Q4 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 Q4 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: October 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 Q4 2012 © Business Monitor International Ltd Page United States Information Technology Report Q4 2012 CONTENTS Executive Summary . SWOT Analysis . United States IT Sector SWOT . United States Political SWOT United States Economic SWOT United States Business Environment SWOT . Americas Pacific IT Risk/Reward Ratings . Table: Americas Risk/Reward Ratings, Q412 11 IT Markets Overview . 12 IT Penetration 12 Market Growth And Drivers 14 Sectors And Verticals . 16 Market Overview . 20 Government Authority 20 Overview 21 Software . 22 Services 25 Industry Developments 27 Industry Forecast . 29 Table: USA IT Industry – Historical Data And Forecasts (US$mn unless otherwise stated), 2009-2016 31 Industry Forecast Internet . 32 Table: Telecoms Sector – Internet – Historical Data & Forecasts, 2009-2016 . 32 Competitive Landscape . 34 Hardware . 34 Software . 37 Macroeconomic Forecast 42 Table: United States – GDP By Expenditure, Real Growth %, 2008-2016 45 Company Profiles . 46 Hewlett-Packard 46 Dell 52 Table: Selected Dell Mergers And Acquisitions . 56 Microsoft Corporation . 58 IBM 63 Country Snapshot 68 Table: The United States' Population By Age Group, 1990-2020 ('000) 69 Table: The United States' Population By Age Group, 1990-2020 (% of total) . 70 Table: The United States' Key Population Ratios, 1990-2020 . 71 Table: The United States' Rural And Urban Population, 1990-2020 . 71 BMI Methodology . 72 © Business Monitor International Ltd Page United States Information Technology Report Q4 2012 How We Generate Our Industry Forecasts 72 IT Industry . 72 IT Ratings – Methodology 73 Table: IT Business Environment Indicators . 74 Weighting . 75 Table: Weighting Of Components 75 Sources 75 © Business Monitor International Ltd Page United States Information Technology Report Q4 2012 Executive Summary BMI View: USA IT spending is forecast to reach US$559bn in 2012, up 5.5% year-on-year. This leaves our 2012-2016 forecast largely unchanged this quarter, despite a further contraction in PC sales in H112. Meanwhile, public IT procurements remained constrained due to the budget constraints faced by many government entities. Overall moderate growth in budgets is expected, but much depends on the economic situation. Despite a drive to cut expenses across government, many public sector organisations have appeared willing to continue spending on IT; however, the government hopes to make savings in its US$80bn IT budget. US businesses remain cautious, but there is pent-up demand from projects delayed as a result of the economic situation and cloud computing is expected to be increasingly important. Headline Expenditure Projections Computer Hardware Sales: US$141.5bn in 2011 to US$146.8bn in 2012, +3.6% in US dollar terms. Forecast in US dollar terms unchanged from Q312, but Ultrabook failed to provide the hoped-for support to PC sales in H112. Software Sales: US$153.0bn in 2011 to US$163.0bn in 2012, +6.4% in US dollar terms. Forecast in US dollar terms unchanged from Q312, but more investment is expected in utility software and servicesorientated architectures rather than traditionally packaged PC software. IT Services Sales: US$234.9bn in 2011 to US$249.3bn in 2012, +6.0% in US dollar terms. Forecast in US dollar terms unchanged from Q312, with an increasing share of IT budgets being earmarked for newer solutions such as virtualisation and cloud computing. Risk/Reward Ratings: The USA scores 76.3 out of 100.0 for Q412. The USA ranks first in our latest Americas risk/reward ratings (RRRs) table, ahead of Canada, as well as Latin American giants Brazil and Mexico. The country ranking was secured by its global highest industry rewards score of 82.5, while its rating was also boosted a relatively high country rewards score of 90.0. Key Trends & Developments The US federal government's ambitious Cloud First cloud migration strategy has tasked government agencies with migrating 80 services to the cloud within 18 months. Key government agencies including NASA and the General Services Administration are already using the cloud to collaborate and deliver applications. The government hopes to eventually realise savings of up to US$12bn per year from the move and will seek further savings by closing 472 federal data centres by the end of 2012. © Business Monitor International Ltd Page United States Information Technology Report Q4 2012 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. US PC sales are forecast to report single-digit growth in 2012, after a further annualised contraction in Q212. In H112, sales of ultrabooks fell far short of Intel's prediction that ultrabooks would comprise 40% of US notebook sales by the end of 2012. While exact sales figures are hard to derive, these devices seem unlikely to enjoy the success that was hoped for, at least initially. In the United States, the average market price for an ultrabook was upwards of US$900 during H112, compared to around US$500 for a Windows notebook. © Business Monitor International Ltd Page United States Information Technology Report Q4 2012 SWOT Analysis United States IT Sector SWOT The largest IT market in the world, with spending forecast to pass US$559bn in 2012. 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. A large federal budget deficit could lead to pressures on public sector IT spending. Strengths Threats United States 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 Q4 2012 United States 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. United States 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 Q4 2012 Americas Pacific IT Risk/Reward Ratings The top of BMI's Risk/Reward Ratings for the Americas remains unchanged, with the US and Canada leading the pack. These two countries bring up the regional average significantly, with populations that are accustomed to the latest products and frequent upgrades. However, emerging markets in Latin America are seeing continued increases in demand for computer hardware while investment in new products such as cloud computing are gaining momentum. There were no major changes in ranking, although Brazil's score dropped, moving it from joint third to fourth place while remaining markets held their places. The US stands out in the region for its large market size, not matched by any others in the Americas. The presence of some of the world's largest and most important IT companies is a major boon for the market, as well as a large number of corporations and SMEs, all of which have high demands for IT services and software. Although the ongoing economic issues and high unemployment put pressure on the market, BMI still believes the US' IT market will continue to exhibit strong growth and be one of the main drivers of global trends and developments. Fellow developed market Canada follows the US, although its markedly lower IT score highlights the difference in market size. With a significantly smaller population, Canada's IT market value is lower than the US. However, as Canadian consumers exhibit similar demand for new IT hardware, and more importantly IT services, the market stands above those in Latin America. Services form the greatest share of the IT markets in the US and Canada, while hardware drives growth in Latin America. Chile and Brazil take third and fourth place in our ratings, having shared third place last quarter. Brazil's overall score fell slightly, while Chile held its total IT market rating. Although Chile's market size is considerably lower than Brazil's, its inhabitants are among the most IT literate in the region, helping drive demand higher for IT services than for hardware. Favourable demographics put Chile at the top of Latin American markets for country rewards, shared with Venezuela, and its stronger country risks score reflects a more stable political outlook and welcoming business environment. Brazil's IT market is the third largest in the region, hence a strong industry rewards score that remained unchanged this quarter. However, Brazil's economy begins to show signs of a slowdown, with the consumer-driven growth story appearing to be coming to an end. Our core view that Brazil's structural economic imbalances would begin to unwind is now beginning to play out. This will have a strong impact on Brazil's IT market growth forecast. While no other market is close enough to overtake it, slower growth puts a downside risk to Brazil's overall position in our ratings. Nevertheless, there is still much to recommend Brazil, with an ever growing telecoms market increasing the number of broadband © Business Monitor International Ltd Page United States Information Technology Report Q4 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 61 United States Information Technology Report Q4 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 Click here to enter text. www.microsoft.com © Business Monitor International Ltd Page 62 United States Information Technology Report Q4 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 63 United States Information Technology Report Q4 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 64 United States Information Technology Report Q4 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 65 United States Information Technology Report Q4 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 66 United States Information Technology Report Q4 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 67 United States Information Technology Report Q4 2012 Country Snapshot 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 68 United States Information Technology Report Q4 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 69 United States Information Technology Report Q4 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 70 United States Information Technology Report Q4 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 Rural 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 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 71 United States Information Technology Report Q4 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, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all of our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. IT Industry Forecasts There are a number of criteria that drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. © Business Monitor International Ltd Page 72 United States Information Technology Report Q4 2012 Within best-practice techniques of time-series modelling, BMI’s quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: Overall economic context, and GDP and demographic trends; Underlying ‘information society’ trends; Projected GDP share of industry; Maturity of market structure; Regulatory developments and government policies; Developments in key client sectors such as telecommunications, banking and e-government; Technological developments, and diffusion rates; Exogenous events. Estimates are calculated using BMI’s own macroeconomic and demographic forecasts. IT Ratings – Methodology Our approach in BMI’s IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI’s proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas: Limits of potential returns: Evaluation of sector’s size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from the state’s political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. © Business Monitor International Ltd Page 73 United States Information Technology Report Q4 2012 Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Sector value growth, % year-onyear (y-o-y) Denotes breadth of IT market. Large markets score higher than smaller ones Denotes sector dynamism. Scores based on annual average growth over fiveyear 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 structure Urban-rural split GDP per capita, US$ Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower A high GDP per capita supports long-term industry prospects. Overall score for country structure is also affected by the coverage of the power transmission network across the state Risks to potential returns Market risks Intellectual property (IP) laws ICT policy Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code Country risk Short-term external risk Rating from CRR evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment Short-term financial risk Rating from BMI’s CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding Trade bureaucracy Legal framework Bureaucracy Corruption Rating from CRR to denote ease of trading with the state Rating from CRR denotes the strength of legal institutions in each state – security of investment can be a key risk in some emerging markets Rating from CRR denotes ease of conducting business in the state 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 Ltd Page 74 United States Information Technology Report Q4 2012 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all subcomponents equal weight. Consequently, the following weight has been adopted. Table: Weighting Of Components Component Weighting Limits of potential returns 70% – IT market 65% – Country structure 35% Risks to realisation of potential returns 30% – Industry risks 40% – Country risk 60% Source: BMI Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Ltd Page 75 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Monitor International Ltd Page 19 United States Information Technology Report Q4 2012 Market Overview Government Authority 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... to report stronger single-digit growth in 2012 Due to factors such as parts shortages resulting from the Thai floods in H211, the full recovery may be deferred until the second half of 2012 However, in all markets spending on software and services is projected to increase its share of the IT spend by 2016 © Business Monitor International Ltd Page 16 United States Information Technology Report Q4 2012. .. across the region Across Latin America, low average incomes and low PC penetration rates restrain information society development, and thousands of towns and villages still lack access to information communication © Business Monitor International Ltd Page 12 United States Information Technology Report Q4 2012 technology (ICT) While some cities and regions stand out, there is a general pattern of underdeveloped... server and © Business Monitor International Ltd Page 24 United States Information Technology Report Q4 2012 accessed remotely Research firm IDC has forecast that by the end of 2012, 80% of new commercial enterprise applications will have been deplayed on cloud platforms A survey in 2012 by North Bridge Venture Partners of 785 IT decision-makers reported that 50% of users expressed complete confidence... substantial information society budget and the roll-out of national and local projects that were previously delayed because of the economic situation © Business Monitor International Ltd Page 15 United States Information Technology Report Q4 2012 Aside from regional trends, particular factors are forecast for market demand in IT Market Compound Growth individual markets Infrastructure 2012- 2016 (%)... purchasers of IT products and services © Business Monitor International Ltd Page 20 United States Information Technology Report Q4 2012 The US Treasury is in charge of tax issues affecting the US industry, including such issues as Research and Development (R&D) tax subsidies The Office of E-Government and Information Technology within the Office of Budget Management is responsible for monitoring federal... dropped to around US$850 by mid -2012, and were expected to dip further to around US$750 for the back-To-school season Meanwhile, the release of Windows 8 in October 2012 could provide a boost to the adoption of ultrabooks as consumers and businesses upgrade to the new operating system © Business Monitor International Ltd Page 21 United States Information Technology Report Q4 2012 E-Readers One product segment... Monitor International Ltd Page 11 United States Information Technology Report Q4 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%),... 2015, is expected to be a major driver of investment in this area © Business Monitor International Ltd Page 28 United States Information Technology Report Q4 2012 Industry Forecast US spending on IT products and services is forecast to reach US$559bn in 2012 and US$674bn by 2016 BMI has left its 2012- 2016 forecast largely unchanged this quarter, despite a disappointing contraction in PC sales in H112 Commercial... invest in their IT infrastructure in Venezuela We see little upside for this market in the short-to-medium term © Business Monitor International Ltd Page 10 United States Information Technology Report Q4 2012 Table: Americas Risk/Reward Ratings, Q41 2 Rewards Risks Industry Rewards Country Rewards Industry Risks Country Risks IT Rating Rank Previous Rank USA 82.5 90.0 50.0 59.2 76.3 1 1 Canada 65.8 90.0 . deadline: October 2012 United States Information Technology Report Q4 2012 © Business Monitor International Ltd Page 2 United States Information Technology Report Q4 2012 ©. Ratios, 1990-2020 71 Table: The United States& apos; Rural And Urban Population, 1990-2020 71 BMI Methodology 72 United States Information Technology Report Q4 2012 © Business Monitor. US$500 for a Windows notebook. United States Information Technology Report Q4 2012 © Business Monitor International Ltd Page 7 SWOT Analysis United States IT Sector SWOT Strengths