on trade volumes. However, this check needs to be used with caution as trade values and volumes not always move over time in the same way. Market Share The market share of each mode (road, rail, inland waterway, coastal shipping) for future years is based upon: Trends in historical modal split data; Evidence of government policy favouring one or more modes over others; Government and or private sector investment plans in specific modes. Sources Sources used in transport reports include local transport ministries, officially released company results and figures, established think tanks and institutes and donor agencies such as the World Bank and the Asian Development Bank. © Business Monitor International Ltd Page 85 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... 19 United States Information Technology Report Q2 2012 Market Structure (% Of Total IT Market) 2011e 2015f e/f = estimate/forecast Source: BMI © Business Monitor International Ltd Page 20 United States Information Technology Report Q2 2012 United States Market Overview Government Authorities Government Authority Assistant Secretary for Communications and Information National Telecommunications and Information. .. federal data centres Federal IT Spending (US$bn) 2009-2010 Source: US Office of E-Government and Information Technology © Business Monitor International Ltd IT Spending By Federal Agencies 2009 Source: US Office of E-Government and Information Technology Page 34 United States Information Technology Report Q2 2012 In full-year 2009, total IT spending including all federal IT investment was US$74.2bn, up... 21 United States Information Technology Report Q2 2012 Several departments including the Department of Defense, Homeland Security, Health and Human Services, and the Department of Commerce itself are major purchasers of IT products and services 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. .. expected to be felt more in H212 and could persist in 2012 © Business Monitor International Ltd Page 24 United States Information Technology Report Q2 2012 PC sales endured a year of overall stagnation in 2011, although there were growth areas such as tablets The market continued to contract in H111 y-o-y and remained flat in Q311 In Q412, vendors reported a further annualised dip in shipments A number... around 50% of Mexico's large companies have conducted cloud pilots In Chile, too, vendors have reported that large companies have been the most enthusiastic early adopters of cloud solutions © Business Monitor International Ltd Page 18 United States Information Technology Report Q2 2012 Usage of the cloud for information storage appears relatively low in the US and Canada compared with some other mature.. .United States Information Technology Report Q2 2012 beverage still have plenty of potential for growth Growing interest in cloud computing is expected, with Canada currently lagging the US and some other advanced markets Out of the Latin American countries, Brazil is the highest ranked IT market We expect Brazil's growth trajectory to stay strong throughout 2012 and beyond as the... excellent track record of fiscal discipline, although it may return to fiscal deficit in 2012 on the back of falls in copper prices and an increase in public spending Despite this, we do not see this as much of a threat and © Business Monitor International Ltd Page 10 United States Information Technology Report Q2 2012 believe the counter-cyclical policies to stimulate private consumption in the country... but this is beginning to slow down While we expect the Colombian IT market to be worth US$3bn in 2012, lower levels of investment in the sector when compared to its peers puts Colombia nearer the bottom of our RRRs © Business Monitor International Ltd Page 11 United States Information Technology Report Q2 2012 However, we believe the market has great growth potential, and the economy continues to grow... restrain information society development, and thousands of towns and villages still lack access to information communication technology (ICT) While some cities and regions stand out, there is a general pattern of underdeveloped potential, with IT spending as a percentage of GDP well below 2% in countries covered by BMI © Business Monitor International Ltd Page 13 United States Information Technology Report. .. Verizon have moved quickly to offer these to subscribers for subsidised prices of as low as US$50 © Business Monitor International Ltd Page 26 United States Information Technology Report Q2 2012 Migrations to Microsoft's new Windows 7 operating system and new Intel Core technology have the potential to help sustain the current cycle of business hardware upgrades Windows 7-driven PC upgrades were slower than . deadline: April 2012 United States Information Technology Report Q2 2012 © Business Monitor International Ltd Page 2 United States Information Technology Report Q2 2012 © Business. information hereto contained. UNITED STATES INFORMATION TECHNOLOGY REPORT Q2 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI's Industry Report & Forecasts Series Published. in 2012 on the back of falls in copper prices and an increase in public spending. Despite this, we do not see this as much of a threat and United States Information Technology Report Q2 2012