Q2 2013 www.businessmonitor.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 2041-7101 Published by:Business Monitor International United States Information Technology Report Q2 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: April 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 Q2 2013 CONTENTS BMI Industry View . SWOT IT SWOT Political . 10 Economic . 11 Business Environment 12 Industry Forecast 13 Table: US IT Industry - Historical Data And Forecasts (US$mn unless otherwise stated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Broadband . 16 Table: Telecoms Sector - Internet - Historical Data & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Macroeconomic Forecasts . 19 Economic Analysis . 19 GDP By Expenditure Breakdown 20 Risks To Outlook 26 Table: United States - GDP By Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Industry Risk Reward Ratings 28 Table: IT Risk/Reward Ratings, Q2 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Market Overview . 31 Hardware . 31 Software . 35 Services 38 Industry Trends And Developments 41 Regulatory Development 43 Table: IT Regulatory Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Company Profile 45 Hewlett-Packard . 45 Dell 51 Table: Selected Dell Mergers And Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Microsoft Corporation 57 IBM 62 Regional Overview 68 Latin America Regional Overview . 68 IT Penetration . 68 Market Growth And Drivers . 70 © Business Monitor International Page United States Information Technology Report Q2 2013 Sectors And Verticals 73 Demographic Forecast . 77 Table: The United States' Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Table: The United States' Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Table: The United States' Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Table: The United States' Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Methodology 81 Methodology . 81 IT Industry 81 IT Ratings - Methodology 82 Table: IT Business Environment Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Weighting . 84 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Sources 84 © Business Monitor International Page United States Information Technology Report Q2 2013 BMI Industry View BMI View: US IT spending is expected to reach US$634bn in 2013, up 8.5%, with BMI leaving its 2013-2017 forecast largely unchanged, but extended, this quarter, despite a further contraction in PC sales in H212. Meanwhile, as political negotiations concerning the 'fiscal cliff' continued in the wake of the November 2012 elections, public IT procurements remained constrained due to the budget constraints faced by many government entities. Overall moderate growth in budgets is expected 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, but the government hopes to make savings in its US$80bn IT budget. 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$153bn in 2012 to US$163bn in 2013, an increase of 6.5%. Sales of ultrabooks and Windows 8-based tablets and notebooks have potential to provide continued growth in 2013. ■ Software Sales: US$170bn in 2012 to US$186bn in 2013, an increase of 9.4%. Forecast in US dollar terms unchanged, but more investment is expected in utility software and serviced-orientated architectures rather than traditionally-packaged PC software. ■ IT Services Sales: US$261bn in 2012 to US$284bn in 2013, an increase of 9.0%. Forecast in US dollar terms unchanged with an increasing share of IT budgets earmarked for newer solutions such as virtualisation and cloud computing. ■ Risk/Reward Ratings: The US's score was 76.3 out of 100.0. The US retains first place in our latest Americas RRR table, ahead of Canada, as well as Latin American giants such as Brazil and Mexico. The country's ranking was secured by its global highest industry rewards score of 82.5, with its rating also boosted by a relatively high country rewards score of 90.0. Key Trends & Developments ■ In late 2010, the US federal government adopted an ambitious Cloud First cloud migration strategy, which tasked government agencies with migrating 80 services to the cloud within 18 months. The government hopes to eventually realise savings of up to US$12bn per year from the move. This push for web-based computing is part of a broader government effort to consolidate its 2,100 data centres by at least 40 per cent by 2015. ■ IT vendors continue to be concerned about the effect of the ongoing US federal deficit issue, as automatic budget enforcement procedures known as sequestration commenced on March 2013, after initially being delayed from a January rollout. The sequester requires cuts in discretionary spending to achieve $1.2 trillion in savings from 2013-2021. Major cuts to federally-funded research and development (R&D) are already planned for 2013, and this could also hit IT projects. Given continuing split party control of the legislative branch of government, with Republicans continuing to control Congress, and Democrats having the majority in the Senate, the November 2012 elections have failed to resolve uncertainty about the trajectory of future government IT spending. © Business Monitor International Page United States Information Technology Report Q2 2013 ■ US PC sales are forecast to report single-digit growth in 2013, after a further annualised contraction in Q112-Q113. In 2012, sales of ultrabooks fell far short of Intel's prediction that ultrabooks would comprise 40% of US notebook sales by the end of 2012. While exact sales figures were hard to arrive at, due to initially high prices, these devices therefore seem unlikely to enjoy hoped-for success, at least initially. In the US, in H112 the average market price for an ultrabook was upwards of US$900, compared with an average of around US$500 for a Windows notebook. © Business Monitor International Page United States Information Technology Report Q2 2013 SWOT IT SWOT SWOT Analysis Strengths ■ The largest IT market in the world, with spending forecast to reach nearly US$850bn by 2017. ■ Despite the challenging trading conditions, overall IT spending is still expected to remain in positive growth territory. Weaknesses ■ 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. ■ PC market appears to be in long-term decline due the preference for mobility and the popularity of alternative connectivity devices such as smartphones. Opportunities ■ As economic woes ease, IT vendors should see more growth from traditional bigspending sectors such as banks, financial services, retail and manufacturing. ■ Cloud computing, with a large number of federal and state cloud computing programmes generating opportunities. ■ The growing popularity of mobile broadband networks in driving notebook and tablet sales. ■ New business models such as SaaS and virtualisation will continue to claim a large share of IT budgets. Threats ■ BMI forecasts that economic recovery could remain anaemic in 2013, in which case spending on technology could have another hard year. ■ The large federal budget deficit could lead to pressures on public sector IT spending. © Business Monitor International Page United States Information Technology Report Q2 2013 Political Political SWOT Analysis Strengths ■ The US is an undisputed superpower, and therefore occupies centre stage in most international diplomacy. ■ A long-standing democracy with vigorous and open political debate, the US continues to attract large numbers of immigrants committed to citizenship and selfadvancement. 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 widespread dissatisfaction of the voting public with the performance of Congress 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 an isolationist and protectionist mode. © Business Monitor International Page 10 United States Information Technology Report Q2 2013 revenues on IT investments, compared with 7% globally. Studies in Chile have shown that around a quarter of companies have no computers. Chile's state development agency, the Corporación de Fomento de la Producción de Chile (CORFO), has launched a programme to provide funding for projects that implement ICT for local SMEs, and similar initiatives have been seen in Mexico and elsewhere. Market Growth And Drivers IT Market Sizes 2012f Across the Americas in 2012-2016, external economic headwinds are likely to mean slower US$mn growth in IT spending, compared with the previous five-year period. In Canada and the US, consumers remain in a phase of retrenchment thanks to the often stretched state of household balance sheets. However, the fundamentals of rising computer penetration and growing affordability are expected to keep Latin American markets on an upward path. Meanwhile, key pan-regional drivers of IT spending will include growing mobile and fixed broadband penetration, cloud computing, product innovation and new form factors such as tablets and ultrabooks, f = BMI forecast. Source: BMI technology innovation and economic recovery. US PC market commercial and consumer segments remain restrained as a result of the economic uncertainty, which is expected to persist in 2012, an election year. IT vendors will also 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. In Canada, government spending will continue to be constrained by a focus on cutting costs, with cost reviews being conducted by Toronto and Ontario, but there have been a spate of large tenders, highlighting continued opportunities within the sector. The Brazilian government's US $344mn modernisation strategy will most likely mean enhanced IT spending over the next few years. Despite the return of economic growth, many US and Canadian businesses also remain cautious. There is pent-up demand from projects delayed as a result of the economic situation, but some of this may not be realised. However, the tough trading conditions for many businesses have strengthened the need to reduce © Business Monitor International Page 70 United States Information Technology Report Q2 2013 costs through improved data management and other efficiencies. Commercial segment IT spending should be driven by hardware refreshes, datacentre consolidation and a growing interest in cloud computing. In some Latin American countries such as Mexico, much will depend on the strength of the US recovery, which remains uncertain. A slowdown in IT Market Size As % Of National GDP China in 2012 could also have ramifications on business confidence and IT in markets like Brazil. Across the region, SMEs have great potential to drive enterprise application spending over the next few years. Brazil still has an estimated 400,000 small businesses that not have more than a very basic IT system. Meanwhile, around the region in markets such as Colombia, government programmes and growing computer affordability will support more spending on IT products and services. In Argentina in 2011, a f = BMI forecast. Source: BMI number of IT tenders at both federal and provincial level were bid on ahead of October's presidential elections. The Brazilian government's US$344mn modernisation strategy should mean enhanced IT spending over the next few years. Some structural risks pertain to our forecast scenario. Many Latin American markets, from Argentina to Mexico, are characterised by significant income and geographical disparities. Mexico's underpenetrated south east and Pacific regions are expected to offer growth opportunities over BMI's five-year forecast period, particularly in the south east. The Argentine market is dominated by the capital Buenos Aires, which has higher per capita income and education levels compared with the rest of the country. Brazil's IT market also has a distinct regional structure, with most spending accounted for by the south east region, which includes São Paulo and Rio de Janeiro. São Paulo alone accounts for around 35% of spending and Rio de Janeiro, Espírito Santo and Minas Gerais for 25%. Brazil remains on course to become one of the top four computer markets as an expanding economy lifts millions into a middle class. The fundamentals of rising computer penetration and growing affordability should keep the market on an upward path. © Business Monitor International Page 71 United States Information Technology Report Q2 2013 Colombia's IT market continued to grow during the IT Market Compound Growth global economic slowdown as government programmes and growing computer affordability 2012-2016f (%) help to sustain spending on IT products and services. Meanwhile, Chile retains some strong IT market fundamentals including consumer affluence and a relatively favourable business environment. Mexican government spending in an election will be one vendor focus, with a substantial information society budget and the roll-out of national and local projects that were previously delayed because of the economic situation. Aside from regional trends, particular factors are f = forecast. Source: BMI forecast for market demand in individual markets. Infrastructure investments following 2009's award of the 2016 Olympic Games to Rio de Janeiro is expected to drive new Brazilian market spending on IT systems and solutions, as happened in South Africa when it hosted the 2010 FIFA World Cup. In Venezuela, the steep devaluation of the bolívar for nonessential imports such as computers will depress spending as consumers grapple with runaway inflation and the attendant erosion of real wages. In Argentina the introduction of new regulatory compliance laws for electronic invoicing, which took effect for some industries in 2011, provided a boost to enterprise investment in software platforms. The largest IT market in the region is, by a distance, the US, with spending estimated at US$558.4bn in 2012, while Canada is a distant second with US$47.4bn. Brazil 's IT spending is estimated at US$29.8bn in 2012, making it the largest IT market in the Latin American region, and a major global market in its own right. Mexico is the second largest Latin American market with an estimated value in 2012 of US$16.6bn. Peru and Colombia are set to be the fastest growing markets with projected 2012-2016 compound growth of 56% and 49% respectively. This compares with a compound growth rate for the US over the same period of 20%. The slowest growing market is forecast to be Venezuela, with a 0% forecast growth rate in US dollar terms. © Business Monitor International Page 72 United States Information Technology Report Q2 2013 Sectors And Verticals Hardware accounts for less than one-third of IT spending in the US (26%). In contrast, Latin American IT markets remain hardware-centric, with hardware accounting for between 42% (in both Brazil and Chile) and 67% (in Venezuela) of the total spending in these markets. In general, PC shipments are expected to report stronger single-digit growth in 2012. Due to factors such as parts shortages resulting from the Thai floods in H211, the full recovery may be deferred until at least the second half of 2012. However, in all markets, spending on software and services is projected to increase its share of the IT spend by 2016. US PC sales recorded negative growth again in Q411, with one contributory factor being disappointing sales in the consumer segment, particularly of notebooks. The surge of demand for tablets also hit sales of traditional PCs, and led to below-expectation sales for Microsoft's Windows operating system. Canadian consumers also remain in a phase of retrenchment thanks to the increasingly stretched state of household balance sheets. The growing market for cloud solutions and virtualisation will constrain demand for onpremises computer networks. Growth is expected to be much faster in Latin American market. Notebook sales are outpacing the PC market as a whole, but there is also intensifying competition for PCs from tablets and smartphones, and a fall-off in netbook demand. Commercial updates, expected to gather pace in the second half of the year, should help to keep overall growth on track. Tablets will be a growth area across the region in 2012, with robust sales of Apple's iPad2 following its April 2011 launch. In the US market, a Morgan Stanley report in H111 found that some 51% of CIOs expected to buy tablets for their employees. Tablets, at prices of US$400-800, are expensive relative to average salaries in most Latin Americas countries, but demand should receive a boost from expanding locally based production in Argentina, Brazil and elsewhere. A number of major Brazilian organisations have already purchased thousands of tablets. The Brazilian Ministry of Communications has also suggested the inclusion of tablets in digital inclusion programmes. Meanwhile, the average price of a PC has continued to fall after the economic slowdown sparked new rounds of price cutting. Software is estimated to account for 12-19% of IT spending in Latin American markets covered by BMI, compared with 29% in the US. Across the region, companies are investing to improve decision making and optimise performance. Mobility, smart devices, broadband and cloud services are among the trends encouraging more software spending by Mexican SMEs, which have to deal with increasing data flow. Migrations to Microsoft's Windows operating system will continue to drive revenues in 2012. © Business Monitor International Page 73 United States Information Technology Report Q2 2013 Some markets, particularly Venezuela, will be influenced by their governments' drives to promote open source software. Following criticism of the initial programme, the second phase of Argentina's Mi PC was widened to offer consumers the option of purchasing PCs with Linux operating systems. In the US the key issue and precondition for the more widespread adoption of open source will be the development of a support infrastructure. Customers are increasingly looking to vendors to offer support for open source software. BMI expects this trend to continue with the development of more support infrastructure for the most important open source applications. In general, enterprise resource planning (ERP) and other e-business products still dominate the Latin American enterprise software market, but vendors are also looking to other areas where faster growth is possible. In Argentina, ERP solutions are estimated to represent more than 80% of the enterprise software total. Customer relationship management (CRM), the next largest category, is still less than 10% of the total. Demand for ERP solutions will remain robust in the near term due to the large potential market represented by SMEs in many parts of the country. Vendors will increasingly look, however, to applications such as CRM and business intelligence, where faster growth is projected. The business intelligence segment is another strong performer, with sales of databases growing steadily. High single-digit growth is forecast in 2011, as data proliferation continues to be a priority issue for chief technology officers, fuelled by an uptick in merger and acquisition (M&A) activity and new regulations. Looking ahead, security software also should provide opportunities, with some demand for more sophisticated security solutions. Software-as-a-Service (SaaS) has enjoyed steady growth in most markets, and improved broadband infrastructure will assist the popularisation of the rented software model. Brazil is thought to be one of the most promising regional markets for the SaaS model, with growing demand in sectors such as retail, finance and healthcare. There are estimates that 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 Page 74 United States Information Technology Report Q2 2013 Market Structure % Of Total IT Market f = BMI forecast. Source: BMI Usage of the cloud for information storage appears relatively low in the US and Canada compared with some other mature markets. However, 2011 saw many US government agencies at federal and local level launch cloud strategies and pilot programmes. A combination of enterprise objectives such as cost reduction and greater efficiency should combine to drive adoption of cloud services in 2012. Verticals such as financial services, government and telecoms are emerging as strong adopters of hosted software. However, SaaS has also won greater acceptance from smaller businesses as they have increasingly had to meet performance, visibility and compliance standards previously expected more of larger companies. The IT services segment accounts for 16-42% of spending in the Latin American markets covered by BMI, compared with more than 40% in both the US and Canada. The global economic crisis had an impact on projects in some verticals and led to negative spending growth in some markets such as Mexico. Much will depend on the speed of the US and global recovery, with the likelihood of budget cuts increasing the longer the slowdown lasts. IT services has become one of the most dynamic drivers of IT sector spending in the region, and this has attracted greater investment from international vendors. The increasing number of multinational corporations operating in markets such as Mexico, Chile and Brazil is in itself an important driver for © Business Monitor International Page 75 United States Information Technology Report Q2 2013 spending, while local companies are trying to use computing resources more effectively and integrate investments made in hardware and software. Outsourcing is also becoming an important spur to growth for the IT services sector, as several Latin American markets try to consolidate their reputations as regional offshoring hubs. By some estimates, outsourcing may be equivalent to as much as 30% of IT spending in Brazil, with demand growing around 10% each year. One driver for many markets will be ambitions to develop capabilities in the business process outsourcing area and capture a larger global market share. In more developed markets such as the US and Canada, a major demand driver will be organisations looking for help to utilise efficiencies from cloud computing models such as SaaS and Infrastructure-as-aService. The US is a key hub of the emerging market for cloud solutions, which is set to transform the way IT products and services are sold and procured. Research indicates that the US will account for around half of global public cloud spending over BMI's forecast period, with around two-thirds of public cloud computing spending being software-oriented. In the US in 2012 there are expected to be many more contracts for provision of cloud services, following on from contracts awarded in 2011 by the cities of New York and Los Angeles. There are estimates that a majority of Mexico's large companies have conducted cloud pilots. The Canadian cloud market remains relatively small; a 2011 survey commissioned by Microsoft Canada found that nearly 73% of Canadian SMEs understood that cloud-based services was a cost-effective delivery model, but that just 30% were currently investing in such services. © Business Monitor International Page 76 United States Information Technology Report Q2 2013 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail the US' population pyramid for 2011, the change in the structure of the population between 2011 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split. Source: World Bank, UN, BMI © Business Monitor International Page 77 United States Information Technology Report Q2 2013 Table: The United States' Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012e 2015f 2020f 253,339 266,324 282,496 296,820 310,384 315,791 323,885 337,102 0-4 years 19,138 19,637 19,261 20,334 21,650 21,658 21,785 22,370 5-9 years 18,326 19,437 20,493 19,634 20,878 21,542 21,968 22,070 10-14 years 17,524 19,243 20,625 20,917 19,788 20,270 21,355 22,408 15-19 years 17,958 18,475 20,263 21,072 21,661 21,282 20,678 22,143 20-24 years 19,430 18,074 19,180 21,067 21,668 21,980 22,441 21,369 25-29 years 21,512 19,891 19,304 20,133 22,069 22,297 22,098 22,837 30-34 years 22,311 22,266 20,599 20,099 19,878 20,810 22,386 22,401 35-39 years 20,285 22,545 22,679 21,064 20,427 20,191 20,139 22,611 40-44 years 18,143 20,224 22,555 22,867 20,593 20,373 20,559 20,267 45-49 years 14,050 17,736 20,276 22,519 22,935 22,043 20,543 20,517 50-54 years 11,589 13,858 17,826 20,049 22,245 22,747 22,667 20,348 55-59 years 10,633 11,208 13,576 17,415 19,425 20,379 21,745 22,204 60-64 years 10,799 10,158 10,886 13,031 16,631 17,530 18,681 20,984 65-69 years 10,201 9,983 9,541 10,160 12,250 13,577 15,648 17,662 70-74 years 8,170 8,887 8,864 8,533 9,149 9,714 11,131 14,316 13,269 14,700 16,569 17,926 19,136 19,399 20,061 22,594 Total 75+ f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 78 United States Information Technology Report Q2 2013 Table: The United States' Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012e 2015f 2020f 0-4 years 7.55 7.37 6.82 6.85 6.98 6.86 6.73 6.64 5-9 years 7.23 7.30 7.25 6.61 6.73 6.82 6.78 6.55 10-14 years 6.92 7.23 7.30 7.05 6.38 6.42 6.59 6.65 15-19 years 7.09 6.94 7.17 7.10 6.98 6.74 6.38 6.57 20-24 years 7.67 6.79 6.79 7.10 6.98 6.96 6.93 6.34 25-29 years 8.49 7.47 6.83 6.78 7.11 7.06 6.82 6.77 30-34 years 8.81 8.36 7.29 6.77 6.40 6.59 6.91 6.65 35-39 years 8.01 8.47 8.03 7.10 6.58 6.39 6.22 6.71 40-44 years 7.16 7.59 7.98 7.70 6.63 6.45 6.35 6.01 45-49 years 5.55 6.66 7.18 7.59 7.39 6.98 6.34 6.09 50-54 years 4.57 5.20 6.31 6.75 7.17 7.20 7.00 6.04 55-59 years 4.20 4.21 4.81 5.87 6.26 6.45 6.71 6.59 60-64 years 4.26 3.81 3.85 4.39 5.36 5.55 5.77 6.22 65-69 years 4.03 3.75 3.38 3.42 3.95 4.30 4.83 5.24 70-74 years 3.22 3.34 3.14 2.87 2.95 3.08 3.44 4.25 75+ years 5.24 5.52 5.87 6.04 6.17 6.14 6.19 6.70 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 79 United States Information Technology Report Q2 2013 Table: The United States' Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 1990 1995 2000 2005 2010 2012e 2015f 2020f 52.0 52.7 51.0 48.9 49.6 50.6 52.8 56.3 86,629 91,886 95,353 97,504 102,850 106,160 111,949 121,420 65.8 65.5 66.2 67.2 66.9 66.4 65.4 64.0 Active population, total, '000 166,710 174,438 187,143 199,316 207,534 209,631 211,937 215,682 33.0 33.4 32.3 30.5 30.0 30.3 30.7 31.0 54,989 58,316 60,379 60,886 62,316 63,470 65,108 66,847 19.0 19.2 18.7 18.4 19.5 20.4 22.1 25.3 31,640 33,570 34,974 36,618 40,534 42,690 46,841 54,573 Active population, % of total Youth population, % of total working age Youth population, total, '000 Pensionable population, % of total working age Pensionable population, '000 f = BMI forecast; 0>15 plus 65+, as % of total working age population; 0>15 plus 65+; 15-64, as % of total population; 15-64; 0>15, % of total working age population; 0>15; 65+, % of total working age population; 65+. Source: World Bank, UN, BMI Table: The United States' Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012e 2015f 2020f Urban population, % of total 75.3 77.3 79.1 80.8 82.4 83.0 83.9 85.3 Rural population, % of total 24.7 22.7 20.9 19.2 17.6 17.0 16.1 14.7 Urban population, '000 187,966.1 205,832.9 223,198.1 238,813.3 255,756.4 262,106.8 271,739.6 287,547.9 Rural population, '000 61,656.9 60,445.1 58,973.9 56,747.7 54,627.6 53,684.5 52,145.5 49,554.0 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 80 United States Information Technology Report Q2 2013 Methodology Methodology 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 autoregressions allow us to forecast a variable using more than the variable's own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all of our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. IT Industry Forecasts 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 © Business Monitor International Page 81 United States Information Technology Report Q2 2013 methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, BMI's quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments, and diffusion rates; ■ Exogenous events. Estimates are calculated using BMI's own macroeconomic and demographic forecasts. IT Ratings - Methodology Our approach in BMI's IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI's proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas: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. © Business Monitor International Page 82 United States Information Technology Report Q2 2013 Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones Sector value growth, % year-on-year Denotes sector dynamism. Scores based on annual average growth over five-year (y-o-y) forecast period Denotes spending boost provided by public sector, which can be a crucial Government initiatives and spending determinant of sector development Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales - compared to services/software - indicates that the overall IT market is immature Country structure Urban-rural split Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower GDP per capita, US$ A high GDP per capita supports long-term industry prospects. Overall score for country structure is also affected by the coverage of the power transmission network across the state Risks to potential returns Market risks Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code Country 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 Rating from CRR to denote ease of trading with the state Legal framework Rating from CRR denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets Bureaucracy Rating from CRR denotes ease of conducting business in the state © Business Monitor International Page 83 United States Information Technology Report Q2 2013 IT Business Environment Indicators - Continued Indicator Rationale Corruption Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies' ability to compete Source: BMI Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. Consequently, the following weight has been adopted. Table: Weighting Of Components Component Weighting Limits of potential returns 70% - IT market 65% - Country structure 35% Risks to realisation of potential returns 30% - Industry risks 40% - Country risk 60% Source: BMI Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Page 84 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... more quickly than we expect; corporate balance sheets are very strong, supporting potential investment expansion as 2013 unfolds © Business Monitor International Page 26 United States Information Technology Report Q2 2013 Table: United States - GDP By Expenditure 2009 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f Real GDP growth, % change y-o-y 1 Private final consumption, real growth % y-o-y -3.5... Page 18 United States Information Technology Report Q2 2013 Macroeconomic Forecasts Economic Analysis BMI View: In light of the fiscal agreement reached at the beginning of 2013, we have revised up our US real GDP growth forecast to 2.3% from 2.1% for the year Residential construction will continue to be a bright spot in the economy, while there are upside risks to corporate investment later in 2013 now... Ratings, Q2 2013 Rewards Country Risks Industry Rewards Country Rewards Industry Risks Country Risks IT Rating Rank Previous Rank USA 82.5 90.0 50.0 59.2 76.3 1 1 Canada 65.8 90.0 50.0 70.3 70.7 2 2 Chile 54.2 75.0 50.0 73.5 62.2 3 3 Brazil 71.7 65.0 45.0 43.7 61.8 4 5 Mexico 60.8 60.0 52.5 60.5 59.6 5 4 © Business Monitor International Page 29 United States Information Technology Report Q2 2013 IT... inhabitants 2011 2012e 2013f 2014f 2015f 2016f 2017f 239,893 255,318 265,851 272,097 276,422 278,769 283,924 292,014 77.3 81.5 84.2 85.4 86.1 86.1 86.9 88.7 80,118 84,870 93.288 98,135 100,772 104,980 107,264 108,229 25.8 27.1 29.6 30.8 31.4 32.4 32.8 32.9 e/f = BMI estimate/forecast Source: BMI, FCC © Business Monitor International Page 16 United States Information Technology Report Q2 2013 Internet and... growth booms, and sectors ranging from biotechnology to alternative energy are being discussed as possible catalysts Threats ■ The US's fiscal crisis may force the federal government to find ways to raise effective corporate tax rates, following a multi-decade downtrend © Business Monitor International Page 12 United States Information Technology Report Q2 2013 Industry Forecast US spending on IT products... investment going into 2013, following the contraction in Q312 The ISM and durable goods orders show the same thing: a poor Q412, but a rebound expected in 2013 © Business Monitor International Page 22 United States Information Technology Report Q2 2013 Business Investment Likely To Recover After A Lull US - Real Business Investment Growth & Surveys Source: Macrobond, BMI, BEA The recovery in residential... as SaaS In light of these © Business Monitor International Page 13 United States Information Technology Report Q2 2013 and other changes, major vendors have also adjusted their competitive strategies, with the old desktopcentric model of software delivery appearing increasingly outdated Overall moderate growth in budgets is expected in 2013, but much depends on the economic situation Despite a drive... 633,735 686,239 739,712 791,714 848,187 3.5% 3.5% 3.7% 3.8% 3.9% 4.1% 4.2% 4.3% © Business Monitor International Page 15 United States Information Technology Report Q2 2013 US IT Industry - Historical Data And Forecasts (US$mn unless otherwise stated) - Continued 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f Hardware (computer market sales) 139,610 141,478 153,425 163,396 173,680 183,698 192,841 202,556... Ratings that could affect the realisation of anticipated returns Source: BMI © Business Monitor International Page 30 United States Information Technology Report Q2 2013 Market Overview Hardware BMI forecasts that the US computer and accessories market value will grow about 6.5% to US$163bn in 2013 We have upwardly revised our figures due to macroeconomic factors and expect solid growth after a disappointing... perhaps only at the last minute), while the US$110bn in sequester spending cuts will be reduced by at least half or deferred altogether © Business Monitor International Page 19 United States Information Technology Report Q2 2013 Back To Normal In Nominal Terms US - Nominal GDP Growth & Deflator Source: BEA, BMI One overlooked aspect of the economic trajectory of the past few quarters is that while . Q2 2013 www.businessmonitor.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 2041-7101 Published by:Business Monitor International United States Information Technology. Growth And Drivers 70 United States Information Technology Report Q2 2013 © Business Monitor International Page 4 Sectors And Verticals 73 Demographic Forecast 77 Table: The United States& apos; Population. government IT spending. United States Information Technology Report Q2 2013 © Business Monitor International Page 7 ■ US PC sales are forecast to report single-digit growth in 2013, after a further