Q2 2015 www.bmiresearch.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 2042-4205 Published by:BMI Research United States Information Technology Report Q2 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: March 2015 BMI Research 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@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved. 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All information is provided without warranty, and Business Monitor International Ltd 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 2015 CONTENTS BMI Industry View . SWOT IT SWOT Wireline SWOT . 11 Political . 13 Economic . 14 Operational Risk . 15 Industry Forecast 16 Table: IT Industry - Historical Data And Forecasts (United States 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Macroeconomic Forecasts . 22 Economic Analysis . 22 Table: Economic Activity (United States 2010-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Industry Risk Reward Index . 28 Table: Americas Risk/Reward Index, Q2 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Market Overview . 31 Hardware . 31 Software . 40 Services 47 Industry Trends And Developments 52 Regulatory Development 57 Table: IT Regulatory Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Competitive Landscape 59 Local Companies . 59 Table: CA Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Table: Splunk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Table: Symantec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Table: EMC Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Company Profile 63 IBM 63 Table: IBM Major Acquisitions, 2012-2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Hewlett-Packard . 69 Table: Hewlett-Packard Financial Performance By Division: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Microsoft Corporation 77 Dell 84 © Business Monitor International Ltd Page United States Information Technology Report Q2 2015 Regional Overview 90 Demographic Forecast . 96 Table: Population Headline Indicators (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Table: Key Population Ratios (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Table: Urban/Rural Population & Life Expectancy (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Table: Population By Age Group (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Table: Population By Age Group % (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Methodology 101 Industry Forecast Methodology 101 Sources 102 Risk/Reward Index Methodology . 103 Table: It Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 © Business Monitor International Ltd Page United States Information Technology Report Q2 2015 BMI Industry View BMI View: The outlook for US IT spending remains strong when compared to the majority of developed markets over the medium term, as a result of stronger economic performance and a greater interest from enterprises in 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 strong growth, particularly in the latter years of our forecast. The retail hardware outlook is more mixed, as we expect continued demand growth for tablets in the retail market; however, desktop and notebook sales continue to be squeezed. Total spending is expected to reach USD681bn in 2015, up 4.8% from 2014, and grow at a CAGR of 3.4% 2015-2019. Headline Expenditure Projections ■ Computer Hardware Sales: USD216bn in 2014 to USD223bn in 2015, an increase of 3.0%. Tablet volumes set to decline, but at a slower rate than 2014, while traditional form factors are expected to continue gaining ground after steep declines in 2012 and 2013. ■ Software Sales: USD181bn in 2014 to USD191bn in 2015, an increase of 5.2%. Enterprise software-asa-service adoption has strong momentum, while demand for cyber security solutions is also an area of growth. ■ IT Services Sales: USD252bn in 2014 to USD267bn in 2015, an increase of 6.1%. Cloud computing adoption is already high in the US but we expect strong growth to continue over the medium term despite security concerns following on from the NAS Prism debacle. Key Trends & Developments One major development with only limited importance for the US IT market, but huge ramifications for US cloud providers was the New York District Court ruling in August 2014 that Microsoft must hand over customer data stored in its Dublin datacentre due to the fact it is a US company. Microsoft refused and is challenging the ruling for fears it would undermine confidence in US providers which is already fragile following the overreach of the Patriot Act and Snowdon revelations about NSA activities. Microsoft's case argues US government cannot reach across international borders and retrieve data without respecting local privacy laws. The position held by Microsoft has been shown to be supported by local populations outside the US, leaving difficult questions about the case unanswered at the time of writing. BMI believes a large number of US vendors with international operations will be concerned with the case due to the large loss of confidence in the US legal system and foreign policy in the past two years. Regulatory issues aside, a significant trend in the cloud market has been the increased utilisation of partnerships between leading providers. In June 2014 Microsoft and Salesforce.com entered a partnership © Business Monitor International Ltd Page United States Information Technology Report Q2 2015 agreement, while in October 2014 Microsoft and IBM announced a partnership agreement to focus on hybrid cloud solutions. In March 2015, Microsoft also entered into a partnership with Cisco Systems to integrate their cloud services. The new service will combine Microsoft's Windows Azure Pack, which form the Windows cloud architecture, with Cisco's ACI, which provides the networking services layer. BMI believes the developing set of partnerships and collaborations reflects the increasing maturity of the cloud market and vendor plans for interoperability of services to enable future growth of complex deployments. © Business Monitor International Ltd Page United States Information Technology Report Q2 2015 SWOT IT SWOT SWOT Analysis Strengths ■ The largest IT market in the world, with spending forecast to reach about USD805bn in 2019. ■ The US is the largest centre of global IT innovation, home to many leading hardware, software and services vendors. ■ Meanwhile most non-US 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 ■ In the wake of the recession and subsequent slow economic recovery, customers have 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, smart TVs 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 conditions strengthen, IT vendors should see more growth from traditional big-spending 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. © Business Monitor International Ltd Page United States Information Technology Report Q2 2015 SWOT Analysis - Continued ■ Growth from emerging technologies such as Big Data and machine-to-machine communications will drive innovation and spending. Threats ■ Privacy and cyber security became more pressing issues with the PRISM spying revelations. This is expected to damage US cloud computing providers abroad, but domestic impact is uncertain. ■ The large federal budget deficit could lead to pressures on public sector IT spending. © Business Monitor International Ltd Page 10 United States Information Technology Report Q2 2015 Average Annual IT Market Growth 2015 Forecasts (%, in USD terms) Source: BMI BMI's forecasts take account of a range of market, economic and political factors, and some of these have a serious impact on our forecasts for Venezuela. In this case the continued economic uncertainty will be the primary brake on growth, although political instability and a blinkered approach to IT market regulation are also prominent determinants of its growth trajectory. In Peru and Colombia, we highlight the strength of the economic outlook and the policy environments enabled by the respective governments. In Colombia the retail hardware market stands out, with BMI's forecast for strong income growth among the highest income 20% in society to drive demand for premium devices. Meanwhile, the Colombian government is distributing a combined figure of almost 440,000 notebooks and tablets to students, with devices in part extracted from telecom operator commitments as part of the 4G LTE auction. We consider the government's approach as a reflection of its strategy and implementation around the Vive Digital programme, which is designed to promote an information society. In Peru, we highlight the broad-based economic growth story that is expected to contribute to a buoyant retail hardware market. PC penetration was up 2.4 percentage points (pp) year-on-year (y-o-y) to 36.7% in © Business Monitor International Ltd Page 91 United States Information Technology Report Q2 2015 Q114, indicating strong growth momentum but also continued capacity for increases as incomes rise. Additionally the enterprise market is expected to move to a higher growth trajectory from 2015, as BMI believes growth bottlenecks are diminishing. For instance, the cost of enterprise software and services has traditionally been a barrier to adoption, particularly among small- and medium-sized enterprises (SMEs), but a combination of local vendor financing programmes (including from global enterprise software market leader SAP) and the shift to more affordable cloud delivery methods should boost growth. Regional Giants Attracting Major Investments As the largest markets in the region, and with strategic geographic positions, it is to be expected that Brazil and Mexico attract the largest share of IT investment in the region. In H214 major investments continued from global leaders in the hardware, software and services segments in both markets, with vendors aiming to tap large local markets as well as operate as regional hubs in a majority of cases. Mexico was the destination for major manufacturing investment in H214, with Chinese networking equipment, consumer devices and ICT services giant Huawei announcing in October 2014 that it plans to invest USD1.5bn over five years to construct four specialised telecoms services facilities in Queretaro that will create 1,100 jobs, with the first facility expected to be operational in H215. In October, Cisco Systems announced a USD2bn investment in its manufacturing business in Mexico to enhance manufacturing processes, targeting mart manufacturing projects and the Internet of Everything. Brazil also continues to be a major source of hardware investment, and this is expected to continue to be the case due to the size of the local market and its regional influence. It is not only market scale that has attracted vendors to Brazil, with government incentives playing a key role. Brazil's government approved two key laws that will encourage development of IT hardware and consumer electronics: Manaus, capital of Amazonas state, retains its free trade zone (FTZ) status until 2073; and the Lei da Informática (IT Law) was extended for an addition 10 years to 2029. This law enables firms manufacturing computing products including PCs, memory and circuit boards to pay reduced or exempted industrial goods tax. In August 2014, Brazil extended the zero VAT rate on the sale of computers and laptops in the framework of the Digital Inclusion Program until December 2018, ensuring continued strong demand. © Business Monitor International Ltd Page 92 United States Information Technology Report Q2 2015 Latin America's Cloud Computing Growth 2011-2018 7,500 5,000 2,500 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f Argentina - Cloud computing spending, USDmn Brazil - Cloud computing spending, USDmn Chile - Cloud computing spending, USDmn Colombia - Cloud computing spending, USDmn Mexico - Cloud computing spending, USDmn Peru - Cloud computing spending, USDmn Venezuela - Cloud computing spending, USDmn e/f = estimate/forecast. Source: BMI Datacentre and network infrastructure investments in the region, particularly in Brazil, will enable faster growth in cloud computing services from 2015. BMI believes the conditions are in place for cloud computing adoption to accelerate as costs fall and blocks such as service reliability and security are reduced. This trend is expected to see Brazil become a regional leader in the cloud services market. For instance, in June 2014 Microsoft opened a datacentre in Brazil, making it one of the 11 regions in the world that is equipped with local infrastructure for the company's cloud computing platform Azure. This followed a move from Huawei in 2014 to invest in a Brazilian datacentre for the provision of big data, cloud computing and mobility solutions. Elsewhere at the technological frontier, in August 2014 São Paulo state transport agency Artesp, in collaboration with IBM, opened an information control centre to oversee its 6,000km of highways. Rich Rewards Not Without Risk With the notable exception of Venezuela, BMI's core scenario is for robust medium-term IT spending growth and the growing use of more advanced IT products and solutions. There are, however, risks that © Business Monitor International Ltd Page 93 United States Information Technology Report Q2 2015 could derail the growth story. The underlying economic growth trend could be undermined by the transmission of shocks from a re-escalation of the eurozone crisis, a hard landing in China or a fallout from security uncertainty in the Middle East or Ukraine. There are also more specific challenges that could potentially be of greater significance. The fallout from the revelations of US National Security Agency (NSA) activities continues to be a subplot in the development of cloud computing market. NSA overreach in Latin America was expected to be received poorly by governments and local populations as a result of the US' relatively recent history of actively pursuing US interests in the region. However, the impact has also been acute because NSA activities spilled over from broad but important human rights implications, to tapping the communications of heads of government as well as accusations of industrial espionage relating to the hacking Brazilian state oil firm Petrobras ahead of an auction of oil concessions. The backlash has implications for global, but particularly US, cloud and internet content providers. Intense lobbying from the US government and IT firms averted the implementation of a local storage mandate in Brazilian law in 2014. The decision to remove a local storage requirement is positive for US providers, but a host of surveys in the region (as well as in Europe) show that the NSA revelations heightened awareness of the risks of cloud and communication services across a range of user-groups. BMI believes this shows the potential for further spying or cyber security incidents to have disruptive impact on spending and technology trends, with IT vendors in some cases left exposed to the activities of governments. Coming full circle, Latin America's relatively low level of IT market development, a pillar of our bullish medium-term outlook for robust growth, also presents challenges. Piracy is a major drag on the regional software market. An anti-piracy lobby group estimated the regional market for unlicensed software at USD8.43bn in 2013, an increase from USD7.46bn in 2011, even as the piracy rate declined 2pp to 59%. © Business Monitor International Ltd Page 94 United States Information Technology Report Q2 2015 Improvements, But Still A Way To Go E-Government Development Index, 2014 Source: UN E-Government Index Improvements to supporting infrastructure have enabled growth, but there is still some way to go before it reaches the level of developed markets and opens up opportunities in e-government and smart infrastructure. Mexico scores particularly poorly for telecoms infrastructure, but even in the highest income market in the region, Chile, major investment is required for continued development. For instance, according to estimates from País Digital, a total of USD30bn of investment will be required in telecoms infrastructure, double the level of investment that occurred in the decade to 2014, to ensure the success of the Internet of Things in Chile. We believe the specifics of the figure for Chile are up for debate, but we share the assessment that investment is required in networks. However governments may be required to facilitate a new wave of development as private telecoms investment could prove a bottleneck to emerging technology adoption, given the declining profitability for the telecoms industry. © Business Monitor International Ltd Page 95 United States Information Technology Report Q2 2015 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 essential to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy. Population (1990-2050) 500 400 300 200 100 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 United States - Population, mn f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 96 United States Information Technology Report Q2 2015 United States Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (United States 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 254,506 284,594 298,165 312,247 325,127 337,983 350,625 na 1.1 0.9 0.9 0.8 0.8 0.7 Population, total, male, '000 124,045 139,671 146,516 153,529 160,077 166,564 172,919 Population, total, female, '000 130,460 144,922 151,649 158,717 165,049 171,418 177,706 Population ratio, male/female 0.95 0.96 0.97 0.97 0.97 0.97 0.97 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast. Source: World Bank, UN, BMI Table: Key Population Ratios (United States 1990-2025) 1990 Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 2000 2005 2010 2015f 2020f 2025f 167,587 188,644 200,188 209,505 214,392 217,380 218,905 65.8 66.3 86,919 95,949 51.9 50.9 67.1 67.1 65.9 64.3 62.4 97,977 102,741 110,735 120,602 131,720 48.9 49.0 51.7 55.5 60.2 Page 97 United States Information Technology Report Q2 2015 Key Population Ratios (United States 1990-2025) - Continued Youth population, total, '000 Youth population, % of total working age Pensionable population, '000 Pensionable population, % of total working age 1990 2000 2005 2010 2015f 2020f 2025f 55,184 60,759 61,173 61,947 63,043 64,663 66,599 32.9 32.2 30.6 29.6 29.4 29.7 30.4 31,734 35,189 36,804 40,794 47,692 55,938 65,121 18.9 18.7 18.4 19.5 22.2 25.7 29.7 f = BMI forecast. Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (United States 1990-2025) 1990 2000 2005 2010e 2015f 2020f 2025f 191,643.5 225,082.9 240,712.2 256,489.1 270,987.4 285,152.9 298,841.9 75.3 79.1 80.7 82.1 83.3 84.4 85.2 62,863.1 59,511.5 57,453.6 55,758.0 54,140.3 52,830.1 51,783.9 Rural population, % of total 24.7 20.9 19.3 17.9 16.7 15.6 14.8 Life expectancy at birth, male, years 71.7 74.0 75.0 76.0 76.9 77.8 78.6 Life expectancy at birth, female, years 78.7 79.5 80.1 80.9 81.6 82.2 82.8 Life expectancy at birth, average, years 75.2 76.8 77.6 78.5 79.2 80.0 80.7 Urban population, '000 Urban population, % of total Rural population, '000 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group (United States 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 19,160 19,459 20,114 20,441 21,094 21,776 22,373 Population, 5-9 yrs, total, '000 18,377 20,586 19,678 20,548 20,832 21,486 22,169 Population, 10-14 yrs, total, '000 17,646 20,713 21,380 20,957 21,116 21,401 22,056 Population, 15-19 yrs, total, '000 18,151 20,455 21,644 22,095 21,595 21,758 22,045 Population, 20-24 yrs, total, '000 19,586 19,449 21,218 21,854 22,694 22,205 22,375 Population, 25-29 yrs, total, '000 21,503 19,564 19,886 21,411 22,395 23,242 22,764 Population, 30-34 yrs, total, '000 22,381 20,817 20,030 20,403 21,846 22,836 23,689 Population, 35-39 yrs, total, '000 20,401 22,815 21,108 20,375 20,680 22,126 23,121 © Business Monitor International Ltd Page 98 United States Information Technology Report Q2 2015 Population By Age Group (United States 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 40-44 yrs, total, '000 18,158 22,684 22,814 21,207 20,466 20,783 22,233 Population, 45-49 yrs, total, '000 14,051 20,422 22,548 22,734 21,112 20,403 20,737 Population, 50-54 yrs, total, '000 11,722 17,820 20,241 22,479 22,425 20,867 20,200 Population, 55-59 yrs, total, '000 10,776 13,602 17,520 19,943 21,953 21,947 20,471 Population, 60-64 yrs, total, '000 10,855 11,012 13,173 16,999 19,221 21,210 21,265 Population, 65-69 yrs, total, '000 10,234 9,679 10,432 12,548 16,044 18,209 20,169 Population, 70-74 yrs, total, '000 8,179 8,922 8,744 9,469 11,456 14,725 16,803 Population, 75-79 yrs, total, '000 6,263 7,458 7,512 7,434 8,173 9,970 12,917 Population, 80-84 yrs, total, '000 4,030 5,024 5,440 5,885 5,835 6,489 8,008 Population, 85-89 yrs, total, '000 2,020 2,661 3,108 3,537 3,899 3,924 4,434 Population, 90-94 yrs, total, '000 753 1,118 1,195 1,486 1,733 1,953 2,007 Population, 95-99 yrs, total, '000 219 279 322 371 475 569 660 Population, 100+ yrs, total, '000 32 45 48 60 73 95 118 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group % (United States 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 7.53 6.84 6.75 6.55 6.49 6.44 6.38 Population, 5-9 yrs, % total 7.22 7.23 6.60 6.58 6.41 6.36 6.32 Population, 10-14 yrs, % total 6.93 7.28 7.17 6.71 6.49 6.33 6.29 Population, 15-19 yrs, % total 7.13 7.19 7.26 7.08 6.64 6.44 6.29 Population, 20-24 yrs, % total 7.70 6.83 7.12 7.00 6.98 6.57 6.38 Population, 25-29 yrs, % total 8.45 6.87 6.67 6.86 6.89 6.88 6.49 Population, 30-34 yrs, % total 8.79 7.31 6.72 6.53 6.72 6.76 6.76 Population, 35-39 yrs, % total 8.02 8.02 7.08 6.53 6.36 6.55 6.59 Population, 40-44 yrs, % total 7.13 7.97 7.65 6.79 6.30 6.15 6.34 Population, 45-49 yrs, % total 5.52 7.18 7.56 7.28 6.49 6.04 5.91 Population, 50-54 yrs, % total 4.61 6.26 6.79 7.20 6.90 6.17 5.76 Population, 55-59 yrs, % total 4.23 4.78 5.88 6.39 6.75 6.49 5.84 Population, 60-64 yrs, % total 4.27 3.87 4.42 5.44 5.91 6.28 6.07 Population, 65-69 yrs, % total 4.02 3.40 3.50 4.02 4.93 5.39 5.75 Population, 70-74 yrs, % total 3.21 3.14 2.93 3.03 3.52 4.36 4.79 © Business Monitor International Ltd Page 99 United States Information Technology Report Q2 2015 Population By Age Group % (United States 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 75-79 yrs, % total 2.46 2.62 2.52 2.38 2.51 2.95 3.68 Population, 80-84 yrs, % total 1.58 1.77 1.82 1.88 1.79 1.92 2.28 Population, 85-89 yrs, % total 0.79 0.94 1.04 1.13 1.20 1.16 1.26 Population, 90-94 yrs, % total 0.30 0.39 0.40 0.48 0.53 0.58 0.57 Population, 95-99 yrs, % total 0.09 0.10 0.11 0.12 0.15 0.17 0.19 Population, 100+ yrs, % total 0.01 0.02 0.02 0.02 0.02 0.03 0.03 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 100 United States Information Technology Report Q2 2015 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. They allow us to forecast a variable using more than its 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. We mainly use 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 Ltd Page 101 United States Information Technology Report Q2 2015 BMI uses the selected best model to perform forecasting. 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 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, our 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 our 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 Ltd Page 102 United States Information Technology Report Q2 2015 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Index Methodology BMI's Risk/Reward Index (RRI) 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 RRI 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 (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 (a country-specific category, factoring 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 broken down into two sub categories: ■ Industry Risks (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 (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 Score, 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 Score a weighted average of the total score. As most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our score is revised on a quarterly basis. This ensures the score draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Ltd Page 103 United States Information Technology Report Q2 2015 Sector-Specific Methodology In constructing these indices, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk/Reward Index Indicators 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 spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development. Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales, compared to services/ software, indicates that the overall IT market is immature. Country Urban-rural split Urbanisation is used as a proxy for development. Mainly rural states score lower. GDP per capita, USD 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. Country Short-term external risk Score from BMI's Country Risk Index (CRI). It evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Score from CRI, 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 Score from CRI to denote ease of trading with the state. Legal framework Score from CRI denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Score from CRI denotes ease of conducting business in the state. Corruption Score from CRI denotes the risk of additional illegal costs/possibility of opacity in tendering/ business operations affecting companies' ability to compete. Source: BMI © Business Monitor International Ltd Page 104 United States Information Technology Report Q2 2015 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 Ltd Page 105 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... enterprise hardware and software upgrade demand from 2015 © Business Monitor International Ltd Page 16 United States Information Technology Report Q2 2015 US IT market growth will be sustained in 2015 by the supportive economic environment When compared with its developed market peers, the US market is expected to continue to perform well US economic growth for 2015 is forecast at 2.9% in real terms (up from... forecast period © Business Monitor International Ltd Page 21 United States Information Technology Report Q2 2015 Macroeconomic Forecasts Economic Analysis BMI View: The US economy is set to grow at a more rapid pace in 2015, supported by lower oil prices, a tightening labour market and improving sentiment We forecast real GDP growth of 2.9% in 2015, up from an estimated 2.5% in 2014 Over the long term,... accelerate to 2.9% in 2015, up from our previous forecast of 2.7% Over the long term, we expect growth to remain relatively subdued compared to historical trends, as headwinds in other major markets - including China, Europe, and Japan - weigh on the global economy © Business Monitor International Ltd Page 22 United States Information Technology Report Q2 2015 Growth To Pick Up Temporarily In 2015 US - Real... potentially requiring greater volumes of fuel imports As a result, while the nominal trade balance will improve in 2015 (see 'Lower Fuel Import Costs To Help © Business Monitor International Ltd Page 25 United States Information Technology Report Q2 2015 Offset Flagging Export Demand', January 13 2015) , the real trade balance faces headwinds According to the latest data, US producers have been resilient... relatively subdued in 2015 The Republican Party now controls both houses of Congress following the © Business Monitor International Ltd Page 26 United States Information Technology Report Q2 2015 November 2014 midterm elections, and many representatives campaigned on reining in federal spending (see 'Stronger Economy Will Bolster Fiscal Account, But Only Temporarily', January 7 2015) However, there... continue investing in the IT sphere, but growth will remain sluggish and will not overtake forecasted inflation rates © Business Monitor International Ltd Page 29 United States Information Technology Report Q2 2015 Table: Americas Risk/Reward Index, Q2 2015 Rewards Country Risks Industry Rewards Country Rewards Industry Risks Country Risks IT Score Rank Previous Rank USA 82.5 90.0 55.0 66.8 78.2 1 1 Canada... is expected to continue to diminish in 2015 as demand stabilises with core users still requiring the additional productivity features offered by notebooks and desktops versus tablets © Business Monitor International Ltd Page 32 United States Information Technology Report Q2 2015 Hardware Market (2012-2019) 250,000 200,000 150,000 100,000 50,000 0 2012 2013 2014e 2015f Personal computer sales, USDmn 2016f... growth We believe software and services firms will benefit either through partnerships with operators or by selling to them direct © Business Monitor International Ltd Page 19 United States Information Technology Report Q2 2015 Another technology trend is the adoption of cloud computing services, with surveys showing high levels of satisfaction with cloud services among US CIOs, reflecting the fact it is... 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 Ltd Page 15 United States Information Technology Report Q2 2015 Industry Forecast Table: IT Industry... rises two places to overtake Peru and Colombia Its weak economic and political outlooks are expected to ease in 2015, leading to the market returning to stronger growth and better prospects for IT © Business Monitor International Ltd Page 28 United States Information Technology Report Q2 2015 companies in the market While Argentina performed better, we note its position is precarious with currency . Q2 2015 www.bmiresearch.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 2042-4205 Published by:BMI Research United States Information Technology Report. 84 United States Information Technology Report Q2 2015 © Business Monitor International Ltd Page 4 Regional Overview 90 Demographic Forecast 96 Table: Population Headline Indicators (United States. downtrend. United States Information Technology Report Q2 2015 © Business Monitor International Ltd Page 15 Industry Forecast Table: IT Industry - Historical Data And Forecasts (United States 2012-2019)