Q1 2010 www.businessmonitor.com aUStraLIa information technology Report INCLUDES 5-YEAR FORECASTS TO 2014 ISSN 2041-7160 Published by Business Monitor International Ltd. Australia Information Technology Report Q1 2010 Including 5-year industry forecasts by BMI Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Publication date: January 2010 Business Monitor International Mermaid House, Puddle Dock, London, EC4V 3DS, UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2010 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. Australia Information Technology Report Q1 2010 © Business Monitor International Ltd Page Australia Information Technology Report Q1 2010 CONTENTS Executive Summary .5 SWOTS Australia IT Sector SWOT . Australia Political SWOT Australia Economic SWOT Australia Business Environment SWOT . Asia IT Business Environment Ratings .10 Regional IT Business Environment Ratings . 12 Asia Regional IT Markets Overview 13 IT Penetration 13 Market Growth And Drivers 14 Sectors And Verticals . 16 Market Overview .19 Government Authority 19 Industry Developments 23 Table: Computers For Schools Programme, Phase Two – Planned Spending By State . 24 Industry Forecast Scenario .25 Table: Australia’s IT Sector (US$mn Unless Otherwise Stated) 27 Internet 28 Table: Telecoms Sector – Internet – Historical Data & Forecasts 28 Competitive Landscape .30 Table: Australia Dial-up And Broadband Internet Subscriptions (’000) . 34 Macroeconomic Forecast . 39 Table: Australia – Economic Activity 41 Company Profiles .42 HP Australia 42 SAP (Australia) 43 Country Snapshot: Australia Demographic Data .44 Section 1: Population . 44 Table: Demographic Indicators, 2005-2030 44 Table: Rural/Urban Breakdown, 2005-2012 . 45 Section 2: Education And Healthcare 45 Table: Education, 2002-2005 45 Table: Vital Statistics, 2005-2030 45 Section 3: Labour Market And Spending Power 46 Table: Employment Indicators, 2001-2006 46 Table: Consumer Expenditure, 2000-2012 (US$) 46 Table: Average Annual Wages, 2000-2012 47 BMI Methodology .48 IT Ratings – Methodology . 48 Ratings Overview . 48 © Business Monitor International Ltd Page Australia Information Technology Report Q1 2010 Table: IT Business Environment Indicators . 49 Weighting . 50 Table: Weighting Of Components 50 How We Generate Our Industry Forecasts 50 IT Industry . 51 Sources 51 © Business Monitor International Ltd Page Australia Information Technology Report Q1 2010 Executive Summary Market Overview Australia’s IT market should continue to provide opportunities in consumer, government and business sectors in 2010, following a better-than-expected performance in 2009. The total size of the domestic IT market is projected by BMI to increase from US$18.7bn in 2010 to around US$22.7bn in 2014. Consumer spending held up relatively well in 2009, thanks to demand for notebooks, while corporate IT spending had started to recover by the end of 2009. In 2010, there could be a boost, particularly in the second half of the year, from computer hardware tenders delayed from 2009. The launch of Microsoft’s Windows operating system also has the potential to help trigger a new cycle of hardware upgrades. A number of factors underpin our forecast of a 5% 2010-2014 compound annual growth rate (CAGR) for the Australian IT market. Government tenders will drive considerable spending in years to come. Regulatory compliance will continue to need spending by banks and intense competition in the retail sector is spurring spending on customer relationship management (CRM) and back office systems. Competition and new service platforms in the telecoms sector is a driver for that key IT spending segment. Industry Developments In 2010, government projects in sectors such as e-government, healthcare and education will drive significant opportunities for IT vendors. In mid-2010, the Australian government is expected to launch a standardised reporting system scheme. Australia’s National E-Health Transition Authority has the goal to create a paperless environment in Australia’s health sector, including public hospitals. While most government IT programmes were relatively immune to the global slowdown, the financial downturn encouraged the government to seek greater efficiency in IT procurement. There were reports in 2009 that the Australian government was considering centralising the procurement of desktop computers, with the appointment of a single supplier. The Australian Information Industry Association expressed concerns about the implications for smaller companies. Federal programmes have also found an echo in state government projects in areas such as education and smart cards. Queensland Transport recently unveiled plans to introduce a new driving licence using smart card technology. Adult proof of age cards are also to be introduced, as are cards for licences for passenger transport and by a number of other licensing authorities. Company News In 2009, the PC battleground continued to focus on competition for government tenders, particularly the computers in education programme. In April 2009, Lenovo succeeded in a tender to provide computers to © Business Monitor International Ltd Page Australia Information Technology Report Q1 2010 New South Wales schools. This followed a previous big win for Lenovo in February, when it teamed up with a local partner to roll out 10,000 netbooks to Victoria public schools over a three-year period. The project supplied netbooks from both Lenovo and Acer to students in years five through to eight. In 2010, Microsoft anticipated that support from leading PC makers would underpin success for its new Windows operating system. Microsoft received credit for a smoother launch of Windows compared with its previous Vista operating system, due in large part to better co-operation with other players in the software value chain. A wave of new PCs were released with the new operating system, while Acer and Dell said that as of launch date there was zero inventory of Vista machines going into stores. IBM’s Australia subsidiary remained positive about its revenues prospects in 2009 and in December, the company opened a new regional IT service centre in Ballarat. IBM had experienced a setback in March 2009 when Telstra reportedly reassigned parts of its six-year US$697.7mn IT outsourcing project with IBM Global Services. Meanwhile in October 2009, Unisys was granted a two-year extension on its contract with Austalia’s Immigration Department for outsourced desktop services. Computer Sales Australian computer hardware sales are projected at US$7.8bn in 2010, and are forecast to grow at a 2010-2014 CAGR of around 5% to reach US$8.7bn by 2014. The main drivers of growth in the PC market will be government programmes, growing broadband penetration and greater affordability. The fastest-growing segment is notebooks, which already accounts for more than 50% of the market by value. The main drivers of growth in the PC segment will be government programmes, growing broadband penetration and greater affordability. More than 90% of Australian households now have a PC, but consumers appear willing to spend on upgrading their notebook computers and it is also becoming more popular to purchase a second household PC. Small business comprise more than 99% of all Australian businesses and slighly more than 50% of business PC sales. Software Software is expected to account for about 18% of the Australian IT market in 2010, with estimated spending of US$3.3bn. As the focus moves from hardware to services and solutions, the share of the market accounted for by software is forecast to rise to 20% by 2014, with businesses seeking greater leverage from their investments. Software sales are forecast to have a CAGR of around 8%, rising to US$4.5bn by 2014. Software piracy has fallen in Australia in recent years but remains an issue in some segments of the enterprise market. Over the forecast period, enterprise resource planning (ERP), CRM and other ebusiness products will be increasingly popular with the small and medium-sized enterprise (SME) market, as companies look to enhance productivity through automating essential functions. © Business Monitor International Ltd Page Australia Information Technology Report Q1 2010 IT Services IT services are expected to account for about 40% of the domestic IT market in 2010, with spending of US$7.6bn, up from US$7.2bn in 2009. CAGR for the segment is estimated at 6% over 20102014. IT services are forecast to be one of the most dynamic sectors of the Australian IT market. In 2010, sectors such as government, telecoms, healthcare and banking should continue to supply demand for implementation, consulting and managed services. Regulatory compliance will continue to need spending by banks and intense competition in the retail sector is spurring spending on CRM and back office systems. E-Readiness A number of alternative Australian internet service providers (ISPs) are in the process of expanding the coverage of their ADSL networks. Other broadband service providers, including Unwired, are rolling out WiMAX networks, which will help to ensure greater choice and flexibility in the type of broadband connection available. Australia is above the OECD average in terms of businesses purchasing online (49% versus 33%) and selling online (27% versus 17%). The central component of the Rudd government’s ICT strategy and overall domestic economic policy is the construction of a National Broadband Network (NBN). The programme is expected to drive economic growth and foster the creation of a digital economy. The government has projected GDP gains of 1.4% after five years from the broadband project. Tenders for the construction of the network were lodged in November 2008. Despite these investment commitments, our outlook for Australian broadband growth continues to be cautious. This is based partly on delays that have characterised government and operator efforts to address the problem of low broadband coverage in rural parts of Australia. Meanwhile, fixed penetration rates in urban areas are already very high. Our newly revised broadband forecast envisages broadband penetration rising to just over 37% at the end of 2009. © Business Monitor International Ltd Page Australia Information Technology Report Q1 2010 SWOTS Australia IT Sector SWOT Strengths Weaknesses Opportunities Threats ƒ Strong government support for ICT programmes ƒ IT-literate population ƒ Strong financial sector ƒ Relatively unaffected by global economic crisis compared with Europe and the US ƒ Australia has a relatively mature domestic market, with relatively slow growth rates ƒ Sensitive to volatility in the global economy ƒ The National Broadband Network programme will have many direct and indirect benefits for the IT market ƒ Phase two of the computers for schools project is expected to generate an additional US$800mn of spending ƒ Other major IT projects in areas such as healthcare and smart cards ƒ Green IT as companies look to make power savings ƒ The biggest threat is slowdown the global economic slowdown affecting Australia’s economic activity and leading to a scaling back of IT budgets ƒ The cheaper Australian dollar will affect consumer and business demand in the import-dependent IT market Australia Political SWOT ƒ Australia is a mature democracy with a broadly stable party system ƒ Economic stability over recent years supports the current political system, and radical groups are unlikely to gain substantial support ƒ Despite enjoying general political stability over the years, the ruling party’s lack of a clear majority in the upper house of parliament (senate) occasionally creates difficulty in the passage of policy ƒ As one of the region’s largest and most stable states, the country attracts many refugees and economic migrants. The issue is a key source of domestic tension and one that is unlikely to disappear over the medium term Opportunities ƒ Australia has historically enjoyed close military ties with the US. However, with the rise of regional economic powers like China, it will need to balance competing military and economic ties Threats ƒ Australia’s early support for the US ‘war on terror’, among other things, has made Australians abroad a target for Islamic extremists ƒ Australia’s close alliance with the US, particularly under John Howard, has left a lingering feeling among some Asian governments that Canberra is Washington’s ‘deputy sheriff’ in the region Strengths Weaknesses © Business Monitor International Ltd Page Australia Information Technology Report Q1 2010 Australia Economic SWOT Strengths Weaknesses Opportunities Threats ƒ A modern economy supported by a sound financial system and a highly educated workforce ƒ Continuity in policymaking. This lowers risks for investors and reduces the economy’s vulnerability to governmental change ƒ The persistent current account deficit, which increases vulnerability to capital flows and, by extension, currency volatility ƒ The export basket is highly concentrated in commodities with the consequence that the economy and currency remain vulnerable to fluctuations in world prices for metals, coal and agricultural goods ƒ The rapid expansion of Asian economies in recent years – notwithstanding the current global recession – offers new opportunities for diversifying trading ties from core European markets ƒ A low level of government debt has provided a certain amount of flexibility in fiscal policy to support domestic demand through the downturn. ƒ The currency’s vulnerability to commodity prices – and risk appetite in general – complicates exchange rate forecasting over the near term ƒ Australia is vulnerable to droughts, which have become increasingly severe in past years as a result of global climate change Australia Business Environment SWOT ƒ A highly educated workforce and comparatively modern transport infrastructure underpins economic prospects ƒ The economy is very open, with the IMF awarding Australia its highest rating in the index of trade restrictiveness ƒ Despite its openness, Australia requires the Foreign Investment Review Board to approve any commercial real estate investment by a foreign company or individual valued at US$5 million or more ƒ With a population of just under 22mn, the domestic consumer base is small by regional standards Opportunities ƒ Australia has opened talks with China, ASEAN, Malaysia, the Gulf Cooperation Council, Japan and South Korea regarding a free trade agreement (FTA), and is also considering FTAs with India and Indonesia Threats ƒ Corporate taxes for foreign investors in Australia are higher than in other states ƒ Recent investment proposals by Chinese firms regarding the resource extraction sector have raised fears that strategic assets will be lost to foreign players Strengths Weaknesses © Business Monitor International Ltd Page Australia Information Technology Report Q1 2010 of operators towards much higher-speed services. In announcing its results for the first half of its 2009 financial year, Telstra reported that it had experienced a 114.6% increase in the number of subscribers on plans with speeds of 20Mbps or greater. The operator reported having around 210,000 customers in this category at the end of December 2008. Telstra has embarked on a transformation of its business, putting its BigPond high-speed broadband service at the centre of its strategy. The incumbent can deliver fixed-line broadband access to over 90% of Australian consumers, from about 360 ADSL2+ exchanges (higher speeds of 20Mbps) and 2,400 ADSL exchanges (normal speeds of 8Mbps). However, Telstra is only allowed to offer its faster speed service in regions where competitors such as Optus, Primus Telecom and iiNet are also able to offer ADSL2+ residential connections. Telstra had previously refused to activate ADSL2+, except in exchanges where its competitors were already operating. It claimed it did not have regulatory certainty from the Australian Competition and Consumer Commission (ACCC) that it would not be forced to re-sell the service to its competitors. This was despite several public statements from the ACCC that ADSL2+ would not be made a declared service. The move will provide broadband speeds of up to 20Mbps for up to 2.4mn homes and businesses across the country. After a stand-off with the government, which had lasted for more than a year, Telstra activated its ADSL2+ broadband network in February 2008. In March 2009, Telstra announced that it would invest more than AUD300mn (US$191.4mn) in 2009 to upgrade its hybrid fibre coaxial network to offer downlink speeds of up to 100Mbps. According to reports, the initial phase was expected to be completed in Melbourne by Christmas. Telstra will install DOCSIS 3.0 software across its network in the Victoria capital, and it is understood that download speeds will range between 70-100Mbps, while average upload speeds will be 2Mbps; the comparatively slow speed of latter rate is understood to be due to technical limitations. Also in March, broadband provider Internode launched its ‘Extreme’ symmetric high speed digital subscriber line services in Adelaide, targeting medium-sized businesses. The new service offers uplink and downlink speeds of 5-40Mbps; the price for a 5Mbps service with a 25GB download limit is AUD700 (US$450) per month, while a 40Mbps connection with unlimited usage will cost AUD4,000 per month. Internode has said it plans to roll out the service to business districts in other cities, with Sydney, Melbourne and Brisbane expected to be next to receive the increased speeds. In January 2009, Internode revealed it was planning to enhance and upgrade its international and domestic networks. The operator has announced that it would quadruple the capacity of its bandwidth linking Sydney, Canberra, Melbourne and Adelaide, increasing it from multiple 2.5Gbps links to multiple 10Gbps links. It claims the move comes as it looks to ‘meet growing demand from customers’. Internode has also revealed that, under a separate project, it plans to add an alternative fibre path to Asia by using the Sea-Me-We cable, which connects Perth with countries in South East Asia, the Middle East and Western Europe. Currently it uses the Southern Cross Cable and Australia-Japan Cable, which lands in © Business Monitor International Ltd Page 37 Australia Information Technology Report Q1 2010 Sydney. The new links were set to be in service by March 2009. It plans to form peering relationships in London and Amsterdam for direct connectivity with European ISPs and content providers. In April 2009, Primus Telecom, which offers services under the iPrimus banner, announced that it would abandon plans to build new DSLAMs, following the government’s announcement that it would build the NBN as a public-private partnership. Instead, Primus announced a resale deal with Telstra for the incumbent’s ADSL2+ services at approximately 1,500 exchanges. The agreement will effectively quadruple Primus’s ADSL2+ coverage area, having previously rolled out its own ADSL2+ services in 286 exchanges. Primus offers ADSL2+ plans from its own exchanges from AUD32.95 (US$23.35) per month, but will offer resold Telstra ADSL2+ services from AUD69.95 per month. Naked DSL In March 2009, Australia’s second largest broadband operator, Optus, unveiled plans to start offering naked DSL subscription plans, allowing customers to have a broadband connection without having to rent a traditional telephone line. Optus says the service, which includes a 7GB data download cap, is priced at AUD59.99 (US$38.30) or AUD49.99 when bundled with an Optus mobile plan. The company also announced plans allowing for month-to-month subscriptions as opposed to a standard 24-month contract. Internode and iiNet were the first ISPs to offer the service in Australia. Following a four-month trial, Internode launched its ‘Naked ADSL2+’ service at 450 exchanges in March 2008. Internode’s service launch followed the conclusion of a network sharing agreement with Optus Wholesale, which increased Internode’s network footprint of 100 ADSL2+ equipped telephone exchanges to 450 across Australia. Internode is investing AUD3.5mn in the expansion of high-speed internet services across rural Australia. WiMAX Although xDSL services still account for by far the greatest number of broadband connections – and the bulk of new broadband subscriber growth – there are signs that alternative technologies such as WiMAX are set to gain greater prominence. Some analysts have suggested that the total market for WiMAX services in Australia could be worth US$123.6mn by 2012. Key players in the WiMAX sector include Unwired, whose WiMAX network provides coverage in Sydney and Melbourne. In October 2008, it was reported that Unwired had shortlisted three potential hardware suppliers, Huawei, Alcatel-Lucent Technologies and Motorola, for its WiMAX network rollout. The announcement came as Unwired prepared to upgrade from its current pre-WiMAX infrastructure that was supplied by Navini Networks. According to reports, Unwired’s older network equipment will not be decommissioned when the WiMAX roll-out takes place. Unwired is thought to have over 75,000 subscribers, and the operator has spectrum for a planned deployment in other Australian cities including Brisbane, Adelaide, Perth, Geelong, Newcastle and along the central Australian coastline. © Business Monitor International Ltd Page 38 Australia Information Technology Report Q1 2010 Other WiMAX broadband operators in Australia include Allegro, which claims to cover 16% of Australia’s population with its network; BigAir, which operates in a number of major cities; and Austar Broadband, the broadband internet arm of pay TV company Austar. In January 2009, BigAir launched its WiMAX network in Perth, Western Australia. The deployment covers 30km around the central business district, or approximately 2,000km2. According to the operator, the new network delivers symmetric broadband speeds of to up 1,000Mbps. BigAir is understood to be looking for new ISPs and channel partners in the west to resell services across the new network. BigAir launched its first WiMAX services across Sydney and Melbourne in August 2007 and has since expanded to Brisbane, the Gold Coasts and, most recently, Perth. The point-to-point service is based on Airspan Networks’ 802.16d technology using 5.8GHz MicroMAX base stations. Macroeconomic Forecast Upward Revision To 2009 Growth Forecast BMI View: A better-than-expected performance of the Australian economy has compelled us to revise our full-year growth forecast for 2009 upwards to 0.3%, from -0.8% previously, while retaining our 2010 forecast of 1.9%. A key risk to our outlook would be a renewed Chinese downturn, which could adversely impact Australia’s economy as well. Australia’s real GDP performed impressively in Q209 vis-à-vis its neighbours in Asia, rising by a seasonally adjusted 0.6% quarter-on-quarter (q-o-q), from 0.4% in the preceding quarter. Boosted by the AUD43.0bn (US$35.5bn) stimulus package and sustained commodities exports during the global economic downturn, Australia’s GDP growth remained in positive territory throughout H109. Going forward, we believe that both Australian and Chinese stimuli will provide substantial tailwinds for the economy. In view of the better-than-expected performance, we are revising our full-year growth forecasts upwards to 0.3%, from an earlier -0.8%, while maintaining our 2010 forecast of 1.9%. A closer look at the numbers reveal that the largest contributor to Australia’s growth was the increase in private consumption, which rose 0.8% q-o-q, seasonally adjusted, contributing 0.5 percentage point (pp) to the headline figure. This was a direct result of the government’s AUD20bn worth of cash handouts as part of the AUD43.0bn stimulus package, which sustained the domestic sector amid a weak global economy. The retail trade sector managed to expand by 3.8% q-o-q seasonally adjusted in Q209, contributing 0.1pp to the overall GDP figure. This was despite of a general decline in a number of other industries, especially the agriculture, forestry and fishing sector, which fell 15.3% over the same period. The manufacturing sector, on the other hand, rose by 0.7%, aided by a rise in demand for certain consumer-centric products, such as food, beverage and tobacco (+6.2%) and printing, publishing and recorded media (+3.9%). We expect the stimulus-driven growth in private consumption to have persisted © Business Monitor International Ltd Page 39 Australia Information Technology Report Q1 2010 for the rest of 2009 the Federal Treasury indicated in August 2009 that it intends to maintain the disbursement of funds to households despite an improvement in the economic outlook. Meanwhile, government consumption also registered a 0.8% q-o-q increase (seasonally adjusted), contributing 0.1pp to overall growth. Going forward, we believe that the AUD43.0bn stimulus package will play an important role in helping Australia maintain positive growth over the near term. Indeed, Prime Minister Kevin Rudd’s administration is now expecting a budget deficit of AUD57.7bn in FY2009/10 (BMI forecast: AUD55.5bn), in order to sustain the nascent economic recovery. Chinese Stimulus Holds Up External Sector Significantly, exports of goods and services in Q209 sustained their upward trend by increasing 1.0% q-oq, seasonally adjusted, from 2.0% in the previous quarter, which is a regional anomaly in a time when most major economies are experiencing collapses in exports. The growth in the external sector contributed 0.2pp to the real GDP growth. Such resilience in outbound shipments was due to the strong Chinese appetite for Australian commodities – particularly iron ore and coal – boosted mainly by China’s CNY4trn (US$586bn) stimulus package, which fuelled demand for resource-heavy industries such as the construction, infrastructure and real estate sectors. This has helped boost monthly exports to China to more than 20.0% of total exports since March 2009, compared with the 20-year average of only 7.2%. Furthermore, Chinese figures confirm that total iron ore imports have surged to around 50mn tonnes per month in 2009, which was significantly greater than the 2007-2008 average levels of 35mn tonnes. We believe that Australia’s external sector and hence the recovery of the general economy as a whole will be very sensitive to Chinese demand. Unemployment Situation To Worsen, But Expect Turnaround In 2010 Going forward, we expect the unemployment rate to continue to rise towards the end of 2009 to 6.3% (revised down from 6.8% previously), then peaking at 6.8% by mid-2010 before turning around by the end of 2010 to fall to 6.2%. While we attribute much of the stabilisation in the headline jobless figures in the near term to the reduction in productive hours per employee as opposed to outright staff retrenchment, the economic recovery itself will be a major factor in the turnaround in 2010 via new job creation. With that being said, however, there remains a degree of uncertainty in the labour market as measured by the ANZ Total Job Advertisements survey in October. New job advertisements declined by 1.9% monthon-month after rising by 4.4% in the preceding month, suggesting that it is still too soon to call a turnaround in the job market at this point. The figure was still down 49.0% on a y-o-y basis, underscoring the severity of the current economic crisis, which may continue to place upward pressure on the unemployment rate into the first half of 2010. Nevertheless, we expect the positive outturn in new job advertisements to be sustainable over the foreseeable future, which will eventually start pushing the unemployment rate down in late 2010. © Business Monitor International Ltd Page 40 Australia Information Technology Report Q1 2010 Risks To Outlook The better-than-expected economic performance in Q209 has raised concerns that the government may unwind its AUD43.0bn stimulus package at a faster-than-expected pace, so as to alleviate its burgeoning budget deficit (which we currently forecast to reach -3.5% in 2009). Already, the Reserve Bank of Australia has reversed its ultra-loose monetary policy, having boosted the benchmark cash rate by a total of 50 basis points as of November 2009 to 3.50%, from its 50-year low of 3.00%. Therefore, if the pullbacks occur too soon, this could lead to a sharp dip in economic activity, leading to more job losses than expected. Furthermore, we caution that there remains the risk of a drop in resource demand from China, which may in turn drag down the Australian economy. Indeed, our core view is that rising overcapacity as well as inflationary fears will compel the Chinese authorities to tighten monetary policy by mid-2010. If the tightening move progresses too aggressively, this may lead to a double-dip in the Chinese economy, which does not bode well for the Australian economy. Table: Australia – Economic Activity 2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f Nominal GDP, AUDbn 1,086.6 1,186.2 1,203.0 1,275.8 1,349.3 1,431.7 1,528.4 1,620.3 Nominal GDP, US$bn 909.1 901.5 950.4 1,058.9 1,140.1 1,195.5 1,238.0 1,280.0 3.9 2.3 0.3 1.9 2.9 3.0 3.7 3.4 43,827 43,029 44,515 48,771 51,634 53,234 54,261 55,218 20.7 21.0 21.4 21.7 22.1 22.5 22.8 23.2 Industrial production index, % y-o-y, ave 1.7 0.5 0.3 1.1 2.5 1.8 2.0 2.1 Unemployment, % of labour force, eop 4.4 4.8 6.3 6.2 5.5 5.2 5.0 5.0 Real GDP growth, % change y-o-y GDP per capita, US$ Population, mn f Notes: BMI forecasts. Sources: ABS/BMI calculation. © Business Monitor International Ltd Page 41 Australia Information Technology Report Q1 2010 Company Profiles HP Australia Services Technology services, consulting and integration. Recent Developments In 2008, HP acquired fellow US giant EDS, which subsequently announced that it would cut around 75 staff from its Australian workforce of more than 6,000. By December 2008, EDS Australia claimed that planned staff cuts had basically been completed locally. In the same year, HP bought one of Australia’s most successful software groups, Tower Software, for AUD55.9mn. HP was the combined PC market leader in 2008 and also leader in the server segment. The company is continuing to focus on winning its share of government contracts. In H208, the company was boosted by a new AUD900mn federal government programme to provide schools with laptops over a three-year period. Meanwhile, as a result of a consolidation process involving its IT suppliers by the New South Wales Education department, HP will now be the sole supplier of laser printers to the agency, as well as schools and colleges under its jurisdiction. Future Plans In November 2008, HP Australia confirmed that it would cut around 7.5% of jobs locally. The projected layoffs will be spread over three years in relation to operational requirements. Local Market Performance HP Australia’s revenues in 2008 rose only 1.8% over the previous year to reach AUD3.27bn. Profits were down 45% to AUD44.3mn. Presence Fully owned subsidiary. As of 2008, HP Australia had 3,028 staff, up from 2,464 in 2007 and close to 2006 levels of 3,063. HP employs more than 32,000 people across Asia Pacific and Japan. Sectors Hewlett-Packard is aiming to push its managed services business across the Asia Pacific region to take advantage of the growing demand for IT outsourcing. Another item on HP’s current agenda is to push HP branded services delivered by its channel partners – beyond just warranty services – and about 25% of resellers in Asia have this capability. © Business Monitor International Ltd Page 42 Australia Information Technology Report Q1 2010 SAP (Australia) Services Enterprise software, support and services. Recent Developments Despite the economic slowdown, SAP continued to win major tenders in 2009. SAP software was selected for a contact worth tens of millions of dollars from Origin Energy. SAP was also the selected software supplier for a major project by leading superannuation funds administrator Superpartners – the AUD70mn IT overhaul included new software to replace legacy systems that had become increasingly error prone. Superpartners hired new IT staff with specific knowledge of SAP solutions. In 2009, the Commonwealth Bank of Australia was one year into a AUD580mn banking modernisation project, intended to replace 1960s-era software with new technology from SAP. Meanwhile, Woolworths announced in March 2009 that SAP would supply the software for its key merchandising systems. Other local clients in 2008 included 7-Eleven and Adelaide Brighton Limited. Future Plans Australia will remain an important market in the Asia Pacific for SAP. Due to language and cultural factors, less localisation is generally required of products already launched in the US and Western European markets, and so Australia (and New Zealand) is often an introductory point for products SAP would like to introduce in Asia Pacific. In 2009, SAP has said that it will work on overhauling its partnership plans with a more customer focused ‘ecosystem strategy’. According to SAP, the new strategy has led to a restructuring and innovation in partner relations. Local Market Performance SAP Australia and New Zealand reported a record growth year in 2008. Overall Australia market revenues growth was 36%, with 79% growth in software licence revenues. Presence In 2009, SAP laid off around 40 people from its local staff of about 500. However, SAP has several hundred software partners, 1,300 service partners as well as a number of channel partners and technology partners in Australia. Sectors In 2008, SAP reported particularly strong growth in the retail, utilities and mining industries. Other key sectors for SAP include banking and retail. © Business Monitor International Ltd Page 43 Australia Information Technology Report Q1 2010 Country Snapshot: Australia Demographic Data Section 1: Population Population by age, 2005:2030 (total) Population by age, 2005 75+ 75+ 70-74 70-74 65-69 65-69 60-64 60-64 55-59 55-59 50-54 50-54 45-49 45-49 40-44 40-44 35-39 35-39 30-34 30-34 25-29 25-29 20-24 20-24 15-19 15-19 10-14 10-14 5-9 5-9 0-4 0-4 -1.0 -0.5 0.0 Male 0.5 1.0 -2.0 -1.0 0.0 1.0 2030 Female 2.0 2005 Figures in millions. Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010f 2020f 2030f Dependent population, % of total 32.1 32.1 35.5 38.5 Dependent population, total, ‘000 6,501 6,765 8,323 9,758 67.8 67.8 64.4 61.4 13,695 14,282 15,095 15,530 19.6 18.6 17.7 17.2 Youth* population, total, % of total 3,960 3,926 4,147 4,372 Pensionable population, % of total 12.5 13.4 17.8 21.3 2,541 2,839 4,176 5,386 Active population, % of total Active population, total, % of total Youth* population, % of total Pensionable population, total, % of total f = forecast. * Youth = under 15. Source: UN Population Division © Business Monitor International Ltd Page 44 3.0 Australia Information Technology Report Q1 2010 Section 2: Education And Healthcare Table: Rural/Urban Breakdown, 2005-2012 2005 2010f 2020f 2030f Urban population, % of total 92.7 94.0 90.6 91.9 Rural population, % of total 7.3 6.0 9.4 8.1 Urban population, total, ‘000 18,679 19,927 21,217 23,239 Rural population, total, ‘000 1,476 1,274 2,201 2,048 20,155 21,201 23,418 25,287 Total population, ‘000 f = forecast. Source: UN Population Division Table: Education, 2002-2005 2002/03 2004/05 Gross enrolment, primary 103 104 Gross enrolment, secondary 149 149 72 73 Gross enrolment, tertiary Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. Source: UNESCO Table: Vital Statistics, 2005-2030 2005 2010f 2020f 2030f Life expectancy at birth, males (years) 77.6 78.5 80.6 82 Life expectancy at birth, females (years) 82.8 83.4 84.8 85.9 Life expectancy estimated at 2005. f = forecast. Source: UNESCO © Business Monitor International Ltd Page 45 Australia Information Technology Report Q1 2010 Section 3: Labour Market And Spending Power Table: Employment Indicators, 2001-2006 2001 2002 2003 2004 2005 2006 9,796 9,943 10,067 10,207 10,492 10,665 1.1 1.4 1.2 1.3 2.8 1.6 50.6 50.8 51.0 51.2 51.6 51.9 Employment, ‘000 9,063 9,248 9,459 9,636 9,957 10,154 – % change y-o-y 1.2 2.0 2.2 1.8 3.3 1.9 – male 5,035 5,135 5,227 5,338 5,486 5,582 – female 4,028 4,113 4,232 4,298 4,471 4,572 — female, % of total 44.4 44.4 44.7 44.6 44.9 45.0 Total employment, % of labour force 92.5 93.0 93.9 94.4 94.9 95.2 Unemployment, ‘000 667 637 607 571 535 526 – male 384 364 330 309 287 284 – female 283 273 277 262 248 242 – unemployment rate, % 6.9 6.4 6.0 5.6 5.1 5.0 Economically active population, ‘000 – % change y-o-y – % of total population Source: ILO Table: Consumer Expenditure, 2000-2012 (US$) 2000 2007e 2008f 2009f 2010f 2012f 11,934.8 23,776 24,218 23,877 23,636 24,075 Poorest 20%, expenditure per capita 3,520.8 7,014 7,144 7,044 6,973 7,102 Richest 20%, expenditure per capita 24,645.4 49,097 50,010 49,305 48,808 49,715 Richest 10%, expenditure per capita 30,314.4 60,390 61,513 60,647 60,035 61,150 Middle 60%, expenditure per capita 10,502.6 20,922 21,312 21,011 20,800 21,186 14,987.1 19,531 20,505 na na na Poorest 20%, expenditure per capita 4,421.2 5,762 6048.9 na na na Richest 20%, expenditure per capita 30,948.3 40,332 42,343 na na na Richest 10%, expenditure per capita 38,067.1 49,609 52,083 na na na Middle 60%, expenditure per capita 13,188.6 17,187 18,044 na na na Consumer expenditure per capita Purchasing power parity Consumer expenditure per capita e/f = BMI estimate/forecast. na = not available. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 46 Australia Information Technology Report Q1 2010 Table: Average Annual Wages, 2000-2012 2000 2007e 2008f 2009f 2010f 2011f 2012f Non-agricultural, AUD 41,309 55,812 58,644 61,460 64,448 66,076 69,273 Manufacturing, AUD 37,773 55,181 57,981 60,765 63,720 65,329 68,490 Non-agricultural, US$ 23,959 45,844 46,704 45,922 45,406 44,145 45,213 Manufacturing, US$ 21,908 45,326 46,176 45,403 44,892 43,646 44,702 e/f = BMI estimate/forecast. Source: ILO, BMI © Business Monitor International Ltd Page 47 Australia Information Technology Report Q1 2010 BMI Methodology IT Ratings – Methodology BMI has introduced new IT Business Environment Ratings. Our approach has been threefold. First, we have defined the risks rated in order to capture the operational dangers to companies operating in this industry. Second, we have attempted where possible to identify objective indicators that may serve as proxies for issues/trends. Finally, we have used BMI’s proprietary Country Risk Ratings (CRR) to ensure that only the aspects most relevant to the industry have been included. Overall, the new ratings system, which is integrated with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings Overview Ratings System Conceptually, the new 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 numerous separate indicators/datasets. © Business Monitor International Ltd Page 48 Australia Information Technology Report Q1 2010 Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Sector value growth, % y-o-y Denotes breadth of IT market. Large markets score higher than smaller ones Denotes sector dynamism. Scores based on annual average growth over five-year forecast period Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales –compared to services/software – indicates that the overall IT market is immature Country structure Urban-rural split GDP per capita, US$ 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 49 Australia Information Technology Report Q1 2010 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 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 autogressions 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. © Business Monitor International Ltd Page 50 Australia Information Technology Report Q1 2010 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. 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: ƒ Overall economic context, and GDP and demographic trends; ƒ Underlying ‘information society’ trends; ƒ Projected GDP share of industry; ƒ Maturity of market structure; ƒ Regulatory developments and government policies; ƒ Developments in key client sectors such as telecommunications, banking and e-government; ƒ Technological developments, and diffusion rates; ƒ Exogenous events. Estimates are calculated using BMI’s 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 Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Ltd Page 51 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Monitor International Ltd Page 23 Australia Information Technology Report Q1 2010 2009, it was reported that government IT departments had been ordered to reduce the number of IT contractors There were also reports in 2009 that the Australian governemnt was considering centralising the procurement of desktop computers, with the appointment of a single supplier The Australian Information Industry Association... to 37 secondary schools 2,041 State New South Wales Victoria South Australia Source: Official figures, BMI © Business Monitor International Ltd Page 24 Australia Information Technology Report Q1 2010 Industry Forecast Scenario Australia s IT market should continue to provide opportunities in consumer, government and business sectors in 2010, following a better-than-expected performance in 2009 The total... incomes and a high-tech focused national development plan The subsidised roll-out of a high- © Business Monitor International Ltd Page 10 Australia Information Technology Report Q1 2010 speed broadband network will address a relative lack of information and communication technology (ICT) infrastructure outside the Klang Valley There are also increasingly attractive opportunities in the IT services area... grow from US$7.8bn in 2010 to US$8.7bn in 2014, with computer sales (including accessories) forecast to rise from US$6.3 to US$7.2bn, boosted by computer procurement for education Software spending is forecast to rise from US$3.3bn to US$4.5bn and IT services from US$7.6bn to US$9.5bn © Business Monitor International Ltd Page 26 Australia Information Technology Report Q1 2010 Table: Australia s IT Sector... Business Monitor International Ltd Page 19 Australia Information Technology Report Q1 2010 Overall, hardware spending accounted for around 43% of the domestic IT market in 2009 The PC market contracted in H109, following a slowdown towards the end of 2008 However, the decline slowed to low single digits in the second quarter, with double-digit sequential growth from Q10 9 The main growth area was consumer... 2008, the government passed a measure that © Business Monitor International Ltd Page 20 Australia Information Technology Report Q1 2010 allowed households to reclaim a 50% rebate of up to US$625 a year for primary and US$1,500 for secondary students for laptops and other IT-related equipment Ambitious government information society programmes could see annual computer sales approaching 5mn by 2013 Secondly,... International Ltd Page 21 Australia Information Technology Report Q1 2010 to a new billing software platform due to cost concerns Other companies, however, will see IT as a way of bringing greater efficiencies and increasing competitiveness in difficult times Overall, as of early 2009, the impact of the slowdown on corporate software spending seemed to be limited Microsoft reported that sales of software... capabilities The IT services market is therefore becoming one of the most dynamic drivers of IT sector spending in Australia Local companies are trying to use computing resources more effectively and integrate © Business Monitor International Ltd Page 22 Australia Information Technology Report Q1 2010 investments made in hardware and software Outsourcing is an increasingly important spur to growth for the... terms of basic enterprise software © Business Monitor International Ltd Page 11 Australia Information Technology Report Q1 2010 Regional IT Business Environment Ratings Limits Of Potential Returns Risks To Realisation Of Returns IT Market Country Structure Limits Market Risks Country Risk Risks IT BE Rating Regional Ranking Australia 62 100 75 80 75 77 75.6 1 Singapore 52 95 67 70 90 82 71.4 2 Hong Kong... depending on their exposure to the industry in each particular state For a list of the data/indicators used, please consult the appendix at the back of the report © Business Monitor International Ltd Page 12 Australia Information Technology Report Q1 2010 Asia Regional IT Markets Overview IT Penetration Internet Penetration (per 100 population) e/f = estimate/forecast Source: BMI Broadband Penetration . Publication date: January 2010 Australia Information Technology Report Q1 2010 © Business Monitor International Ltd Page 2 Australia Information Technology Report Q1 2010 © Business. around 35%, rising incomes and a high-tech focused national development plan. The subsidised roll-out of a high- Australia Information Technology Report Q1 2010 © Business Monitor International. information hereto contained. Australia Information Technology Report Q1 2010 Including 5-year industry forecasts by BMI Part of BMI’s Industry Report & Forecasts Series Published