Q1 2011 www.businessmonitor.com UNIteD StateS information technology Report INCLUDES 5-YEAR FORECASTS TO 2014 ISSN 2041-7101 Published by Business Monitor International Ltd. UNITED STATES INFORMATION TECHNOLOGY REPORT Q1 2011 INCLUDES 5-YEAR FORECASTS TO 2015 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: January 2011 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 © 2011 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 Q1 2011 © Business Monitor International Ltd Page United States Information Technology Report Q1 2011 CONTENTS Executive Summary . SWOT Analysis . United States IT SWOT United States Political SWOT United States Economic SWOT United States Environment SWOT . IT Business Environment Ratings 10 Latin America 10 Table: Regional IT Business Environment Ratings 13 Latin America IT Markets Overview 14 United States Market Overview . 21 Government Authorities 21 Overview . 22 Hardware . 24 Software . 28 Services 31 Industry Developments 32 Industry Forecast Scenario . 35 Table: US IT Sector Overview, 2007-2015 38 Internet 39 Table: Telecoms Sector – Internet – Historical Data & Forecasts 39 Macroeconomic Forecast 41 Table: United States – Economic Activity 43 Competitive Landscape . 44 Hardware . 44 Software . 46 Company Profiles . 52 HP 52 Dell 54 Microsoft 56 IBM 58 Country Snapshot: US Demographic Data 59 Section 1: Population . 59 Table: Demographic Indicators, 2005-2030 59 Table: Rural/Urban Breakdown, 2005-2030 . 60 Section 2: Education And Healthcare 60 Table: Education, 2002-2005 60 Table: Vital Statistics, 2005-2030 60 Section 3: Labour Market And Spending Power 61 Table: Employment Indicators, 2001-2006 61 © Business Monitor International Ltd Page United States Information Technology Report Q1 2011 Table: Consumer Expenditure, 2000-2012 (US$) 61 Table: Average Annual Wages, 2000-2012 (US$) . 62 BMI Methodology . 63 How We Generate Our Industry Forecasts 63 IT Industry . 63 IT Ratings – Methodology 64 Table: IT Business Environment Indicators . 65 Weighting . 66 Table: Weighting Of Components 66 Sources 66 © Business Monitor International Ltd Page United States Information Technology Report Q1 2011 Executive Summary Market Overview ƒ US spending on IT products and services is forecast to reach US$671bn by 2015. US spending on IT products and services is forecast to grow to US$552bn in 2011 and reach US$671bn by 2015. BMI has downwardly revised its forecast after US PC sales grew slower than expected in Q310, following growth in H110 that was rapid by any standards. Growth slowed amid consumer and business concerns about a jobless recovery. A major demand driver will be private and public sector organisations looking for help to utilise efficiencies from cloud computing models such as Software-as-a-Service (SaaS) and Infrastucture-as-aService (IaaS). 2010 saw a number of government agencies at federal and local level launch cloud strategies and pilot programs. Other key market drivers are expected to include: ƒ Growing fixed and mobile broadband penetration. ƒ Data centre consolidation and virtualisation ƒ Product innovation such as tablet notebooks, e-readers and feature-rich netbooks. ƒ Technology innovation such as GPS and services. ƒ Economic recovery. ƒ Industry Developments ƒ GSA first federal agency to move all email to a cloud-based system In December 2010, the US General Services Administration (GSA) became the first federal agency to move email to a cloud based system for its entire organisation. As the first transition of its kind, the GSA’s move is seen as a landmark that could influence other agencies who have previously held back from similar moves due to security or service concerns. © Business Monitor International Ltd Page United States Information Technology Report Q1 2011 In 2010, budgeted federal IT spending was set to rise to US$78.4bn, from US$74.2bn in 2009.In 2010, the Obama administration called on federal agencies to develop strategies to simplify and where possible combine often sprawling IT operations so as to reduce costs. Guidelines published in 2010 by the Office of Management and Budget called for agencies to initiate data centre consolidation programs to help cut US$3bn from the federal budget. Competitive Landscape The US PC competitive landscape is dominated by two large domestic vendors, Dell and HP, which together account for at least 50% of the US market. In 2010, most PC vendors reported renewed growth as businesses proceeded with purchases delayed from 2009. Despite an overall fall in PC shipments in 2009, many vendors leveraged demand for notebooks and netbooks into continued growth. Meanwhile, the contest for top spot between HP and Dell continued. HP exemplified the recovery trend experienced by most vendors, with a 12% rise in revenues from its Americas region in Q310 to US$14.2bn. 2010 saw increasing competition between vendors for a growing number of public sector cloud contracts. The GSA picked web-based Google Apps to replace IBM Lotus Notes as the provider of email and collaboration software for its 17,000 full-time employees and contractors. In October 2010, New York City announced an iniative to bring Microsoft’s BPOS (Business Productivity Onine Suite) to around 30,000 city employees. The government remains a key vendor target. In May 2010, HP achieved one of its most recent local market succeses with the win of a US$41.6mn contract from the US Department of Homeland Security. In September 2009, HP’s EDS unit won a US$30mn contract from the US Department of the Treasury’s Office of the Comptroller of the Currency (OCC) to provide and maintain computing resources and mobility services. Computer Sales The US addressable market for PCs and accessories is estimated by BMI at US$129.3bn in 2011, with single-digit growth compared with 2010. US PC sales slowed in Q310 but BMI estimated that the market was on course for full-year total PC sales of 83mn units. In QH10, sales were boosted by a revival of the business PC market, which was expected to gather pace in the second half of the year. One additional driver of increased sales and lower prices is the move of telecoms operators into the PC retail space. Notebooks are the fastest-growing PC market segment and are estimated to have accounted © Business Monitor International Ltd Page United States Information Technology Report Q1 2011 for more than 60% of unit sales in 2010. However, netbooks and notebooks face competition from other formats such as smartphones from Palm, RIM and Apple, as well as tablet notebooks. Software The US software market is estimated at US$158.8bn in 2011, with single-digit growth from 2009. Software CAGR for 2011-2015 is projected at around 5.9%, as the addressable market grows to around US$199.7bn. A combination of enterprise objectives such as cost reduction and greater efficiency should combine to encourage the adoption of cloud services in 2011. Drivers of demand for enterprise software include increasing operational efficiency, coordinating global supply chains and modernising logistics and warehouse functions. More investment can be expected to be in utility software and serviced-oriented architectures rather than traditionally packaged PC software. IT Services The US IT services market is forecast at US$241.5bn in 2011, with vendors reporting a more stable market. IT services spending is expected to grow by 5.9% in 2011, building on a stablilsation of the market in the previous year. Spending on IT services is quite closely correlated with GDP growth, which is bad news in a recession but better news in a recovery. One opportunity will be organisations looking for help with to utilise efficiencies from cloud computing such as SaaS and IaaS, as organisations look to save money on IT investments. National and local government is one vertical where strong interest in cloud services is being expressed. © Business Monitor International Ltd Page United States Information Technology Report Q1 2011 SWOT Analysis United States IT SWOT ƒ The largest IT market in the world, with spending forecast to pass US$552bn in 2011. ƒ Despite the challenging trading conditions, overall IT spending is still expected to remain in positive growth territory. Weaknesses ƒ During the recession in 2009, customers postponed projects and reduced short-term spending, particularly in areas such as consulting and software development. Opportunities ƒ Demand for new IT strategies to take advantage of innovations such as virtualisation, data centre consolidation, and cloud computing ƒ As economic woes ease, IT vendors should see more growth from traditional bigspending sectors such as banks, financial services, retail and manufacturing. ƒ The growing popularity of mobile broadband networks is driving netbook sales. ƒ New business models such as SaaS and virtualisation will continue to make progress. ƒ There is a risk that recovery could be anaemic in 2011, in which case spending on technology could have another hard year. ƒ A large federal budget deficit could lead to pressures on public sector IT spending. Strengths Threats United States Political SWOT Strengths ƒ The US is an undisputed superpower, and therefore occupies centre stage in most international diplomacy. Long-standing democracy with vigorous and open political debate; the US continues to attract large numbers of immigrants committed to citizenship and self-advancement. Weaknesses ƒ Political debate between Republicans and Democrats has historically shown a tendency to become more polarised and divisive. As today’s superpower, the US attracts the enmity of a wide range of political groups opposed to the current international status quo. Opportunities ƒ The changing political mood (as evidenced by the popularity of unconventional candidates in the 2008 presidential election, including Obama’s), and the widespread dissatisfaction of the voting public, may encourage both major parties to experiment with more consensual approaches to certain policy areas. Threats ƒ The perception of inflexibility and bias in US foreign policy, particularly in the Middle East, may stiffen opposition and at worst provide fertile recruiting ground for radical anti-US groups such as al-Qaeda. Partly as a reaction to foreign policy difficulties, US public opinion may return to isolationist and protectionist modes. © Business Monitor International Ltd Page United States Information Technology Report Q1 2011 United States Economic SWOT Strengths ƒ The world’s largest economy with an impressive record of entrepreneurial dynamism, innovation and a high research and development spend. Despite some threats to its reserve status, the US dollar is treated as an international currency, meaning that investors around the world are prepared to hold US debt. Because of this, the US is uniquely able to run large fiscal and current account deficits. Weaknesses ƒ Despite the dollar’s role as an international currency, excessive US debt levels are a risk. A decision by Japanese and Chinese central banks to reduce their larger dollar holdings could cause sharp falls in the value of the US currency. Low savings rate by US households on a historic basis, although this has begun to reverse. Opportunities ƒ Further liberalisation of international trade through the WTO, coupled with a more competitive dollar exchange rate, could boost export growth and help restore balance to the US’ external imbalances. Threats ƒ Intensified competition from China and other low-wage economies could accelerate the loss of manufacturing jobs. Large growth in public spending, coupled with tax cuts, will worsen the fiscal deficit, eventually forcing more restrictive monetary policy and slower growth. United States Environment SWOT Strengths Weaknesses Opportunities Threats ƒ The US boasts the world’s largest single internal consumer market, which presents tremendous opportunities for businesses of all types and sizes. ƒ Few countries offer better environments for entrepreneurial activity, with a highly flexible labour force, a legal system that is friendly to business, and significant centres of technological innovation (such as California’s Silicon Valley). ƒ Much of the country’s physical infrastructure is in need of improvement, with congested roads and airways. ƒ US corporate tax is, on average, among the highest in the OECD. ƒ The Obama administration is committed to improving the nation’s infrastructure, with stimulus package funds being dedicated to that purpose. ƒ The US has often been the origin of new drivers of economic growth booms, and sectors ranging from biotechnology to alternative energy are being discussed as possible catalysts. ƒ Government intervention in the economy puts the country’s reputation for free enterprise at risk. © Business Monitor International Ltd Page United States Information Technology Report Q1 2011 Company Profiles HP Services Technology services, consulting and integration. HP is organised into three main divisions: ƒ Personal Systems Group (PSG): Business and consumer PCs, mobile computing devices and workstations. Recent Developments ƒ Printing and Imaging Devices; Inkjet, Laser Jet and commercial printing. ƒ Technology Solutions: Software and managed services, EDS, storage and servers. In September 2009, HP changed the name of its EDS unit, created following the acquisition of fellow IT services leader EDS, to HP Enterprise Services. In the same month, the EDS unit won a US$30mn contract from the US Department of the Treasury. HP’s third and fourth quarter positive performance was driven largely by services revenues, which in Q309 were up 93% compared with the same period of the previous year, reaching US$8.5bn. This was primarily due to HP’s acquisition of EDS. In Q309, HP said that its business was stabilising, making the company confident that it would be an early beneficiary of an economic turnaround. In H109 HP continued to contest with Dell for leadership position in the US computer market. In Q209, HP slipped into second place behind Dell, according to market research firm IDC, with 26% of the market to Dell’s 26.3%. Gartner put HP’s US market share at 25.7% in Q309, once again behind Dell. However, HP had previously dethroned Dell as the market leader in Q109, driven largely by the consumer notebook segment. In 2009 HP was particularly successful in using the low-price notebook trend to bolster its position. In July 2009 the company was selling a US$298 laptop at Wal-Mart stores, while a rival Dell product, also produced for Wal-Mart, retailed for US$398. Following the success of its Wal-Mart product, HP continued with its low-price strategy for the back-to-school season. In the software segment, HP is targeting SMEs with solutions that allow businesses to operate with fewer staff and less capital and technology resources. Solutions offered by HP to meet this need included storage, virtualisation, remote access and consolidation solutions. Future Plans For FY10, HP expects revenue of around US$117.0bn to US$118.0bn. The company has said that it sees significant opportunities to invest in innovation and sales to expand its portfolio and market coverage. HP also plans to improve margins in 2010 and to increase margins by leveraging a leaner cost structure, while continuing to invest for growth. Revenues In Q110, HP reported revenues of US$31.2bn, up by 8% y-o-y. Revenues from the Americas grew by an annualised 9% to US$13.6bn. In Q409, HP reported revenues of US$30.8bn, © Business Monitor International Ltd Page 52 United States Information Technology Report Q1 2011 down 8% on the same period of the previous year, but up 12% on Q309. Income was up y-o-y from US$2.1bn in Q408 to US$2.4bn in Q409. In Q309, HP reported net revenues of US$27.5bn, down 2% from the same period of the previous year and up 4% in constant currency. The US accounted for 38% of global revenues in the quarter. In FY08 HP reported revenues of US$118.4bn, up 13%. Presence 321,000 employees worldwide as of 2008. Sectors In Q308, HP attributed record profit in services, double-digit revenue growth in China and solid cash flow as driving its bottom line growth. Services revenue increased 93% to US$8.5bn due primarily to the EDS acquisition. HP Software revenue declined by 22% to US$847mn. Personal Systems Group (PSG) posted an increase of unit shipments of 2% and maintained the leading market position in PCs worldwide. PSG revenue declined by 18% to US$8.4bn. Imaging and Printing Group (IPG) revenue declined by 20% to US$5.7bn. © Business Monitor International Ltd Page 53 United States Information Technology Report Q1 2011 Dell Services Manufacture, marketing and sales of computer systems and services worldwide. In December 2008, Dell announced that it was reorganising itself into four global business units: Recent Developments ƒ Large Enterprise. ƒ Public. ƒ SMEs. ƒ Consumer. In October 2009, Dell made an offer to acquire IT services company Perot Systems. Dell expected the acquisition to close in Q409. The purchase should position Dell to grow by expanding its offering of IT services and solutions. Perot Systems will in effect become Dell’s IT services unit. In Q309, Dell narrowly pipped HP for the market leader position, according to market research firm Gartner, taking 26.2% of the market to HP’s 25.7%. In Q209, Dell beat HP into the US PC market leader position, according to market research firm IDC, taking 26.3% of the market to HP’s 26.0%. However, Dell reported disappointing profits in Q309 of US$727mn, down from US$15.2bn in the same period of the previous year as margins came under pressure. Globally Dell has suffered in the US downturn from the deep cuts in corporate spending, as well as the transition away from desktops. Dell Americas revenues from the corporate segment declined 17% in value terms (and 23% in units) in fiscal 2009. These trends have reinforced the logic of the company’s largely successful global transition towards a more retailfocused approach. In Q209, IDC reported that Dell achieved negative 18.9% shipments growth in the US market, compared with just -2.3% for major domestic rival HP. Dell has mounted a strong global comeback in the past couple of years, from declining unit sales, by moving aggressively into the retail segment. The company has thus moved away from its ‘direct Dell’ strategy of selling direct to customers. In the US the company has done this by developing partnerships with leading retailers such as Best Buy. This strategy has provided with a fresh source of growth during a slowing market, enabling it to recover some of the market share that it had lost to HP, as well as Asian challengers such as Acer, Lenovo and Toshiba. Revenues Dell reported revenues of US$61.6bn for FY09, unchanged from 2008. Net income, however, was US$2.5bn, down 16% from US$2.9bn in the previous year. Presence 76,500 employees. © Business Monitor International Ltd Page 54 United States Information Technology Report Q1 2011 Sectors Dell’s commercial business serves large corporations, public customers such as government, education, healthcare and SMEs. In Q309, Dell continued to report a slowdown in most business segments. In Q309, Dell’s global consumer business reported a 10% y-o-y increase in revenues on a 32% increase in shipments. © Business Monitor International Ltd Page 55 United States Information Technology Report Q1 2011 Microsoft Services Software licences, support and services. Microsoft has five major business divisions: Recent Developments ƒ Client, which includes the Windows product family. ƒ Server and tools, which includes software server products, services and solutions. ƒ Online business services. ƒ Microsoft Business Division, which includes Microsoft Office and Microsoft Dynamics. ƒ Entertainment and Devices, which includes the Xbox video game system. Microsoft suffered a deceleration in sales of PCs bundled with its software in H109 owing to the economic slowdown. In July 2009, Microsoft posted declines in profits and sales for the fourth 2009 fiscal quarter, blaming the weakness in global PC and server sales. However, the fourth quarter brought some significant product milestones including the release of Windows Server 2008 R2, and the search engine Bing. BMI projects that the release of Windows will provide a boost to Microsoft. The launch of Microsoft’s Windows operating system was the most significant event for Microsoft since the launch of Windows 95. Microsoft has a lot riding on the new operating release, given perceived problems with its previous operating system Windows Vista, and also because of the continuing global challenge from open source. Windows Vista ran into problems when business users found that many of their business applications could not run on the Vista operating system. Microsoft has taken a couple of steps to fix perceived problems with Vista. Regarding the compatibility problem, Microsoft has tackled this with a free extension to Windows called XP Mode. This allows users to run Windows XP applications on Windows 7. Secondly, Windows will use less processing power and memory than Windows Vista. Revenues Microsoft’s Q409 revenues were down by 17% y-o-y to US$13.1bn. In the fiscal year ending June 2009, Microsoft reported net revenues of US$58.44bn, down by 3% y-o-y. Presence As of June 2009, Microsoft had 92,736 employees, with 55,843 working in the US. Sectors Microsoft dominates the operating system segment but was threatened in 2007 with the emergence of the popularity of netbook computers. Most netbook computers originally came with open source Linux operating systems due to the heavy systems requirement of Windows Vista. Netbooks were therefore seen as a threat to Microsoft’s revenues. However, Microsoft has fought back by allowing netbooks to ship Windows XP, bringing its market share back up. © Business Monitor International Ltd Page 56 United States Information Technology Report Q1 2011 In the enterprise software segment, Microsoft competes with its Microsoft Dynamics suite of products. In April 2009, a survey by Panorama Consulting Group ranked Microsoft third in the manufacturing and distribution industry’s ERP segment, with a market share of around 14%. © Business Monitor International Ltd Page 57 United States Information Technology Report Q1 2011 IBM Services Manufacturer, distributor and provider of advanced IT solutions including hardware, software, peripherals and data processing equipment. IBM has three main business segments: Recent Developments ƒ Global Technology Services. ƒ Global Business Services. ƒ Software. In 2008, IBM reported revenues growth of 5%, despite the economic slowdown, while pre-tax income also rose. Over 90% of segment profits in 2008 came from software, services and financing. Around 65% of IBM’s 2008 revenues were generated outside the US. In 2008 the company invested US$6.3bn for 15 acquisitions, 10 of them in software. IBM also invested US$6.3bn in R&D. In 2009, IBM said that it had prioritised strategic investments in service-oriented architectures, business analytics and next generation data centres, relying on these areas to drive growth in 2010. IBM expected 2009 pre-tax income for its software segment to grow at a double-digit rate to around US$8bn. Future Plans The company’s goal is earnings per share of US$10-11 in 2010. Revenues In the second quarter of 2010, IBM reported total revenues of US$23.7bn, up by 2% y-o-y. Revenus for the Americas region, which includes the US, were up by 3% y-o-y. Presence 410,097 employees. Sectors In 2008, IBM reported the following results by division: Technology services revenues were up by 9% (6% adjusting for currency), pre-tax income up by 30%. Global business services revenues up by 9% (5% adjusting for currency), pre-tax income up by 30%. Software revenues up by 11% (8% adjusting for currency), pre-tax income up by 18%. Software pre-tax profits doubled over the five years to 2008, when they were US$7bn. © Business Monitor International Ltd Page 58 United States Information Technology Report Q1 2011 Country Snapshot: US Demographic Data Section 1: Population Population By Age, 2005 And 2030 (mn, total) Population By Age, 2005 (mn) 70-74 70-74 60-64 60-64 50-54 50-54 40-44 40-44 30-34 30-34 20-24 20-24 10-14 10-14 0-4 0-4 -15.0 -10.0 -5.0 0.0 Male 5.0 10.0 15.0 -30.0 -20.0 -10.0 0.0 2030 Female 10.0 20.0 30.0 40.0 2005 Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010f 2020f 2030f Dependent population, % of total 33.0 33.0 35.2 37.5 Dependent population, total, ‘000 97,335 101,433 120,863 137,659 Active population, % of total 67.0 66.9 64.7 62.4 Active population, total, ‘000 197,593 205,284 221,682 228,530 Youth population*, % of total 20.7 20.3 19.4 18.1 Youth population*, total, ‘000 61,255 62,348 66,606 66,599 Pensionable population, % of total 12.2 12.7 15.8 19.4 Pensionable population, total, ‘000 36,080 39,085 54,257 71,060 f = forecast. * Youth = under 15. Source: UN Population Division © Business Monitor International Ltd Page 59 United States Information Technology Report Q1 2011 Table: Rural/Urban Breakdown, 2005-2030 2005 2010f 2020f 2030f Urban population, % of total 80.8 82.2 84.9 87.0 Rural population, % of total 19.2 17.8 15.1 13.0 Urban population, total, ‘000 240,831 256,822 290,729 318,454 Rural population, total, ‘000 57,382 55,431 51,818 47,733 298,213 312,253 342,547 366,187 Total population, ‘000 f = forecast. Source: UN Population Division Section 2: Education And Healthcare Table: Education, 2002-2005 2002/03 2004/05 Gross enrolment, primary 99 98 Gross enrolment, secondary 95 94 Gross enrolment, tertiary 82 82 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) 74.6 75.2 76.8 77.9 Life expectancy at birth, females (years) 80.0 80.6 82.1 83.3 Life expectancy estimated at 2005. f = forecast. Source: UNESCO © Business Monitor International Ltd Page 60 United States Information Technology Report Q1 2011 Section 3: Labour Market And Spending Power Table: Employment Indicators, 2001-2006 2001 2002 2003 2004 2005 2006 141,815 144,863 146,510 147,401 149,320 151,428 0.6 2.1 1.1 0.6 1.3 1.4 49.8 50.4 50.5 50.3 50.5 50.7 Employment, ‘000 135,073 136,485 137,736 139,252 141,730 144,427 – % change y-o-y -0.1 1.0 0.9 1.1 1.7 1.9 – male 72,080 72,903 73,332 74,524 75,973 77,502 – female 62,992 63,582 64,404 64,728 65,757 66,925 — female, % of total 46.6 46.5 46.7 46.4 46.4 46.3 Total employment, % of labour force 95.2 94.2 94.0 94.4 94.9 95.3 Unemployment, ‘000 6,742 8,378 8,774 8,149 7,591 7,001 – male 3,663 4,597 4,906 4,456 4,059 3,753 – female 3,079 3,781 3,868 3,694 3,531 3,247 4.8 5.8 6.0 5.5 5.1 4.6 2000 2007e 2008f 2009f 2010f 2012f 23,888 32,357 33,389 34,759 36,121 38,841 Poorest 20%, expenditure per capita 6,450 8,736 9,015 9,385 9,753 10,487 Richest 20%, expenditure per capita 54,703 74,097 76,461 79,598 82,716 88,946 Richest 10%, expenditure per capita 71,425 96,746 99,834 103,929 108,001 116,135 Middle 60%, expenditure per capita 19,429 26,317 27,157 28,271 29,378 31,591 Economically active population, ‘000 – % change y-o-y – % of total population – unemployment rate, % Source: ILO Table: Consumer Expenditure, 2000-2012 (US$) Consumer expenditure per capita e/f = BMI estimate/forecast. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 61 United States Information Technology Report Q1 2011 Table: Average Annual Wages, 2000-2012 (US$) 2000 2006 2007e 2008f 2009f 2010f 2012f Total 29,120 34,798 35,997 38,006 39,906 41,718 45,396 Manufacturing 29,786 34,944 36,591 38,634 40,565 42,407 46,146 3.9 3.8 3.4 5.5 5.0 4.5 4.3 Total wage growth, % y-o-y e/f = BMI estimate/forecast. Source: ILO, BMI © Business Monitor International Ltd Page 62 United States Information Technology Report Q1 2011 BMI Methodology How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Our approach varies from industry to industry. Common to our analysis of every industry, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all of our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. IT Industry Forecasts There are a number of criteria that drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. © Business Monitor International Ltd Page 63 United States Information Technology Report Q1 2011 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. IT Ratings – Methodology Our approach in BMI’s IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI’s proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas: Limits of potential returns: Evaluation of sector’s size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from the state’s political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. © Business Monitor International Ltd Page 64 United States Information Technology Report Q1 2011 Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Sector value growth, % year-onyear (y-o-y) Denotes breadth of IT market. Large markets score higher than smaller ones Denotes sector dynamism. Scores based on annual average growth over 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 65 United States Information Technology Report Q1 2011 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all subcomponents equal weight. Consequently, the following weight has been adopted. Table: Weighting Of Components Component Weighting Limits of potential returns 70% – IT market 65% – Country structure 35% Risks to realisation of potential returns 30% – Industry risks 40% – Country risk 60% Source: BMI Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Ltd Page 66 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... © Business Monitor International Ltd Page 19 United States Information Technology Report Q1 2011 attract more investment in IT services, with sectors such as retail, distribution, financial services, telecoms and healthcare all offering opportunities © Business Monitor International Ltd Page 20 United States Information Technology Report Q1 2011 United States Market Overview Government Authorities... five-year forecast period through to end-2014, compared with a projected 28.6% in the United States Sectors And Verticals Hardware accounts for less than one-third of IT spending in both the United States (27%) and Canada © Business Monitor International Ltd Page 17 United States Information Technology Report Q1 2011 (34%) In contrast, Latin American IT markets remain hardware centric, with hardware... federal data centres Federal IT Spending (US$bn) 2009-2010 Source: US Office of E-Government and Information Technology © Business Monitor International Ltd IT Spending By Federal Agencies 2009 Source: US Office of E-Government and Information Technology Page 33 United States Information Technology Report Q1 2011 In full-year 2009, total IT spending including all federal IT investment was measured at... diverted consumer funds from technology to other priorities, but reconstruction offers opportunities for government agencies to advance IT modernisation © Business Monitor International Ltd Page 11 United States Information Technology Report Q1 2011 Chile’s relatively high ranking, ahead of Argentina, is partly because it has the highest country risk rating of any of the states in our Latin America... covered by BMI, compared with 29% in the United States Despite the economic downturn, there are expected to be opportunities for software vendors in most markets The economic situation is likely to lead to further consideration of open source solutions in some sectors © Business Monitor International Ltd Page 18 United States Information Technology Report Q1 2011 Some markets, particularly Venezuela,... inhibit business investment © Business Monitor International Ltd Page 12 United States Information Technology Report Q1 2011 Table: Regional IT Business Environment Ratings Limits Of Potential Returns Risks To Realisation Of Return IT Market Country Structure Limits Market Risks Country Risk Risks IT BE Rating Regional Ranking United States 83 90 85 50 59 56 76.3 1 Brazil 72 65 69 45 44 44 61.8 2 Mexico... innovation such as feature-rich netbooks, technology innovation such as GPS technology and services, and economic recovery In Canada the consumer segment should remain a bright spot, with a steadily improving unemployment situation supportive of consumer confidence © Business Monitor International Ltd Page 15 United States Information Technology Report Q1 2011 Lower prices, a greater range of financing... IT projects, from accountability to personnel and contracting The information will be used to decide which projects should be cancelled © Business Monitor International Ltd Page 34 United States Information Technology Report Q1 2011 Industry Forecast Scenario US spending on IT products and services is forecast to grow to US$552bn in 2011 and reach US$671bn by 2015 BMI has downwardly revised its forecast... are major purchasers of IT products and services © Business Monitor International Ltd Page 21 United States Information Technology Report Q1 2011 The US Treasury is in charge of tax issues affecting the US industry, including such issues as R&D tax subsidies The Office of E-Government and Information Technology within the Office of Budget Management is responsible for monitoring federal IT spending... Monitor International Ltd Page 24 United States Information Technology Report Q1 2011 softening of consumer demand BMI still estimated that the market was on course for full-year total PC sales of around 83mn units, up from around 69mn in 2009 Shipments are projected to reach 124mn by 2015 The US addressable market for PCs and accessories is estimated by BMI at US$129.3bn in 2011, with low single-digit growth . deadline: January 2011 United States Information Technology Report Q1 2011 © Business Monitor International Ltd Page 2 United States Information Technology Report Q1 2011 © Business. services is being expressed. United States Information Technology Report Q1 2011 © Business Monitor International Ltd Page 8 SWOT Analysis United States IT SWOT Strengths  The. isolationist and protectionist modes. United States Information Technology Report Q1 2011 © Business Monitor International Ltd Page 9 United States Economic SWOT Strengths  The