Q3 2014 www.businessmonitor.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2018 ISSN 2042-4205 Published by:Business Monitor International United States Information Technology Report Q3 2014 INCLUDES 5-YEAR FORECASTS TO 2018 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: June 2014 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 © 2014 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 2014 CONTENTS BMI Industry View . SWOT IT SWOT SWOT . 11 Political . 13 Economic . 14 Business Environment 15 Industry Forecast 16 Table: IT Industry - Historical Data And Forecasts (United States 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Broadband . 20 Table: Telecoms Sector - Internet - Historical Data & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Macroeconomic Forecasts . 22 Table: United States - Gdp By Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Industry Risk Reward Ratings 30 Table: Americas Risk/Reward Ratings, Q3 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Market Overview . 33 Hardware . 33 Software . 38 Services 44 Industry Trends And Developments 48 Regulatory Development 52 Table: IT Regulatory Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Competitive Landscape 54 Local Companies . 54 Table: CA Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Table: Splunk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Table: Symantec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Table: EMC Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Company Profile 58 Hewlett-Packard . Dell Microsoft Corporation IBM 58 65 71 78 Table: IBM Acquisitions, 2012 (Total Value, USD3.964bn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Table: IBM Recent Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 © Business Monitor International Page United States Information Technology Report Q3 2014 Regional Overview 85 Demographic Forecast . 89 Table: The United States' Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Table: The United States' Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Table: The United States' Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Table: The United States' Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Methodology 93 Industry Forecast Methodology 93 Sources 94 Risk/Reward Ratings Methodology 95 Table: It Risk/Reward Ratings Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 © Business Monitor International Page United States Information Technology Report Q3 2014 BMI Industry View BMI View: The outlook for US IT spending is strong relative to the majority of developed markets over the medium term, as a result of stronger economic performance and a greater appetite from enterprises for the latest products and solutions. Cloud computing, real-time enterprise software, security and big data are all areas of spending in which we expect to see rapid growth, particularly in the latter years of our forecast. the retail hardware outlook is more mixed, as we expect continued demand growth for tablets in the retail market; however, desktop and notebook sales continue to be squeezed. There is also potential for deeper fiscal retrenchment to hit government IT spending. The NSA PRISM scandal continues to produce fallout amid concerns about data security in the cloud computing market. Total spending is expected to reach USD665bn in 2014, up 5.3% from 2013, and grow at a CAGR of 4.4% 2014-2018. Headline Expenditure Projections ■ Computer Hardware Sales: USD217bn in 2013 to USD225bn in 2014, an increase of 3.8%. Booming tablet sales are driving growth, but there is a boost to desktop sales in 2014 due to the withdrawal of official support for XP in April 2014, pushing upgrades. ■ Software Sales: USD173bn in 2013 to USD184bn in 2014, an increase of 6.2%. Emerging technologies such as machine-to-machine and big data are being adopted by enterprises, while demand for cyber security solutions is also an area of growth. ■ IT Services Sales: USD242bn in 2013 to USD257bn in 2014, an increase of 6.4%. Cloud computing adoption is already high in the US but we expect strong growth to continue over the medium term despite security concerns following on from the NAS Prism debacle. Key Trends & Developments In 2014 IBM reaffirmed its commitment to a strategy that will see it focus on higher value software and services. In January 2014 IBM agreed the sale of its x86 server business to Chinese PC vendor Lenovo for USD2.3bn. The deal includes System x, BladeCenter and Flex System blade servers and switches, x86based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations. The deal is expected to close in 2014, subject to regulatory approval, and would dramatically increase Lenovo's exposure to the US server market, and reducing IBM's exposure to the lower margin server hardware business. There was an interesting twist in approach at Microsoft following the strategic shift enacted after the departure of CEO Steve Ballmer. In June 2014 Microsoft and Salesforce.com entered into a partnership agreement in order to create new services that link Salesforce's CRM apps and platform to Microsoft Office © Business Monitor International Page United States Information Technology Report Q3 2014 and Windows software. The deal comes despite Microsoft also selling its own enterprise software services through the Azure brand, reflecting the new direction taken after the departure of Steve Ballmer as CEO. Under the terms of the deal, both the firms intend to offer various services, such as Salesforce1 for Windows and Windows Phone 8.1, and Salesforce for Office 365. The financial terms of the deal have not been released. © Business Monitor International Page United States Information Technology Report Q3 2014 SWOT IT SWOT SWOT Analysis Strengths ■ The largest IT market in the world, with spending forecast to reach about USD783bn in 2018. ■ The US is the largest centre of global IT innovation, home to many leading hardware, software and services vendors. ■ Meanwhile most non-US global firms also have a research and retail presence. ■ Despite the challenging trading conditions, overall IT spending is still expected to remain in positive growth territory. ■ PC shipments have held up better than in other developed markets in 2013 and are forecast to so in 2014. Weaknesses ■ In the wake of the recession and subsequent slow economic recovery, customers have postponed IT investments and reduced short-term spending, particularly in areas such as consulting and software development. ■ Desktop and notebook sales appear to be in long-term decline due to longer replacement cycles and the preference for mobile devices including tablets, smartphones, smart TVs and convertibles/hybrids. Opportunities ■ Technologically savvy local population willing to spend on premium devices, with the US a particularly strong market for Apple's iPad and MacBooks. ■ As economic woes ease, IT vendors should see more growth from traditional bigspending sectors such as banks, financial services, retail and manufacturing. ■ Microsoft support of Windows XP ceased in Q214, which should accelerate desktop replacements and OS upgrades. ■ Potential for growth in the hardware market through form factor evolution ie ultra-thin notebooks, hybrids/convertibles and tablets. © Business Monitor International Page United States Information Technology Report Q3 2014 SWOT Analysis - Continued ■ Cloud computing, with a large number of federal and state cloud computing programmes generating opportunities. ■ Growth from emerging technologies such as Big Data and machine-to-machine communications will drive innovation and spending. Threats ■ Privacy and cyber security became more pressing issues with the PRISM spying revelations. This is expected to damage US cloud computing providers abroad, but domestic impact is uncertain. ■ The large federal budget deficit could lead to pressures on public sector IT spending. © Business Monitor International Page 10 United States Information Technology Report Q3 2014 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 USD440mn 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 USD20bn or higher by 2015. In December 2011, IBM agreed to buy Curam Software, a machine-to-machine (M2M), cloud and data analytics programme 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 programmes. 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 USD387mn in September 2011. IBM also announced USD100mn 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 USD6bn. In September 2011, IBM and Intel Corp announced plans to invest USD4.4bn over five years to create a hub for next generation computer chip technology in New York. IBM will spend USD3.6bn to develop computer chips using 22-nanometer and 14nanometer process technology. Financial Data ■ ■ ■ ■ ■ Annual Revenues: (2010): USD99.9bn Annual Revenues: (2011): USD106.9bn Annual Revenues (2012): USD104.5bn Annual Revenues: (2013): USD99.8bn Revenues: (Q114): USD22.5bn © Business Monitor International Page 83 United States Information Technology Report Q3 2014 ■ ■ ■ ■ ■ Company Details ■ ■ Net Income (2010): USD14.8bn Net Income (2011): USD15.9bn Net Income (2012): USD16.5bn Net Income: (2013): USD16.5bn Net Income: (Q114): USD2.4bn IBM Corporation New Orchard Road Armonk, New York 10504-1722 USA ■ Tel: +1914 499 1900 ■ www.ibm.com © Business Monitor International Page 84 United States Information Technology Report Q3 2014 Regional Overview The Americas region is one the most varied in terms of IT markets - from the world leading US market to regional late-developers such as Peru, Colombia and Venezuela. Traditionally this has seen US IT vendors selling products and services across the region, as well as setting up sales offices, R&D facilities and manufacturing facilities. Meanwhile national governments in Latin America have looked to the US for regulatory best practice and the latest technology trends. BMI expects this broad trend to remain intact in 2014, however the leaks about NSA surveillance techniques in 2013 have introduced a greater level of uncertainty - and we believe non-US IT service vendors have the potential to outperform in 2014. Latin American markets remain reliant on the technological expertise of US firms in many industries, and governments will not want to cut the hand of technology transfer. However, NSA overreach has imbued the trend of increased competition from local IT services and cloud computing providers. The Backyard Bites Back The revelations about the NSA PRISM program, and particularly the international aspect to the surveillance program, have had a negative impact on perceptions of the security of US IT vendors. The impact has been asymmetric, with the largest loss of confidence in France, where the officials have had serious concerns about the legal framework covering NSA activities since the Patriot Act. There has also been widespread criticism in Latin America - most notably from Brazil with President Dilma Roussef calling off a state visit to the US in September 2013 after the NSA was accused of intercepting emails and messages from the President, her aides and state oil company Petrobas. The incident raises the spectre of not only NSA surveillance of Brazilian citizens, but crucially of corporate espionage ahead of the auction of oil exploration rights off the cost of Rio de Janeiro state. The storm around NSA surveillance resulted in pushback from Latin American states. For instance, in March 2014 Brazil passed its net neutrality law, dubbed the 'Internet Constitution'. The law makes companies such as Google and Facebook subject to Brazilian laws and courts in cases involving data on Brazilian citizens, even if stored abroad. However, the most alarming proposal, as far as US IT vendors are concerned, the requirement for servers to be located in Brazil, was dropped. © Business Monitor International Page 85 United States Information Technology Report Q3 2014 Exposed To Data Sovereignty Pushback Google Data Centre Locations Source: Google. BMI argued against the imposition of a domestic server requirement as potentially costly through slower innovation and lower inwards investment. Nonetheless the fact the rule was only dropped late in the progress of the bill demonstrates the level of political opposition to US behaviour. In this context we believe there is heightened uncertainty for US IT vendors in Latin America in 2014 with the potential for further inflammatory releases of information about NSA activity. US Vendors Remain Central To Regional Development US vendors have traditionally dominated the Latin American region, but there is growing competition from local and regional providers untainted by the NSA PRISM revelations. The US vendors will continue to target and have success in the region, but we expect the erosion of confidence and price pressures from local vendors will squeeze financial performance. © Business Monitor International Page 86 United States Information Technology Report Q3 2014 This could prove harmful to some vendors targeting Annual IT Services Growth (local currrency), % the region, such as Dell, which stated in November 2013 that it was looking at opportunities to increase 2013-2015 its partner network, as well as pursuing growth areas such as enterprise software, data centres, storage, server and network solutions as well as IT services. BMI believes Dell's hardware push is likely to be unaffected, but in data centre, storage and network solutions the outlook is more challenging in 2014 than previous years. US providers have taken steps to improve local presence in Latin America, which should ease regulatory concerns. For instance, Google and IBM have opened up data centres in Chile and Colombia, respectively. Other larger Source: BMI. international companies have already acquired local players to take a share of the region's data centre market. One of the first to so was US-based telecom firm Verizon, which bought Terremark for USD1.4bn in 2011. Equinix followed through its purchase of Alog DataCenters Brasil, Level acquired Global Crossing, and other players such as Telmex,Logica, Rackspace and BT have already established a presence in the region. But Local IT Companies Look To Tap Into Discontent In IT services provision competition from local vendors, led by Chile's Sonda, will intensify. Since 2010 Sonda has expanded aggressively across Latin America in pursuit of growth opportunities in the region's emerging and rapidly-growing IT services market as part of a USD700mn three-year expansion plan focused on broadening its geographic footprint and deepening its reach in key markets, such as Brazil and Mexico. Its latest acquisition in March 2014, of Brazil-based IT outsourcing services provider CTIS, almost doubled its Brazilian revenue base. Sonda agreed to pay BRL400mn (USD170mn) for CTIS, although this could increase by a further USD36mn in the event that certain performance targets for 2014-18 are met. As CTIS © Business Monitor International Page 87 United States Information Technology Report Q3 2014 currently targets the rapidly-growing outsourcing services markets in key industries such as energy, public services and financial services, we believe many of those targets will be met. Meanwhile, in February 2014 Mexican telecoms and IT service provider Alestra launched a new data centre in the Querétaro state, to provide capacity for its growing hosting and cloud services. The 3,250m2 facility is Alestra's fourth in Mexico and cost MXN780mn (USD58.7mn) to build, increasing the company's total space by 270%. Ricardo Hinojosa, director of communications and marketing, claimed the company plans to double its cloud operations in 2014 and wants to see a 115% increase in hosting. Competition will also come in the form of IT vendors from outside the Americas, for instance, in December 2013 South Africa-based ICT services provider Dimension Data has announced that following the opening of its data centre in Brazil it plans to open other new data centres in Latin America. The decision to launch other data centres in the region almost immediately after its Brazil location demonstrates a demand for these services. © Business Monitor International Page 88 United States Information Technology Report Q3 2014 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail the US' population pyramid for 2013, the change in the structure of the population between 2013 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. Population Pyramid 2013 (LHS) And 2013 Versus 2050 (RHS) Source: World Bank, UN, BMI © Business Monitor International Page 89 United States Information Technology Report Q3 2014 Population Indicators Population (mn, LHS) And Life Expectancy (years, RHS) Source: World Bank, UN, BMI Table: The United States' Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2013e 2015f 2020f 254,507 268,040 284,594 298,166 312,247 320,051 325,128 337,983 0-4 years 19,160 19,697 19,460 20,114 20,441 20,807 21,094 21,776 5-9 years 18,378 19,509 20,587 19,679 20,549 20,739 20,833 21,486 10-14 years 17,647 19,374 20,713 21,380 20,957 21,003 21,117 21,402 15-19 years 18,151 18,654 20,455 21,645 22,095 21,793 21,596 21,758 20-24 years 19,586 18,511 19,450 21,219 21,855 22,456 22,695 22,205 25-29 years 21,503 19,926 19,564 19,887 21,411 22,038 22,396 23,243 30-34 years 22,382 22,443 20,818 20,031 20,403 21,251 21,846 22,836 35-39 years 20,401 22,631 22,815 21,109 20,376 20,405 20,680 22,126 40-44 years 18,159 20,386 22,684 22,814 21,208 20,624 20,467 20,784 45-49 years 14,052 17,687 20,423 22,549 22,735 21,791 21,113 20,403 50-54 years 11,722 13,882 17,821 20,242 22,480 22,719 22,426 20,868 55-59 years 10,776 11,335 13,603 17,521 19,944 21,308 21,953 21,947 60-64 years 10,855 10,282 11,013 13,173 16,999 18,435 19,221 21,211 65-69 years 10,234 10,047 9,679 10,433 12,549 14,683 16,044 18,210 70-74 years 8,180 8,887 8,922 8,745 9,469 10,472 11,456 14,725 Total © Business Monitor International Page 90 United States Information Technology Report Q3 2014 The United States' Population By Age Group, 1990-2020 ('000) - Continued 1990 1995 2000 2005 2010 2013e 2015f 2020f 75-79 years 6,264 6,740 7,458 7,512 7,435 7,756 8,173 9,970 80-84 years 4,031 4,360 5,025 5,440 5,885 5,839 5,836 6,490 85-89 years 2,021 2,471 2,662 3,108 3,538 3,793 3,900 3,925 90-94 years 754 936 1,119 1,195 1,487 1,639 1,734 1,954 95-99 years 220 237 280 322 371 431 476 570 100+ years 32 44 45 49 61 67 73 96 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: The United States' Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2013e 2015f 2020f 0-4 years 7.53 7.35 6.84 6.75 6.55 6.50 6.49 6.44 5-9 years 7.22 7.28 7.23 6.60 6.58 6.48 6.41 6.36 10-14 years 6.93 7.23 7.28 7.17 6.71 6.56 6.49 6.33 15-19 years 7.13 6.96 7.19 7.26 7.08 6.81 6.64 6.44 20-24 years 7.70 6.91 6.83 7.12 7.00 7.02 6.98 6.57 25-29 years 8.45 7.43 6.87 6.67 6.86 6.89 6.89 6.88 30-34 years 8.79 8.37 7.31 6.72 6.53 6.64 6.72 6.76 35-39 years 8.02 8.44 8.02 7.08 6.53 6.38 6.36 6.55 40-44 years 7.13 7.61 7.97 7.65 6.79 6.44 6.29 6.15 45-49 years 5.52 6.60 7.18 7.56 7.28 6.81 6.49 6.04 50-54 years 4.61 5.18 6.26 6.79 7.20 7.10 6.90 6.17 55-59 years 4.23 4.23 4.78 5.88 6.39 6.66 6.75 6.49 60-64 years 4.27 3.84 3.87 4.42 5.44 5.76 5.91 6.28 65-69 years 4.02 3.75 3.40 3.50 4.02 4.59 4.93 5.39 70-74 years 3.21 3.32 3.14 2.93 3.03 3.27 3.52 4.36 75-79 years 2.46 2.51 2.62 2.52 2.38 2.42 2.51 2.95 80-84 years 1.58 1.63 1.77 1.82 1.88 1.82 1.79 1.92 85-89 years 0.79 0.92 0.94 1.04 1.13 1.19 1.20 1.16 90-94 years 0.30 0.35 0.39 0.40 0.48 0.51 0.53 0.58 95-99 years 0.09 0.09 0.10 0.11 0.12 0.13 0.15 0.17 © Business Monitor International Page 91 United States Information Technology Report Q3 2014 The United States' Population By Age Group, 1990-2020 (% of total) - Continued 100+ years 1990 1995 2000 2005 2010 2013e 2015f 2020f 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.03 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: The United States' Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 Active population, % of total Active population, total, '000 1990 1995 2000 2005 2010 2013e 2015f 2020f 51.9 52.5 50.9 48.9 49.0 50.4 51.7 55.5 86,919 92,302 95,949 65.8 65.6 66.3 97,978 102,741 107,231 110,736 120,602 67.1 67.1 66.5 65.9 64.3 167,587 175,737 188,645 200,188 209,506 212,820 214,392 217,381 Youth population, % of total working age 32.9 33.3 32.2 30.6 29.6 29.4 29.4 29.7 55,184 58,581 60,760 61,173 61,947 62,550 63,043 64,664 Pensionable population, % of total working age 18.9 19.2 18.7 18.4 19.5 21.0 22.2 25.7 Pensionable population, total, '000 31,735 33,722 35,190 36,804 40,794 44,681 47,692 55,939 Youth population, total, '000 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI Table: The United States' Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f Urban population, % of total 75.3 77.3 79.1 80.7 82.1 82.9 83.3 84.4 Rural population, % of total 24.7 22.8 20.9 19.3 17.9 17.1 16.7 15.6 Urban population, total, '000 191,644 207,061 225,083 240,712 256,489 265,213 270,987 285,153 Rural population, total, '000 62,863 60,979 59,512 57,454 55,758 54,837 54,140 52,830 e/f = BMI estimate/forecast. Source: World Bank, UN, BMI © Business Monitor International Page 92 United States Information Technology Report Q3 2014 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. Common to our analysis of every industry is the use of vector autoregressions. They allow us to forecast a variable using more than its own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact. Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account; ■ Testing the directional movement and magnitude of coefficients; ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity;. © Business Monitor International Page 93 United States Information Technology Report Q3 2014 BMI uses the selected best model to perform forecasting. Human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience, expertise and knowledge of industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Sector-Specific Methodology A number of criteria drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, our quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments and diffusion rates; ■ Exogenous events. Estimates are calculated using our own macroeconomic and demographic forecasts. Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication © Business Monitor International Page 94 United States Information Technology Report Q3 2014 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Ratings Methodology BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market. The RRR system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories: ■ Industry Rewards (an industry-specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors). • Country Rewards (a country-specific category, factoring in favourable political and economic conditions for the industry). Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. This is broken down into two sub categories: ■ Industry Risks (an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry and the relative maturity of a market). • Country Risks (a country-specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score). We take a weighted average, combining industry and country risks, or industry and country rewards. These two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country. For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Rating a weighted average of the total score. As most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis. This ensures the rating draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Page 95 United States Information Technology Report Q3 2014 Sector-Specific Methodology In constructing these ratings, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk/Reward Ratings Indicators Rationale Rewards Industry IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones. Sector value growth, % year-on-year (y-o-y) Denotes sector dynamism. Scores based on annual average growth over five-year forecast period. Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development. Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales, compared to services/ software, indicates that the overall IT market is immature. Country Urban-rural split Urbanisation is used as a proxy for development. Mainly rural states score lower. GDP per capita, US$ 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 BMI's Country Risk Ratings (CRR). It evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Rating from 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. 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 © Business Monitor International Page 96 United States Information Technology Report Q3 2014 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. The following weighting has been adopted: Table: Weighting Of Components Component Rewards Weighting, % 70, of which - Industry 65 - Country 35 Risks to 30, of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Page 97 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... 20 United States Information Technology Report Q3 2014 Industry Trends - Internet 2011-2018 300,000 120,000 100,000 200,000 80,000 60,000 100,000 40,000 20,000 Internet users, '000 2018f 2017f 2016f 2015f 2014f 2013e 2012 0 2011 0 Broadband internet subscribers, '000 e/f = BMI estimate/forecast Source: BMI Operators, FCC © Business Monitor International Page 21 United States Information Technology Report. .. growth © Business Monitor International Page 16 United States Information Technology Report Q3 2014 2014 Outlook US IT market growth will be sustained in 2014 by the supportive economic environment When compared with its developed market peers, the US Industry Trends - IT Market 2011-2018 market is expected to continue to perform well US economic growth for 2014 is forecast at 2.4% in real terms, while... than we currently anticipate, a risk scenario that would lead to lower headline growth than we now forecast © Business Monitor International Page 27 United States Information Technology Report Q3 2014 Table: United States - Gdp By Expenditure 2011 2012 2013e 2014f 2015f 2016f 2017f 2018f 1.8 2.8 1.9 2.8 2.6 2.4 2.4 2.4 Private final consumption, USDbn 1 10,711.80 11,149.60 11,501.50 12,313.40 12,836.00... % y-o-y 1 Net exports of goods and services, USDbn 1 © Business Monitor International Page 28 United States Information Technology Report Q3 2014 United States - Gdp By Expenditure - Continued 2011 Net exports of goods and services, USDbn 1 Net exports of goods and services, real growth % y-o-y 1 2012 2013e 2014f 2015f 2016f 2017f 2018f -568.7 -547.2 -497.3 -476.3 -481.3 -484.9 -486.8 -486.8 -3.6 -3.4... Monitor International Page 25 United States Information Technology Report Q3 2014 Net Export Contribution To Remain Positive In 2014 US - Contribution To Real GDP Growth, pp (4-Quarter MA) Source: BEA, BMI Government Consumption And Fixed Investment: The public sector has had a net negative impact on real GDP growth for the past three years, but we forecast this will reverse in 2014 First, we expect accelerating... the federal budget sequester in 2014 will result in federal government spending weighing less heavily on GDP growth We forecast that all levels of government combined will contribute 0.1pp to real growth, after knocking 0.4pp from growth in 2013 © Business Monitor International Page 26 United States Information Technology Report Q3 2014 Public Sector To Turn Positive In 2014 Contribution To Real GDP... grow from USD225bn in 2014 to USD249bn in 2018 Software spending should rise from USD184bn to USD224bn, and IT services from USD257bn to USD309bn, over the forecast period © Business Monitor International Page 19 United States Information Technology Report Q3 2014 Broadband Table: Telecoms Sector - Internet - Historical Data & Forecasts 2011 No of Internet Users ('000) 2013e 2014f 2015f 2016f 2017f... household debt-to-income ratio has fallen from a high of 114.5% in © Business Monitor International Page 23 United States Information Technology Report Q3 2014 Q109 to 91.6% in Q413, the lowest level since Q30 2 As a result of these factors, we forecast real PCE growth will accelerate to 2.5% in 2014 from 2.0% last year Consumer Credit May Make Up For Lower Trending Income Growth In Recent Years US -... computing devices increases, IT spending will continue to increase, presenting opportunities for vendors © Business Monitor International Page 30 United States Information Technology Report Q3 2014 Brazil is the highest rated Latin American market in the Q3 2014 ratings, moving up to third after overtaking Chile Brazil's score benefits from the size of the local population, by far the largest in Latin... software-as-a-service (SaaS) Finally, enterprise spending on IT should experience moderate growth in 2014 as confidence begins to return However, while there is pent-up demand from projects delayed as a result of the economic situation, © Business Monitor International Page 17 United States Information Technology Report Q3 2014 some of this may not now be realised The growing market for cloud solutions and virtualisation . Q3 2014 www.businessmonitor.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2018 ISSN 2042-4205 Published by:Business Monitor International United States Information Technology. Recent Acquisitions 81 United States Information Technology Report Q3 2014 © Business Monitor International Page 4 Regional Overview 85 Demographic Forecast 89 Table: The United States& apos; Population. downtrend. United States Information Technology Report Q3 2014 © Business Monitor International Page 15 Industry Forecast Table: IT Industry - Historical Data And Forecasts (United States 2011-2018)