United states information technology report q4 2013

Q4 2013 www.businessmonitor.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 2042-4205 Published by:Business Monitor International United States Information Technology Report Q4 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: September 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. 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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 2013 CONTENTS BMI Industry View . SWOT IT SWOT Wireline . 11 Political . 13 Economic . 14 Business Environment 15 Industry Forecast 16 Table: US IT Industry - Historical Data And Forecasts (US$mn unless otherwise stated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Broadband . 21 Table: Telecoms Sector - Internet - Historical Data & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Macroeconomic Forecasts . 23 Table: United States - GDP By Expenditure, Real Growth % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Industry Risk Reward Ratings 34 Americas Risk/Reward Ratings . 34 Table: Americas IT Risk/Reward Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Market Overview . 37 Hardware . 37 Software . 45 Services 50 Industry Trends And Developments 53 Regulatory Development 57 Table: IT Regulatory Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Company Profile 59 Dell 59 Microsoft Corporation 65 Hewlett-Packard . 72 IBM 79 Table: IBM Acquisitions, 2012 (Total Value, US$3.964bn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Regional Overview 85 Americas Overview 85 Demographic Forecast . 89 Demographic Outlook 89 © Business Monitor International Page United States Information Technology Report Q4 2013 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 IT Industry Forecasts 93 IT Risk/Reward Ratings - Methodology 94 Table: IT Business Environment Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Weighting . 96 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Sources 96 © Business Monitor International Page United States Information Technology Report Q4 2013 BMI Industry View BMI View: We forecast relatively strong growth in US IT spending compared with other developed markets over the medium term. Total spending is expected to reach US$588bn in 2013, up 6.6% from 2012, and grow at a compound annual growth rate of 5.1% to 2017. Economic uncertainty continues to be a drag on spending, and there are some areas where sales are in decline, for instance, desktops and notebooks, and some areas government spending due to fiscal retrenchment. However, other areas of the market are growing rapidly, for instance, tablet sales are booming and enterprise adoption of emerging technologies such as real-time enterprise software and Big Data. The US is also the leading cloud computing market globally with widespread adoption by enterprises, including leading the way in the most advanced applications. Although the National Security Agency PRISM revelations have dampened demand for US cloud services in other countries, most notably Europe, the impact on the US market is expected to be relatively limited. Headline Expenditure Projections ■ Computer Hardware Sales: US$144bn in 2012 to US$152bn in 2013, an increase of 4.7%. Desktop and notebook sales are declining, but at a slower rate than other developed markets, while booming tablet sales are driving growth. ■ Software Sales: US$161bn in 2012 to US$173bn in 2013, an increase of 7.6%. Forecast in US dollar terms unchanged. 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: 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 services will also develop rapidly as enterprises seek competitive advantage by utilising the increases in available data. ■ Risk/Reward Ratings (RRR): The US's score was 78.2 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 revelations around the National Security Agency (NSA) PRISM intelligence gathering programme generated fears that the progress of the cloud computing industry could be derailed. Surveys show that the scandal has hurt the prospects of US cloud providers internationally, most notably in Europe; however, the domestic market appears to be relatively unscathed. Nonetheless, cloud providers are concerned about the impact of the government's activities on their growth prospects in a rapidly developing market. A survey by the US-based Cloud Security Alliance estimated that US cloud providers offering file storage and computing in the cloud could lose 10% to 20% of the non-US market to rivals as a result of the PRISM © Business Monitor International Page United States Information Technology Report Q4 2013 scandal. The survey found that 10% of non-US respondents had already cancelled a project with a US provider, while 56% would be less likely to use a US provider in future. BMI believes US-cloud providers will look to provide assurances to clients, which would include moving part of their operations out of the US and into target markets. Demand for traditional form factors such as notebooks and desktops is declining in the US, albeit shipments have held up better than markets in Western Europe. This is in part explained by the healthier economic backdrop and also by the lower PC penetration rate in the US. Meanwhile, tablet sales continue to boom and drive the hardware market, with the latest data from Pew Research Centre showing penetration reached 34% of the adult population in May 2013, up from just 14% a year earlier. Although tablets offer continued growth potential as penetration rates rise, we expect growth to slow. Vendors will need to offer new features in order for consumers to accept short replacement cycles and upgrade devices in quantities sufficient to offset the slowdown from diminished first-time buyer opportunities. © Business Monitor International Page United States Information Technology Report Q4 2013 SWOT IT SWOT SWOT Analysis Strengths ■ The largest IT market in the world, with spending forecast to reach nearly US$705bn by 2017. ■ Despite the challenging trading conditions, overall IT spending is still expected to remain in positive growth territory. Weaknesses ■ PC shipments have held up better than in other developed markets in 2012 and 2013. ■ 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 ■ Technologically savvy local population willing to spend on premium devices such as 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. ■ Potential for growth in the hardware market through form factor evolution ie ultra-thin notebooks, hybrids/convertibles and tablets. ■ Cloud computing, with a large number of federal and state cloud computing programmes generating opportunities. ■ New business models such as software as a service 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. © Business Monitor International Page United States Information Technology Report Q4 2013 SWOT Analysis - Continued ■ Privacy became a more pressing issue with the PRISM spying revelations, which is expected to damage US cloud computing providers. ■ The large federal budget deficit could lead to pressures on public sector IT spending. © Business Monitor International Page 10 United States Information Technology Report Q4 2013 IBM Acquisitions, 2012 (Total Value, US$3.964bn) - Continued Acquistion Date Value Description Tealeaf Technology Q212 - Provides a full suite of customer experience management software, which analyses interactions on websites and mobile devices Varlcent Software Q212 - Varicent's software automates and analyses data across sales, finance, human resources and IT departments to uncover trends and optimise sales performance and operations. Green Hat Software Q112 - Green Hat helps customers improve the quality of software applications by enabling developers to use cloud computing technologies to conduct testing of a software application prior to its delivery. Emptorls Q112 - Provider of cloud-based analytics offerings that provide supply chain intelligence, leading to better inventory management and cost efficiencies. Worklight Q112 - Mobile application management capabilities to clients across a wide range of industries DemandTec Q112 - DemandTec delivers cloud-based analytics software to help organisations improve their price, promotion and product mix within the broad context of enterprise commerce. Platform Computing Q112 - Technical and distributed computing management software for applications such as simulations, computer modelling and analytics Source: IBM, BMI Recent Financial Performance IBM reported revenues of US$104.507bn in 2012, a decrease of 2.3% from 2011. The decline in revenue was steepest in EMEA, with macroeconomic conditions in Western Europe the key factor, as revenue fell 6.5% to US$31.8bn in 2012. IBM's most valuable region, Americas, fared better with a 0.9% y-o-y decline to US$44.5bn, while Asia Pacific registered 2.4% increase in revenues to US$25.9bn. In terms of growth markets, ie developing markets, IBM reported revenue growth of 7.4% as they it took an increased share of 24% of total revenues. The growth in BRIC markets outpaced the rest of the growth markets with an 11% increase in revenue in 2012 (although this rate was down from 19% in 2010). Despite the squeeze on revenues IBM increased gross profit 0.3% y-o-y to US $50.298bn, while pre-tax profit increased 4.3% to US$21.902. This resulted in a gross margin of 48.1% (up 1.2pps y-o-y) and a pre-tax margin of 21% (up 1.4pps y-o-y). Net income was up 4.3% to US$16.544bn in 2012, giving a profit margin of 15.8%. By product division, Global Technology Services continues to be the largest component by revenues, at 38.5% of the total, although it has seen revenues decline in 2012, down 1.6% to US$40.236bn. Outsourcing, which accounts for almost 60% of the division by revenue, saw a decline of 2.4% to US$23.344bn, while maintenance revenues also declined, down by 2.3% to US$2.3bn. Integrated technology services did, however, register growth, with revenue up 1% to US$9.55bn. Although revenue fell, the gross margin for Global Technology Services increased by 1.6pps to 36.6%, while pre-tax © Business Monitor International Page 82 United States Information Technology Report Q4 2013 income increased 10.8% to US$6.96bn. Even after this improvement, it continues to be one of the lower margin divisions, accounting for 31.8% of pre-tax income with a margin of 17.3%. Software is the second largest division, with 24.4% of total revenue - and is the most important division by pre-tax income at 49.4% in 2012. Pre-tax income increased 8.4% y-o-y to reach US$10.81bn in 2012 and a pre-tax margin of 42.5%. Software revenues increased 2% in 2012 to US$25.449bn, with the fastest growth of 2.9% in key branded middleware including WebSphere, Information Management and Tivoli. With a series of acquisitions in 2012, software revenue looks set to increase further and maintain its strong growth trajectory. Global Business Services revenue declined 3.7% y-o-y to US$18.566bn in 2012, equal to 17.8% of revenue. Outsourcing revenue fell 4.1%, only slightly better than the 4.2% decline in consulting and systems integration revenue. The decline in pre-tax profit was less pronounced, down 0.8% y-o-y to US$2.983bn as the pre-tax margin increased to 16.1%. Finally, System & Technology revenue declined 6.9% to US$17.666bn in 2012, as its share of total revenue contracted to 16.9%. In addition to experiencing the sharpest fall in revenue, pre-tax profit contracted sharply to US$1.227bn, down 24.9% from 2011. Recent Activities In February 2013 IBM acquired two companies, first Star Analytics, a business analytics software firm, and also Stored IQ, which provides software for the disposal of information that has outlived its purpose, lowering total data storage costs. In January 2012, IBM introduced new software to help organisations better manage and 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 © Business Monitor International Page 83 United States Information Technology Report Q4 2013 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 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 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 ■ ■ ■ ■ ■ ■ Company Details ■ ■ Annual Revenues (2010): US$99.9bn Annual Revenues (2011): US$106.9bn Annual Revenues (2012): US$104.5bn Net Income (2010): US$14.8bn Net Income (2011): US$15.9bn Net Income (2012): US$16.5bn 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 Q4 2013 Regional Overview Americas 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 © Business Monitor International Page 85 United States Information Technology Report Q4 2013 Larga (PNBL - National Broadband Plan) was launched on May 2010 with the aim of tripling access to 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 © Business Monitor International Page 86 United States Information Technology Report Q4 2013 hardware, has helped to catalyse investment in local production facilities and the acquisition of local players 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 87 United States Information Technology Report Q4 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 88 United States Information Technology Report Q4 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 89 United States Information Technology Report Q4 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 90 United States Information Technology Report Q4 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 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 91 United States Information Technology Report Q4 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 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 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 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 92 United States Information Technology Report Q4 2013 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 93 United States Information Technology Report Q4 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 94 United States Information Technology Report Q4 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 95 United States Information Technology Report Q4 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 96 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Page 19 United States Information Technology Report Q4 2013 Summary The hardware market is predicted to 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 Industry Trends - IT Market 2010-2017 f = BMI forecast Source: BMI © Business Monitor International Page 20 United States Information. .. would likely © Business Monitor International Page 32 United States Information Technology Report Q4 2013 entail financial contagion that would affect US banks, and a drawback in credit at this point in the recovery could have negative effects for our growth forecasts Table: United States - GDP By Expenditure, Real Growth % 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f Real GDP growth, % change... communications in the enterprise market These growth trends will support a compound annual growth rate of 5.1% 2013- 2017 There is however downside risk to our core scenario as a result of global economic headwinds © Business Monitor International Page 16 United States Information Technology Report Q4 2013 2013 Outlook The IT market in the US is highly developed, meaning growth will be slower than the fast growing... Page 25 United States Information Technology Report Q4 2013 them to spend Compounding the steady improvement in the labour market is the increase in real personal income excluding transfers The rate of income growth year-on-year has accelerated in each of the last four months, suggesting that the second quarter of 2013 could see stronger private consumption growth, posing upside risk to our 2013 and... Intel's new Haswell chipsets in June 2013, which enable longer battery life, higher performance and slimmer notebooks BMI believes hybrids/ convertibles and ultra-thin touch-screen notebooks have the potential to experience rapid growth, but with © Business Monitor International Page 17 United States Information Technology Report Q4 2013 momentum only beginning to build in 2013, the impact will be felt more... increasingly likely that fixed-line operators will need to become broadbandfocused in order to survive © Business Monitor International Page 22 United States Information Technology Report Q4 2013 Macroeconomic Forecasts BMI View: While we are revising down our 2013 real GDP forecast for the US from 2.1% to 1.8%, we maintain that the core components of the US economy are on the cusp of a cyclical upswing... to our 2014 and 2015 real GDP growth forecasts of 2.7% and 2.6% are predominantly to the upside Slightly Weaker 2013 Before GDP Acceleration US - Real GDP Growth, % Note: f=BMI forecast; Source: BMI, BEA © Business Monitor International Page 23 United States Information Technology Report Q4 2013 Not only do we expect accelerating growth next year, we believe the US economy could be on the cusp of a multi-year... goods and services have shown only sluggish growth, prompting us to revise down this component of 2013 growth, whereas we see a strengthening consumer leading to more rapid import growth than we had originally expected © Business Monitor International Page 24 United States Information Technology Report Q4 2013 Expenditure Breakdown Private Consumption: We continue to believe the US consumer is slowly... growth booms, and sectors ranging from biotechnology to alternative energy are being discussed as possible catalysts Threats ■ The US's chronic fiscal deficits may force the federal government to find ways to raise effective corporate tax rates, following a multi-decade downtrend © Business Monitor International Page 15 United States Information Technology Report Q4 2013 Industry Forecast Table: US IT Industry... up, easing the fiscal picture at all levels of government © Business Monitor International Page 31 United States Information Technology Report Q4 2013 Less Of A Drag On GDP US - Contribution Of Government Consumption & Gross Investment To Real GDP Growth, pp (4Quarter MA) Source: BMI, BEA Furthermore, states and municipalities have already enacted many of the cutbacks necessary to deal with the slowdown . Q4 2013 www.businessmonitor.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 2042-4205 Published by:Business Monitor International United States Information Technology. 89 United States Information Technology Report Q4 2013 © Business Monitor International Page 4 Table: The United States& apos; Population By Age Group, 1990-2020 ('000) 90 Table: The United. growth rate of 5.1% 2013- 2017. There is however downside risk to our core scenario as a result of global economic headwinds. United States Information Technology Report Q4 2013 © Business Monitor