Q3 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 Q3 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: July 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 Q3 2012 © Business Monitor International Ltd Page United States Information Technology Report Q3 2012 CONTENTS Executive Summary . SWOT Analysis . US IT Sector SWOT . US Political SWOT US Economic SWOT US Business Environment SWOT . IT Risk/Reward Ratings . Regional IT Business Environment Ratings Q312 12 IT Markets Overview . 13 IT Penetration 13 Market Growth And Drivers 15 Sectors And Verticals . 17 Market Overview . 21 Government Authorities . 21 Overview 22 Tablet Notebooks . 25 Software . 27 Services 30 Industry Developments 31 Industry Forecast . 35 Table: USA IT Industry - Historical Data And Forecasts 37 Industry Forecast Internet . 38 Table: Telecoms Sector - Internet - Historical Data & Forecasts 38 Competitive Landscape . 40 Hardware . 40 Tablets . 41 Software . 44 IT Services . 47 Macroeconomic Forecast 50 Table: United States - GDP By Expenditure, Real Growth %, 2008-2016 . 53 Company Profiles . 54 Hewlett-Packard 54 Dell 60 Table: Selected Dell Mergers And Acquisitions . 63 Microsoft Corporation . 66 IBM 71 Country Snapshot: United States Demographic Data 76 Table: The United States' Population By Age Group, 1990-2020 ('000) 77 Table: The United States' Population By Age Group, 1990-2020 (% of total) . 78 Table: The United States' Key Population Ratios, 1990-2020 . 79 Table: The United States' Rural And Urban Population, 1990-2020 . 79 BMI Methodology . 80 © Business Monitor International Ltd Page United States Information Technology Report Q3 2012 How We Generate Our Industry Forecasts 80 Transport Industry . 80 Sources 81 © Business Monitor International Ltd Page United States Information Technology Report Q3 2012 Executive Summary 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 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 unchanged, but parts shortages could continue to 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 unchanged, but more investment is expected 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 unchanged with an increasing share of IT budgets being earmarked for newer solutions such as virtualisation and cloud computing. 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 In December 2011, the federal Office of Management and Budget officially launched a programme, which will enable contractors to sell cloud solutions to the federal government, starting in June 2012. In 2012 there are expected to be many more contracts for provision of cloud services, following contracts awarded in 2011 by New York and Los Angeles, and the General Services 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. 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. © Business Monitor International Ltd Page United States Information Technology Report Q3 2012 US PC sales are forecast to report single-digit growth in 2012, after a further annualised contraction in Q112. The market slowdown was due in part to supply shortages linked to the Thailand floods of late 2011, but a contributory factor was disappointing sales in the consumer segment, particularly notebooks. Vendors will look to the release of lower-cost ultrabooks, and Microsoft's Windows operating system, as potential growth drivers. © Business Monitor International Ltd Page United States Information Technology Report Q3 2012 SWOT Analysis US IT Sector SWOT Strengths 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 big-spending 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. Threats 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. 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 Q3 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 (though effective taxes are much lower). 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. 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 Ltd Page United States Information Technology Report Q3 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. There has been little movement in this quarter's Risk/Reward Ratings, with Mexico and Chile swapping places, but other countries remaining in their Q411 positions. The US tops the ratings once again, with the largest IT market worldwide, accounting for 25% of global IT spending. We believe that the US IT market will expand strongly through to 2016, driven by growth in the private and public sector organisations looking for help to utilise efficiencies from cloud computing models such as Software-as-aService (Saas) and Infrastructure-as-a-Service. This country did not experience any adjustment in ratings as our sanguine view of the market is likely to continue. BMI believes that the US will remain in first place for the medium term, and probably longer, given the size and advanced nature of its market. Despite cuts to federal IT expenditure announced in February 2012, which will total 1.2% - from US$79.8bn to US$78.9bn - thanks to military spending reductions, we believe that overall demand for IT infrastructure will continue to expand strongly. Canada, also with unchanged scores, remains in second place. The country's IT market is reporting steady growth, as the government's digital economic strategy unfolds, with a number of two-year programmes being implemented. BMI expects Canada's IT market to continue to report moderate overall growth in 2012, although much of this will depend on the overall business environment. In March 2012 the federal government pledged to invest CAD1bn in science and technology, and BMI believes it will maintain this steady level of growth through 2012. We believe that, over the period 20112016, the IT market will expand at a compound annual growth rate (CAGR) of 3.9%. The majority of Canada's growth will be driven by computer hardware, expected to be worth around one half of total IT revenues. Software and services combined will account for around 50% also. Brazil is the third country in our ratings - the highest out of the Latin American nations. BMI continues to estimate double-digit growth in IT spending for Brazil, the biggest IT market in the region. We believe the market will continue to grow strongly, as macroeconomic outlook remains sanguine. Our Country Risk score remains unchanged, as we continue to be above consensus on GDP growth. However, we have downgraded the IT Market score from Q212. While we still believe growth will remain strong, IT spending as a percentage of revenues is only estimated to be around 5.5%, well below the market average of 7.0%. The market also suffers a dearth of professionals with the correct skills - it has an estimated shortage of 17,000 professionals. © Business Monitor International Ltd Page United States Information Technology Report Q3 2012 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 67 United States Information Technology Report Q3 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 68 United States Information Technology Report Q3 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 69 United States Information Technology Report Q3 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 www.microsoft.com © Business Monitor International Ltd Page 70 United States Information Technology Report Q3 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 71 United States Information Technology Report Q3 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 72 United States Information Technology Report Q3 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 73 United States Information Technology Report Q3 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 74 United States Information Technology Report Q3 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 75 United States Information Technology Report Q3 2012 Country Snapshot: United States Demographic Data 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 Ltd Page 76 United States Information Technology Report Q3 2012 Table: The United States' Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012f 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 Ltd Page 77 United States Information Technology Report Q3 2012 Table: The United States' Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012f 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 Ltd Page 78 United States Information Technology Report Q3 2012 Table: The United States' Key Population Ratios, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f 52.0 52.7 51.0 48.9 49.6 50.6 52.8 56.3 Dependent population, total, '000 86,629 91,886 95,353 97,504 102,850 106,160 111,949 121,420 Active population, % of total 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 Youth population, % of total working age 33.0 33.4 32.3 30.5 30.0 30.3 30.7 31.0 Youth population, total, '000 54,989 58,316 60,379 60,886 62,316 63,470 65,108 66,847 Pensionable population, % of total working age 19.0 19.2 18.7 18.4 19.5 20.4 22.1 25.3 Pensionable population, '000 31,640 33,570 34,974 36,618 40,534 42,690 46,841 54,573 Dependent ratio, % of total working age 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 2012f 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 Ltd Page 79 United States Information Technology Report Q3 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. Real Trade Volumes The sum of imports and exports plays a particularly important role in developing countries with a small © Business Monitor International Ltd Page 80 United States Information Technology Report Q3 2012 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 81 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... and elsewhere © Business Monitor International Ltd Page 14 United States Information Technology Report Q3 2012 Market Growth And Drivers Across the Americas, in 2012- 2016, IT Market Sizes 2012f external economic headwinds are likely US$mn to mean slower growth in IT spending, compared with the previous five-year period In Canada and the United States, consumers remain in a phase of retrenchment thanks... Monitor International Ltd Page 20 United States Information Technology Report Q3 2012 Market Overview Government Authorities Government Authority National Telecommunications and Information Administration (NTIA), Department of Commerce Assistant Secretary for Communications and Information Lawrence E Strickling The Department of Commerce (DoC) regulates various information technology industry-related areas... subsidies The Office of E-Government and Information Technology within the Office of Budget Management is responsible for monitoring federal IT spending across federal departments © Business Monitor International Ltd Page 21 United States Information Technology Report Q3 2012 Overview BMI forecasts that the US computer and accessories market value will grow about 3.7% in 2012 We have upwardly revised our... Business Monitor International Ltd Page 24 United States Information Technology Report Q3 2012 H112, former netbook leader Toshiba announced that it was following Dell and Lenovo in withdrawing from the segment in the United States HP and Asus are still competing in the netbook segment, but Asian giants Sony and Samsung have not released new models in the US market in 2012 Moreover, netbooks and notebooks... Monitor International Ltd Page 12 United States Information Technology Report Q3 2012 IT Markets Overview IT Penetration A mixed regional picture is found with relation to internet penetration In the US and Canada, internet penetration in 2012 Narrowband Internet Penetration Per 100 Inhabitants is estimated at 83.4% and 88.1% respectively In Latin America, the highest rate in 2012 is in Colombia (57.1%),... Hugo Chávez's health, and the possibility of a regime change in October, means Venezuela lags behind its regional peers in our Q31 2 RRRs © Business Monitor International Ltd Page 11 United States Information Technology Report Q3 2012 Regional IT Business Environment Ratings Q31 2 Industry Rewards Country Rewards Rewards Industry Risks Country Risk Risks IT Rating Regional Ranking US 82.50 90.00 85.13... the United States 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 © Business Monitor International Ltd Page 19 United States Information Technology Report Q3 2012. .. areas where the iPad outscores rival products © Business Monitor International Ltd Page 26 United States Information Technology Report Q3 2012 Software Software CAGR for 2012- 2016 is projected at around 5.5%, as the addressable market reaches around US$201.7bn in 2016 Overall moderate growth in budgets is expected in 2012, with the market stabilising, but remaining vulnerable, particularly as this is an... from XP to Vista, due to © Business Monitor International Ltd Page 27 United States Information Technology Report Q3 2012 reported problems with the latter, will now go straight to Windows 7 Microsoft will still offer reduced support for XP until 2015, but many hardware manufacturers will start to wind down their support from about 2012 This, as much as the lack of support from Microsoft, has been among... provide information to improve decision making related to IT projects, from accountability to personnel and contracting The information will be used to decide which projects should be cancelled Healthcare IT One significant growth area for the US IT market during BMI's five-year forecast period is expected to be © Business Monitor International Ltd Page 33 United States Information Technology Report Q3 2012 . deadline: July 2012 United States Information Technology Report Q3 2012 © Business Monitor International Ltd Page 2 United States Information Technology Report Q3 2012 © Business. The United States& apos; Key Population Ratios, 1990-2020 79 Table: The United States& apos; Rural And Urban Population, 1990-2020 79 BMI Methodology 80 United States Information Technology Report. Report Q3 2012 © Business Monitor International Ltd Page 4 How We Generate Our Industry Forecasts 80 Transport Industry 80 Sources 81 United States Information Technology Report Q3 2012