United states information technology report q3 2013

Q3 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 Q3 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: June 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. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. 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 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: June 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. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. 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 2013 CONTENTS BMI Industry View . SWOT IT SWOT Industry Forecast 11 Table: US IT Industry - Historical Data And Forecasts (US$mn unless otherwise stated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Broadband . 15 Table: Telecoms Sector - Internet - Historical Data & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Macroeconomic Forecasts . 17 Macroeconomic Forecast 17 Table: US - Growth Revisions (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Table: UNITED STATES - GDP BY EXPENDITURE, REAL GROWTH % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Industry Risk Reward Ratings 26 Industry Risk/Reward Ratings 26 Table: IT Market Risk/Reward Ratings, Q313 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Market Overview . 29 Hardware . 29 Software . 36 Services 42 Industry Trends And Developments 45 Regulatory Development 48 Table: IT Regulatory Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Company Profile 50 Microsoft Corporation 50 Hewlett-Packard . 57 IBM 64 Table: IBM Acquisitions, 2012 (Total Value, US$3.964bn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Dell 70 Regional Overview 76 Demographic Forecast . 80 Demographic Outlook 80 Table: The United States' Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Table: The United States' Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Table: The United States' Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Table: The United States' Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 © Business Monitor International Page United States Information Technology Report Q3 2013 Methodology 85 Methodology . 85 IT Industry Forecasts 85 IT Risk/Reward Ratings - Methodology 86 Table: IT Business Environment Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Weighting . 88 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Sources 88 © Business Monitor International Page United States Information Technology Report Q3 2013 BMI Industry View BMI View: US IT spending is expected to reach US$588bn in 2013, up 6.6% from 2012. The market as a whole continues to grow despite macroeconomic uncertainty; however there are some areas where sales are in decline, for instance desktops and notebooks as tablet sales surge. There are areas of the market that are expected to outperform over the medium term, for instance cloud computing and big data, and towards the latter part of the forecast period real-time enterprise software and solutions. 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. Headline Expenditure Projections ■ ■ ■ ■ Computer Hardware Sales: US$144bn in 2012 to US$152bn in 2013, an increase of 4.7%. Tablet sales are driving market growth, while a new generation of ultra-thin notebooks and hybrids/convertibles building on Windows and Haswell chipsets should also see growth. Software Sales: US$161bn in 2012 to US$173bn in 2013, an increase of 7.6%. 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$246bn in 2012 to US$263bn in 2013, an increase of 7.2%. Cloud computing is the key growth area, but over the medium term we expect real-time enterprise and big data services will develop rapidly. Risk/Reward Ratings: The US's score was 79.1 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. Key Trends & Developments The US PC market is undergoing a period of rapid change as the sales mix shifts rapidly towards tablets. The latest data show desktop and notebook shipments declined by around 10% y-o-y to Q113 - in stark contrast to the rapid growth of tablet sales. We expect this trend to continue in the short term, however over the medium term the outlook is uncertain. Vendors are blurring device distinctions with innovation in hybrids/convertibles, as well as ultra-thin notebooks, that have the potential to insulate PC sales against continued decline by offering a blend of mobility and functionality. There is evidence that these designs have begun to gain traction with consumers, for instance in South Korea, however the extent to which they will capture the attention of consumers in the US is an unknown. The uncertainty around public sector spending is hanging over the IT market in the US. Automatic budget enforcement procedures known as sequestration commenced on March 2013, after initially being delayed © Business Monitor International Page United States Information Technology Report Q3 2013 from a January rollout. The sequester requires cuts in discretionary spending to achieve US$1.2trn 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 Q3 2013 SWOT IT SWOT SWOT Analysis Strengths ■ The largest IT market in the world, with spending forecast to reach nearly US$860bn 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. ■ Desktop and notebook sales appear to be in long-term decline due to longer replacement cycles and the preference for mobile devices including tablets, smartphones and convertibles/hybrids. Opportunities ■ As economic woes ease, IT vendors should see more growth from traditional bigspending sectors such as banks, financial services, retail and manufacturing. ■ Potential for growth in the hardware market through form factor evolution, ie, ultrathin notebooks, hybrids/convertibles and tablets. ■ Cloud computing, with a large number of federal and state cloud computing programmes generating opportunities. ■ New business models such as SaaS and virtualisation will continue to claim a large share of IT budgets. Threats ■ Enterprise and consumer concerns around data security and privacy could prove a drag on adoption of cloud services and big data solutions. ■ BMI forecasts that economic recovery could remain anaemic in 2013, in which case spending on technology could have another hard year. © Business Monitor International Page United States Information Technology Report Q3 2013 means that, in effect, the platform is flexible enough for enterprises of any size to make use of the integration deployments platform. Dell claims the platform's capacity is up to 300% larger than its closest competitor. During the nine months ended October 28 2011, Dell completed several acquisitions, which included Compellent Technologies, SecureWorks and Force10 Networks for a total purchase consideration of approximately US$2.7bn in cash for all the outstanding shares. Emerging Markets Dell has been hit hard by competition from Lenovo, Acer, Asus and white label local players in emerging markets in FY13 - with revenue from growth markets down 10.9% y-o-y to US$4.1bn in Q4 FY13. In response to this trend Dell has been revamping its EM focus. In January 2013 Dell confirmed its plans to broaden the scope of its operations in the Indian market. Dell plans to further expand its 27,000-strong workforce in the country, but has not revealed specific growth targets or estimates for the region. Overall Financial Performance Dell reported weak financial performance for FY13 (ended February 2013), with group revenue declining 8.3% to US$56.94bn. Gross profit declined 11.8%, as the gross margin declined 0.9pps to 21.4%. Meanwhile, operating profit declined 32% to US $3.012bn and net income declined 32.1% to US$2.372bn in FY13. The decline in revenue was led by a rapid fall in consumer segment revenues, which were down 20.1% to US$10.918bn in FY13. Dell has been squeezed by economic conditions in its core developed market base, the competition from mobile computing devices where Dell has limited presence, ie, tablets, and increasing competition from East Asia vendors, most notably Lenovo, Acer and Asus. Dell fared better in its other segments, but only in relative terms. Revenue was still down across its large enterprise, public and SME divisions at rates of 5.3%, 7.7% and 1% respectively. The most recent quarterly results, for Q4 FY14, saw revenues down 10.7% y-o-y to US $14.314bn - with operating profit and net income down 25% and 30.6% to US$698mn and US$530mn respectively. The fastest decline in revenues was in the consumer division, down 23.6% y-o-y, while large enterprise, public and SME were down 6.6%, 9.4% and 4.6% respectively. Dell reported some geographic information with its Q4 FY13 results showing some alarming trends in terms of Dell's emerging market exposure. Revenue from 'growth markets' (excluding the US, Canada, Western Europe and Japan) was down to US $4.1bn in Q4FY13 from US$4.6bn a year earlier. This reflects the intensity of competition from Lenovo, Acer and Asus in emerging markets, as well as the impact of undercutting almost zero margin products from local manufacturers and OEMs from China. Dell does not break down revenue by market, but it did reveal some growth rates. Unsurprisingly, revenue from developed markets declined with Americas, APJ and EMEA down 10%, 14% and 9% respectively to Q4 FY14. The most striking component of geographic revenue performance was the 10% y-o-y decline in BRIC © Business Monitor International Page 73 United States Information Technology Report Q3 2013 revenue, with Brazil and India revenue down 20% and 24% respectively. Revenue performance in China and Russia was stronger, down 3% and up 3% respectively. Dell will need to improve its emerging market performance if it is to turn around its financial fortunes at a time when developed markets will continue to be sluggish. Segment Performance Dell's four global business segments are Large Enterprise, Public, Small and Medium Business, and Consumer. In its fiscal year ended February 2013, the revenue contributions of the four business segments were relatively balanced at 31.2%, 26%, 23.6% and 19.2% of total net revenue. There has been a significant shift in the composition of revenues in recent years, with large enterprise accounting for an extra 1.7pps of total revenue in FY13 compared to FY11. SME has also taken an increasing share, up 3.1pps FY11 to FY13. This has occurred as public revenues have been squeezed by government austerity, but the most important factor has been the decline in consumer, which accounted for 19.2% of revenue in FY13 - down from 23.4% in FY11. Although the decline in consumer revenue is a concern, in terms of bottom-line performance, the decline is less significant. The division has always been lower margin a situation that has only worsened under pressure from deleveraging developed market consumers, competition from tablets and East Asia competitors. In FY13 Dell's consumer division reported a negative operating margin of 0.1%, down from 3.2% in FY12 and 1.3% in FY11. Although the other divisions have seen less pressure on margins relative to the consumer segment, there has nonetheless been a decline, with large enterprise operating margin down 0.1pps y-o-y to 8.7% in FY13 and public down 1.8pps to 8.3%. SME was the strongest performer, with the operating margin increasing 1.3pps to 11.2%. Revenue By Products And Services Dell's Client products, which comprise mobility and desktop PC products, remained the company's main revenue generators - but have seen the steepest declines in FY13. Mobility was the single largest component of revenue in FY13 at 26.9% of the total, but revenue was down 19.9% y-o-y to US$15.303bn. Meanwhile, desktops are the second largest share of revenue at 22.8% of the total, but this figure was down 8.2% y-o-y. Desktops fared better than mobility because of a lesser reliance on the consumer market where Dell has been hit hard by competition from other vendors and tablets. The next most important product category to Dell in FY13 was Servers and Networking, with revenue up 11.5% y-o-y to US$9.294bn. Dell stated that server revenue was driven by demand for hyper-scale data centre solutions as businesses migrate to 12G servers. Networking revenue was the strongest growth component - derived from growth in the Force10 business (acquired August 2011). Software revenues were only slightly lower at US$9.257bn, but were down 9.4% y-o-y. The decline in software sales is derived from the decline in desktop and mobility sales. Finally, services revenues increased slightly in FY13, up 0.9% y-o-y to US$8.396bn accounting for 4.7% of revenues. This segment includes support and deployment; © Business Monitor International Page 74 United States Information Technology Report Q3 2013 infrastructure and cloud and security services; and, applications and BPO. Security revenues have risen, as has cloud revenues - but this has been countered by pressure on support and deployment revenues due to lower unit shipments and declining applications & BPO revenue. Financial Data ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Operational Data ■ ■ ■ Company Details ■ ■ Net Revenue (FY2006/07): US$55.788bn Net Revenue (FY2007/08): US$57.420bn Net Revenue (FY2008/09): US$61.101bn Net Revenue (FY2009/10): US$52.902bn Net Revenue (FY2010/11): US$61.494bn Net Revenue (FY2011/12): US$62.071bn Net Revenue (FY2012/13): US$56.94bn Net Profit (FY2006/07): US$3.602bn Net Profit (FY2007/08): US$2.583bn Net Profit (FY2008/09): US$2.478bn Net Profit (FY2009/10): US$1.433bn Net Profit (FY2010/11): US$2.635bn Net Profit (FY2011/12): US$3.492bn Net Profit (FY2012/13): US$2.372bn Employees (FY13): 111,3 Units ('000), 2010: 45,196 Units ('000), 2011: 45,628 Units ('000), 2012: 41,077 Dell Inc. One Dell Way Texas 78682 United States ■ Tel: 1-800-BUY-DELL ■ Fax: +1 512-728-3773 ■ Web: www.dell.com © Business Monitor International Page 75 United States Information Technology Report Q3 2013 Regional Overview There is diversity in terms of the development levels of IT markets across the Americas, from the highly IT Market As % Of GDP developed North American markets of the US and 2012 Canada to emerging markets in Latin America such as Chile and Brazil followed by relatively undeveloped low-income markets such as Venezuela and Peru. A snapshot of the difference between markets is captured by IT spending as a share of GDP. The US leads the region, with IT accounting for 3.7% of GDP - unsurprising given the high penetration of IT products and services in the retail, public and enterprise sectors, and its position as the leading global centre for IT innovation. Canada is in second with 2.5% of GDP composed of the IT Source: BMI market, ahead of a group of higher income Latin American markets, including Chile, Mexico, Brazil and Argentina, which are using government policy and incentives to promote the development of the sector. Finally, with IT markets contributing less than 1% of GDP, are the least-developed IT markets in the region such as Colombia, Venezuela and Peru. In addition to government incentives, another key factor helping to determine the development levels of IT markets across the region is the penetration of internet and broadband services. Again the regional picture is mixed with relation to internet penetration. In the US and Canada, internet penetration in 2012 was estimated at 83.4% and 88.1% respectively. Meanwhile, in Latin America, the highest rate in 2012 was Colombia (57.1%), having experienced solid recent progress on this indicator. One feature of Latin America is that a large amount of internet access occurs outside the home. For example, data suggest 68% of Mexican internet users go online from places such as schools, workplaces and internet cafés. Data from Peru suggest nearly 75% of internet users use a public access point. Although Latin American markets trail in terms of internet penetration, there are national broadband plans in development that will help to close the gap in the medium term. In Brazil the Plano Nacional de Banda Larga (PNBL - National Broadband Plan) was launched on May 2010 with the aim of tripling access to © Business Monitor International Page 76 United States Information Technology Report Q3 2013 broadband services by 2014. Meanwhile, in Argentina the Conectada plan is in place to promote broadband connectivity by building a nationwide fibre network. However, it also integrates current programmes focusing on digital terrestrial television, ICT equipment provision, educational training and on extending connectivity to remote areas. The national broadband plans in Brazil and Argentina, as well as in other Latin American IT Market Value (US$) CAGR (%) 2013-2017 markets, will help drive demand for IT hardware from consumers and enterprises. The improvements in infrastructure will also enable the deployment of a range of IT software and services, for instance cloud computing and real-time enterprise software solutions. Broadband infrastructure investment is one of the factors behind the high growth rates for IT markets in Latin America. The initiative of governments in promoting broadband infrastructure development combines with other government initiatives to underpin strong growth forecasts for the majority of markets across the region. Generally we are forecasting faster Source: BMI growth rates over the next five years for markets with less developed IT sectors as they benefit from a process of catch-up. The US and Venezuela are the notable exceptions to this rule, with the US continuing to experience high growth even from an advanced starting position and Venezuela forecast to experience sluggish growth considering its low starting position. The US is still at the technological frontier globally, with investments taking place in the public sector and across a range of enterprise verticals. In Venezuela the precarious business environment will inhibit enterprise IT investment, and consumers will face inflationary pressure and the resulting erosion of real wages. Meanwhile, the threat of a further devaluation of the bolívar continues to weigh on our forecasts. In addition to strong demand growth, there has also been a notable trend towards a greater level of production in the region. This trend has been led by Brazil, which, through the use of import taxes on PC hardware, has helped to catalyse investment in local production facilities and the acquisition of local players © Business Monitor International Page 77 United States Information Technology Report Q3 2013 by global PC vendors. It is this feature of the market that triggered the acquisition of CCE by top-tier Chinese vendor Lenovo in September 2012. CCE has a full PC and product portfolio, national supply chain and a manufacturing facility in the Manaus Free Trade Zone, enabling Lenovo to bolster its local presence. The taxes on imported products have also enabled Brazil to attract Chinese electronics manufacturing giant Foxconn (Hon Hai) to set up factories. Its most recent investment was the acquisition of 350 acres of land to build a factory, at a cost of US$12.6mn. It also plans to invest US$493mn in a new São Paulo facility and runs four other factories in Brazil. Foxconn is most well known for producing devices for Apple, but it also produces hardware for a vast range of major international brands. Government PC procurement initiatives have also been used to promote local manufacturing. For instance, the Argentine government launched a tender to provide 3mn PCs to public schools nationwide, while in Brazil the procurement of tablets from local producer Positivo Informatica is helping it to achieve scale in the tablet market to compete against international vendors. Other procurements include the 'Yo Eiljo mi PC' ('I choose my PC') programme in Chile and the Zona Clic programme in Colombia. Another area of focus has been the promotion of ICT adoption among enterprises - particularly SME's. There is a high penetration of PC hardware and enterprise software and services in the developed North American markets, with investments now heavily geared towards growth in cloud computing, big data analytics and real-time enterprise software. Meanwhile, in Latin America there are significant differences in adoption of enterprise software. For instance, in Brazil CETIC data show that, among those enterprises using computers, 36% used an ERP system to integrate department data into a single system and process in 2011. However, this figure is much higher for medium and large enterprises at 50% and 75% - with a far larger opportunity for vendors among small business. 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. Growth in SME ICT adoption is a significant opportunity across the region. © Business Monitor International Page 78 United States Information Technology Report Q3 2013 The retail hardware markets across Latin America have good potential but we are expecting different developments in terms of device categories across Share Of Browsing Traffic By Operating System (%) March-2013 the region. In North America Apple's premium products have seen huge sales in recent years, with Mac PCs accounting for 13.2% of PC browsing traffic by March 2013 and iPads accounting for 5.9% according to StatCounter data. This combined share of 19.1% is far in excess of the share in South America of just 2.8%. With lower incomes across Latin American markets, and import restrictions on some premium products that would not reach sufficient sales levels to warrant investment in domestic manufacture, it is no surprise that demand for such products trails Source: Statcounter wealthier North American markets. Instead of premium products, in a number of markets, either lower cost Microsoft partner vendors, or increasingly Chinese original equipment manufacturers (OEMs) producing Windows and Android devices, are capturing a large share of growth in the retail market. While the demand for premium hardware faces limits in Latin America, there is strong growth potential for mid-range and OEM low-cost hardware across the region. Growing affluence has brought computers within the reach of a greater proportion of the population in recent years, and, with PC penetration across the region generally between 15% and 25%, there is a large first-time buyer market. Another trend to highlight is the 26.8% of browsing traffic still attributed to PCs running Windows XP in South America in March 2013. With official Microsoft support set to be wound down from 2014, there could be a boost to hardware upgrades adding to sales to first-time buyers. © Business Monitor International Page 79 United States Information Technology Report Q3 2013 Demographic Forecast Demographic Outlook Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail the US' population pyramid for 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. © Business Monitor International Page 80 United States Information Technology Report Q3 2013 Source: World Bank, UN, BMI 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 Total © Business Monitor International Page 81 United States Information Technology Report Q3 2013 The United States' Population By Age Group, 1990-2020 ('000) - Continued 1990 1995 2000 2005 2010 2012e 2015f 2020f 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 75+ f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 82 United States Information Technology Report Q3 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 83 United States Information Technology Report Q3 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 84 United States Information Technology Report Q3 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, ie 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. 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 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. © Business Monitor International Page 85 United States Information Technology Report Q3 2013 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 Risk/Reward Ratings - Methodology Our approach in BMI's IT Risk/Reward 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 industries covered by BMI, offers an industry-leading insight into the prospects and risks for companies across the globe. Ratings System Conceptually, the ratings 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. 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. © Business Monitor International Page 86 United States Information Technology Report Q3 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 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 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 Urban-rural split Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower. GDP per capita, US$ A high GDP per capita supports long-term industry prospects. Overall score for country rewards is also affected by the coverage of the power transmission network across the state. Risks Industry Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting. ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code. Country Short-term external risk Rating from CRR evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Rating from BMI's CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding. Trade bureaucracy Rating from CRR to denote ease of trading with the state. Legal framework Rating from CRR denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Rating from CRR denotes ease of conducting business in the state. © Business Monitor International Page 87 United States Information Technology Report Q3 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. The following weight has been adopted. Table: Weighting Of Components Component Weighting Rewards 70% - Industry 65% - Country 35% Risks to 30% - Industry 40% - Country 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 88 [...]... investment as 2013 and 2014 proceed © Business Monitor International Page 20 United States Information Technology Report Q3 2013 Plenty of Room For Recovery US - Cyclical Components Of GDP, % Of GDP Note: Includes residential construction, business investment and consumer durables consumption Source: BEA, BMI © Business Monitor International Page 21 United States Information Technology Report Q3 2013 Consumption... communications in the enterprise market These growth trends will support a CAGR of 5.1% 2013- 2017; however, there is downside risk to our core scenario as a result of global economic headwinds © Business Monitor International Page 11 United States Information Technology Report Q3 2013 2013 Outlook The US IT market has a mixed outlook for 2013, with some areas of high growth, but also significant Industry Trends... construction is likely to continue to support growth through 2013 Net Exports: We have revised down our 2013 growth forecasts for exports and imports of goods and services, in large part due to base effects from 2012 Our 2013 export growth forecast is 3.5% (down from © Business Monitor International Page 23 United States Information Technology Report Q3 2013 5.8% previously), and our import growth forecast... International Page 24 United States Information Technology Report Q3 2013 reached in March, meaning that from a federal standpoint at least, this year is likely to represent the trough for government consumption From a state and local spending standpoint, we expect the worst is over and that the consistent drag on US growth from this category will flatten out as 2013 proceeds Table: UNITED STATES - GDP BY... 2013 announcement that Lenovo will release a rebranded version of its LenovoEMC storage solutions © Business Monitor International Page 30 United States Information Technology Report Q3 2013 in North America The EZ Media and ix Series Desktop line now carry the Lenovo Iomega brand and the px Series Desktop and ox Series rack mount families are now branded as LenovoEMC products In June 2013 it was reported... International Page 12 United States Information Technology Report Q3 2013 Microsoft's Windows 8 OS in October 2012 would lead to increased sales of desktops and notebooks, however this has not materialised in early 2013 There is potential for innovative hybrid/convertible designs to experience growth, particularly following the release of Intel's new Haswell chipsets in June 2013, which also represents... realisation of anticipated returns Source: BMI © Business Monitor International Page 28 United States Information Technology Report Q3 2013 Market Overview Hardware BMI forecasts that the US computer and accessories market value will grow by 4.7% to US$152bn in 2013 Sales of desktops and notebooks are in decline in 2013, extending the trend from 2012, however this is primarily a result of consumers opting... grow from US$152bn in 2013 to US$168bn in 2017 Software spending should rise from US$173bn to US$214bn, and IT services from US$263bn to US$323bn, over the forecast period © Business Monitor International Page 14 United States Information Technology Report Q3 2013 Broadband Table: Telecoms Sector - Internet - Historical Data & Forecasts 2010 No of internet users ('000) 2011 2012e 2013f 2014f 2015f 2016f... sales of more than 6mn © Business Monitor International Page 31 United States Information Technology Report Q3 2013 However, following the emergence of tablets, the negative netbook trend now seems irreversible In 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,... Intel's new Haswell chipsets released in June 2013 Meanwhile, according to a recent research report, 10% of all laptops shipped worldwide in Q113 were touchscreen-enabled This figure is expected to grow as more and more manufacturers develop laptops and touchscreen notebooks © Business Monitor International Page 33 United States Information Technology Report Q3 2013 Ultrabooks Ultrabooks, higher-performance . Q3 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. Population Ratios, 1990-2020 84 Table: The United States& apos; Rural And Urban Population, 1990-2020 84 United States Information Technology Report Q3 2013 © Business Monitor International Page. economic recovery could remain anaemic in 2013, in which case spending on technology could have another hard year. United States Information Technology Report Q3 2013 © Business Monitor International