Q3 2015 www.bmiresearch.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 2042-4205 Published by:BMI Research United States Information Technology Report Q3 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: June 2015 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved. 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All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. United States Information Technology Report Q3 2015 CONTENTS BMI Industry View . SWOT IT SWOT Political . 11 Economic . 12 Operational Risk . 13 Industry Forecast 14 Table: IT Industry - Historical Data And Forecasts (United States 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Macroeconomic Forecasts . 20 Economic Activity 20 Industry Risk Reward Index . 25 Table: Americas IT Risk/Reward Index, Q315 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Market Overview . 29 Hardware . 29 Software . 37 Services 43 Industry Trends And Developments 48 Regulatory Development 54 Table: IT Regulatory Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Competitive Landscape 56 Local Companies . 56 Table: CA Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Table: EMC Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Table: Splunk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Table: Symantec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Company Profile 60 Dell 60 Hewlett-Packard . 66 Table: Hewlett-Packard Financial Performance By Division: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 IBM 73 Table: IBM Major Acquisitions, 2012-2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Microsoft Corporation 79 Regional Overview 86 Americas 86 © Business Monitor International Ltd Page United States Information Technology Report Q3 2015 Demographic Forecast . 88 Table: Population Headline Indicators (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Table: Key Population Ratios (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Table: Urban/Rural Population & Life Expectancy (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Table: Population By Age Group (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Table: Population By Age Group % (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Methodology 93 Industry Forecast Methodology 93 Sources 94 Risk/Reward Index Methodology . 95 Table: It Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 © Business Monitor International Ltd Page United States Information Technology Report Q3 2015 BMI Industry View BMI View: The outlook for US IT spending remains strong when compared to the majority of developed markets over the medium term, as a result of stronger economic performance and a greater interest from enterprises in the latest products and solutions. Cloud computing, real-time enterprise software, security and big data are all areas of spending in which we expect to see strong growth, particularly in the latter years of our forecast. The retail hardware outlook is more mixed, as we expect continued demand growth for tablets in the retail market; however, desktop and notebook sales continue to be squeezed. Total spending is expected to reach USD680.7bn in 2015, up 4.8% from 2014, and grow at a CAGR of 3.4% 2015-2019. Headline Expenditure Projections: ■ Computer Hardware Sales: USD216.3bn in 2014 to USD222.9bn in 2015, an increase of 3.0%. Tablet volumes set to decline, but at a slower rate than 2014, while traditional form factors are expected to continue gaining ground after steep declines in 2012 and 2013. ■ Software Sales: USD181.2bn in 2014 to USD190.6bn in 2015, an increase of 5.2%. Enterprise softwareas-a-service adoption has strong momentum, while demand for cyber security solutions is also an area of growth. ■ IT Services Sales: USD251.9bn in 2014 to USD267.3bn in 2015, an increase of 6.1%. Cloud computing adoption is already high in the US but we expect strong growth to continue over the medium term despite security concerns following on from the National Security Agency (NSA) Prism debacle. Key Trends And Developments: One major development with only limited importance for the US IT market but huge ramifications for US cloud providers was the New York District Court ruling in August 2014 that Microsoft must hand over customer data stored in its Dublin datacentre due to the fact it is a US company. Microsoft refused and is challenging the ruling for fears it would undermine confidence in US providers, which is already fragile following the overreach of the Patriot Act and Edward Snowden revelations about NSA activities. Microsoft's case argues US government cannot reach across international borders and retrieve data without respecting local privacy laws. The position held by Microsoft has been shown to be supported by local populations outside the US, leaving difficult questions about the case unanswered at the time of writing. BMI believes a large number of US vendors with international operations will be concerned with the case due to the large loss of confidence in the US legal system and foreign policy in the past two years. Regulatory issues aside, a significant trend in the cloud market has been the increased utilisation of partnerships between leading providers. In June 2014, Microsoft and Salesforce.com entered a partnership © Business Monitor International Ltd Page United States Information Technology Report Q3 2015 agreement, while in October 2014 Microsoft and IBM announced a partnership agreement to focus on hybrid cloud solutions. In March 2015, Microsoft also entered into a partnership with Cisco Systems to integrate their cloud services. The new service will combine Microsoft's Windows Azure Pack, which forms the Windows cloud architecture, with Cisco's ACI, which provides the networking services layer. BMI believes the developing set of partnerships and collaborations reflects the increasing maturity of the cloud market and vendor plans for interoperability of services to enable future growth of complex deployments. © Business Monitor International Ltd Page United States Information Technology Report Q3 2015 SWOT IT SWOT SWOT Analysis Strengths ■ The largest IT market in the world, with spending forecast to reach about USD805.0bn in 2019. ■ The US is the largest centre of global IT innovation, home to many leading hardware, software and services vendors. ■ Meanwhile most non-US global firms also have a research and retail presence. ■ Despite the challenging trading conditions, overall IT spending is still expected to remain in positive growth territory. Weaknesses ■ In the wake of the recession and subsequent slow economic recovery, customers have postponed IT investments and reduced short-term spending, particularly in areas such as consulting and software development. ■ Desktop and notebook sales appear to be in long-term decline due to longer replacement cycles and the preference for mobile devices including tablets, smartphones, smart TVs and convertibles/hybrids. Opportunities ■ Technologically-savvy local population willing to spend on premium devices, with the US a particularly strong market for Apple's iPad and MacBooks. ■ As economic conditions strengthen, IT vendors should see more growth from traditional big-spending sectors such as banks, financial services, retail and manufacturing. ■ Potential for growth in the hardware market through form factor evolution; ie, ultrathin notebooks, hybrids/convertibles and tablets. ■ Cloud computing, with a large number of federal and state cloud computing programmes generating opportunities. © Business Monitor International Ltd Page United States Information Technology Report Q3 2015 SWOT Analysis - Continued ■ Growth from emerging technologies such as big data and machine-to-machine communications will drive innovation and spending. Threats ■ Privacy and cybersecurity became more pressing issues with the PRISM spying revelations. This is expected to damage US cloud computing providers abroad, but domestic impact is uncertain. ■ The large federal budget deficit could lead to pressures on public sector IT spending. © Business Monitor International Ltd Page 10 United States Information Technology Report Q3 2015 it was the DOS system that proved the key to Microsoft's success. In November 1980, IBM awarded a contract to Microsoft to provide a version of the system to be used in the upcoming IBM Personal Computer. While IBM rebranded the system PC-DOS, Microsoft retained ownership of the MS-DOS system, and it soon became the leading PC OS vendor. In 1984, the company released Microsoft Windows, a graphical extension for MS-DOS. In 1986, the company launched an IPO, which made 12,000 Microsoft employees instant millionaires. In 1990, the company launched the Microsoft Office suite, which joined Windows as being a dominant player in its field. However, this led to numerous legal wrangles, as Microsoft was accused of anticompetitive practices. As the internet began to gain popularity in 1995, the company expanded into computer networking and online services. This year saw the release of Windows 95, online service MSN and the web browser Internet Explorer, which set Microsoft as a pioneer in the internet era. The company moved into the video games market in 2001 with the release of the Xbox, providing a challenger to Sony and Nintendo in that market. In March 2004, the company was involved in an antitrust case against the EU which resulted in Microsoft paying EUR497mn for abuse of market dominance. The company was forced to produce new versions of Windows XP without Windows Media Player, Windows XP Home Edition N and Windows XP Professional N. Windows Vista and Microsoft 2007 were released in January 2007, which led to a record profit for Microsoft in that year. However, the legal wrangles continued and the company was fined an additional EUR899mn for lack of compliance with the 2004 ruling. Bill Gates stepped down as chief software architect in 2008, although continues to hold positions within the company until today. In 2008, the company launched its Azure Services Platform, its first foray into the cloud computing market. In 2010, it focused on reforming its operating system for mobile telephony, named Windows Phone OS, and refined its strategy for entering the smartphone industry. Recent Financial Performance The decline in desktop and notebook shipments has hit Microsoft's sales of its Windows operating system. Its most recent financial results show revenue for the Windows Division was up 6.2% y-o-y in Q413. However, this includes the launch of Windows in October 2012. The sales boost from the new OS was significantly less than for Windows 7, reflecting the declining sales of desktops and notebooks. Further, operating profit for the Windows Division was down 54.7% y-o-y to Q4, and down 17.8% for FY2013 as a whole. This is a concern for Microsoft because Windows has been the second largest contributor to group operating profit in recent years, and margins had remained relatively stable 2009 to 2012 between 66.9% and 62.9%. By end-2013 this figure has fallen to 49.4% as the weight of sales and marketing expenses © Business Monitor International Ltd Page 83 United States Information Technology Report Q3 2015 dragged down profitability due to only modest revenue growth. This is in contrast to the launch of Windows that resulted in a much larger spike in revenue. Microsoft recently reported operating results for Q4 FY13, which showed a y-o-y revenue increase of 10.2% to USD19.896bn in the three months to the end of June, with revenue increasing in all five divisions. The Business Division grew the fastest, with revenue up 14.1%, deepening its status as Microsoft's largest revenue generator. The Server and Tools also outpaced growth in the Windows division, cementing its position as the second largest revenue generating division. Taken together Business and Server and Tools accounted for 63.9% of group revenue in Q4 FY13, and with both divisions growing fast there is reason for optimism about short- to medium-term financial performance. Furthermore, Server and Tools operating profit increased 14.1% y-o-y to Q4, while business operating profit jumped 18.1% over the same period as the operating margin in Microsoft's two largest divisions increased. Financial Data ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Operational Data ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Revenue (FY11): USD69.943bn Revenue (FY12): USD73.723bn Revenue (FY13): USD77.849bn Revenue (FY14): USD86.833bn Revenue (H1 FY15): USD49.671 Operating Profit (FY11): USD27.161bn Operating Profit (FY12): USD21.763bn Operating Profit (FY13): USD26.764bn Operating Profit (FY14): USD27.759bn Operating Profit (H1 FY15): USD13.62bn Net Income (FY11): USD23.15bn Net Income (FY12): USD16.978bn Net Income (FY13): USD21.863bn Net Income (FY14): USD22.074bn Net Income (H1 FY15): USD10.403bn Employees (2011): 90,000 Xbox 360 Consoles Sold (FY11): 13.5mn Xbox 360 Consoles Sold (FY12): 13.0mn Xbox 360 Consoles Sold (FY13): 9.9mn Xbox 360 Consoles Sold (H1 FY15): 6.6mn Skype Monthly Connected Users (FY12): more than 250mn Skype Monthly Connected Users (Q1 FY13): more than 280mn Skype Monthly Connected Users (Q2 FY13): more than 300mn Skype Minutes of Calls (FY12): 377bn Skype Minutes of Calls (Q1 FY13): 120bn Skype Minutes of Calls (Q2 FY13): 138bn © Business Monitor International Ltd Page 84 United States Information Technology Report Q3 2015 Company Details ■ ■ Microsoft Corporation One Microsoft Way Redmond Washington United States WA 98052 ■ Tel: 4858828080 ■ www.microsoft.com © Business Monitor International Ltd Page 85 United States Information Technology Report Q3 2015 Regional Overview Americas BMI View: The growing middle-class trend in Latin America has attracted several major ICT investors and will continue to offer growth potential in the region's smaller markets. While Mexico and Brazil offer significant opportunities owing to their size, both are dwarfed by the US, where consumer spending on technology and communications remains high. Key Features: ■ Economic uncertainty in large emerging markets weighs on outlook ■ Middle class emergence in Latin American frontier markets presents upside ■ US is forecast to account for almost 68% of Americas households earning more than USD50,000 in 2019, virtually unchanged from 2015. In terms of household income trends, BMI expects the Americas to be the underperforming region globally 2015-2019. This is due to the negative outlook for several large markets including Argentina and Venezuela, which remain mired in economic uncertainty, with no clear path to stability in the short-term. Despite the challenges, our Country Risk team forecasts a medium-term trend of migration in household income bands from USD1,000-5,000 to USD5,000-10,000, and from USD5,000-10,000 to USD10,000-25,000 in Argentina and Venezuela, respectively, during the 2015-2019 period. However, even this opportunity for vendors will be weighed against political risk factors and economic policy measures including restrictions on device pricing, profit expatriation and hyperinflation. There are some notable success stories in the Americas that warrant attention, including significant expansion of the middle class in Brazil, Colombia, Ecuador, Mexico and Peru. Economic development in these markets contribute to the majority of new households sitting in the USD10,000-25,000 household income band for the Americas. This is the income band BMI associates with a shift towards mid-range products (in a global context), as well as the emergence of demand for personal devices in the PC and AV market, rather than an emphasis on shared household devices. © Business Monitor International Ltd Page 86 United States Information Technology Report Q3 2015 5mn New Households Will Earn Over USD50,000 Americas Change In Households By Income Level, 2015-2019 Source: BMI Mid-range but design-conscious brands are well positioned to capitalise in these markets, as evidenced by the phenomenal success of Motorola handsets across the region in 2014, with its mass market price points and solid design specifications enabling it to eat into the lead of Samsung Electronics. Motorola is now part of Lenovo after being acquired from Google in 2014, positioning the global PC market leader well for product and geographic diversification in Latin America over the medium term. BMI considers Lenovo's strategy and competitive position to be strong in Latin America, with reason for some confidence regarding the integration of Motorola after the successful acquisition and integration of leading Brazilian PC brand CCE already under its belt. In terms of premium level IT and consumer electronics device demand, our analysis of household income trends points to the continued importance of the US market over the medium term. The addition of over 5mn households earning more than USD50,000 by 2019 is a positive trend for Apple, which dominates the US premium smartphone, tablet and notebook markets, with no other vendors nearing its brand cache. The Apple Watch could also benefit from high-income household growth with a large degree of lock-in to the Apple ecosystem. © Business Monitor International Ltd Page 87 United States Information Technology Report Q3 2015 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy. Population (1990-2050) 500 400 300 200 100 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 United States - Population, mn f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 88 United States Information Technology Report Q3 2015 United States Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (United States 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 254,506 284,594 298,165 312,247 325,127 337,983 350,625 na 1.1 0.9 0.9 0.8 0.8 0.7 Population, total, male, '000 124,045 139,671 146,516 153,529 160,077 166,564 172,919 Population, total, female, '000 130,460 144,922 151,649 158,717 165,049 171,418 177,706 Population ratio, male/female 0.95 0.96 0.97 0.97 0.97 0.97 0.97 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast. Source: World Bank, UN, BMI Table: Key Population Ratios (United States 1990-2025) 1990 Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 2000 2005 2010 2015f 2020f 2025f 167,587 188,644 200,188 209,505 214,392 217,380 218,905 65.8 66.3 86,919 95,949 51.9 50.9 67.1 67.1 65.9 64.3 62.4 97,977 102,741 110,735 120,602 131,720 48.9 49.0 51.7 55.5 60.2 Page 89 United States Information Technology Report Q3 2015 Key Population Ratios (United States 1990-2025) - Continued Youth population, total, '000 Youth population, % of total working age Pensionable population, '000 Pensionable population, % of total working age 1990 2000 2005 2010 2015f 2020f 2025f 55,184 60,759 61,173 61,947 63,043 64,663 66,599 32.9 32.2 30.6 29.6 29.4 29.7 30.4 31,734 35,189 36,804 40,794 47,692 55,938 65,121 18.9 18.7 18.4 19.5 22.2 25.7 29.7 f = BMI forecast. Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (United States 1990-2025) 1990 2000 2005 2010e 2015f 2020f 2025f 191,643.5 225,082.9 240,712.2 256,489.1 270,987.4 285,152.9 298,841.9 75.3 79.1 80.7 82.1 83.3 84.4 85.2 62,863.1 59,511.5 57,453.6 55,758.0 54,140.3 52,830.1 51,783.9 Rural population, % of total 24.7 20.9 19.3 17.9 16.7 15.6 14.8 Life expectancy at birth, male, years 71.7 74.0 75.0 76.0 76.9 77.8 78.6 Life expectancy at birth, female, years 78.7 79.5 80.1 80.9 81.6 82.2 82.8 Life expectancy at birth, average, years 75.2 76.8 77.6 78.5 79.2 80.0 80.7 Urban population, '000 Urban population, % of total Rural population, '000 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group (United States 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 19,160 19,459 20,114 20,441 21,094 21,776 22,373 Population, 5-9 yrs, total, '000 18,377 20,586 19,678 20,548 20,832 21,486 22,169 Population, 10-14 yrs, total, '000 17,646 20,713 21,380 20,957 21,116 21,401 22,056 Population, 15-19 yrs, total, '000 18,151 20,455 21,644 22,095 21,595 21,758 22,045 Population, 20-24 yrs, total, '000 19,586 19,449 21,218 21,854 22,694 22,205 22,375 Population, 25-29 yrs, total, '000 21,503 19,564 19,886 21,411 22,395 23,242 22,764 Population, 30-34 yrs, total, '000 22,381 20,817 20,030 20,403 21,846 22,836 23,689 Population, 35-39 yrs, total, '000 20,401 22,815 21,108 20,375 20,680 22,126 23,121 © Business Monitor International Ltd Page 90 United States Information Technology Report Q3 2015 Population By Age Group (United States 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 40-44 yrs, total, '000 18,158 22,684 22,814 21,207 20,466 20,783 22,233 Population, 45-49 yrs, total, '000 14,051 20,422 22,548 22,734 21,112 20,403 20,737 Population, 50-54 yrs, total, '000 11,722 17,820 20,241 22,479 22,425 20,867 20,200 Population, 55-59 yrs, total, '000 10,776 13,602 17,520 19,943 21,953 21,947 20,471 Population, 60-64 yrs, total, '000 10,855 11,012 13,173 16,999 19,221 21,210 21,265 Population, 65-69 yrs, total, '000 10,234 9,679 10,432 12,548 16,044 18,209 20,169 Population, 70-74 yrs, total, '000 8,179 8,922 8,744 9,469 11,456 14,725 16,803 Population, 75-79 yrs, total, '000 6,263 7,458 7,512 7,434 8,173 9,970 12,917 Population, 80-84 yrs, total, '000 4,030 5,024 5,440 5,885 5,835 6,489 8,008 Population, 85-89 yrs, total, '000 2,020 2,661 3,108 3,537 3,899 3,924 4,434 Population, 90-94 yrs, total, '000 753 1,118 1,195 1,486 1,733 1,953 2,007 Population, 95-99 yrs, total, '000 219 279 322 371 475 569 660 Population, 100+ yrs, total, '000 32 45 48 60 73 95 118 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group % (United States 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 7.53 6.84 6.75 6.55 6.49 6.44 6.38 Population, 5-9 yrs, % total 7.22 7.23 6.60 6.58 6.41 6.36 6.32 Population, 10-14 yrs, % total 6.93 7.28 7.17 6.71 6.49 6.33 6.29 Population, 15-19 yrs, % total 7.13 7.19 7.26 7.08 6.64 6.44 6.29 Population, 20-24 yrs, % total 7.70 6.83 7.12 7.00 6.98 6.57 6.38 Population, 25-29 yrs, % total 8.45 6.87 6.67 6.86 6.89 6.88 6.49 Population, 30-34 yrs, % total 8.79 7.31 6.72 6.53 6.72 6.76 6.76 Population, 35-39 yrs, % total 8.02 8.02 7.08 6.53 6.36 6.55 6.59 Population, 40-44 yrs, % total 7.13 7.97 7.65 6.79 6.30 6.15 6.34 Population, 45-49 yrs, % total 5.52 7.18 7.56 7.28 6.49 6.04 5.91 Population, 50-54 yrs, % total 4.61 6.26 6.79 7.20 6.90 6.17 5.76 Population, 55-59 yrs, % total 4.23 4.78 5.88 6.39 6.75 6.49 5.84 Population, 60-64 yrs, % total 4.27 3.87 4.42 5.44 5.91 6.28 6.07 Population, 65-69 yrs, % total 4.02 3.40 3.50 4.02 4.93 5.39 5.75 Population, 70-74 yrs, % total 3.21 3.14 2.93 3.03 3.52 4.36 4.79 © Business Monitor International Ltd Page 91 United States Information Technology Report Q3 2015 Population By Age Group % (United States 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 75-79 yrs, % total 2.46 2.62 2.52 2.38 2.51 2.95 3.68 Population, 80-84 yrs, % total 1.58 1.77 1.82 1.88 1.79 1.92 2.28 Population, 85-89 yrs, % total 0.79 0.94 1.04 1.13 1.20 1.16 1.26 Population, 90-94 yrs, % total 0.30 0.39 0.40 0.48 0.53 0.58 0.57 Population, 95-99 yrs, % total 0.09 0.10 0.11 0.12 0.15 0.17 0.19 Population, 100+ yrs, % total 0.01 0.02 0.02 0.02 0.02 0.03 0.03 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 92 United States Information Technology Report Q3 2015 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. Common to our analysis of every industry is the use of vector autoregressions. They allow us to forecast a variable using more than its own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact. Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account; ■ Testing the directional movement and magnitude of coefficients; ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity;. © Business Monitor International Ltd Page 93 United States Information Technology Report Q3 2015 BMI uses the selected best model to perform forecasting. Human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience, expertise and knowledge of industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Sector-Specific Methodology A number of criteria drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, our quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments and diffusion rates; ■ Exogenous events. Estimates are calculated using our own macroeconomic and demographic forecasts. Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication © Business Monitor International Ltd Page 94 United States Information Technology Report Q3 2015 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Index Methodology BMI's Risk/Reward Index (RRI) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market. The RRI system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories: ■ Industry Rewards (an industry-specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors). • Country Rewards (a country-specific category, factoring in favourable political and economic conditions for the industry). Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. This is broken down into two sub categories: ■ Industry Risks (an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry and the relative maturity of a market). • Country Risks (a country-specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score). We take a weighted average, combining industry and country risks, or industry and country rewards. These two results in turn provide an overall Risk/Reward Score, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country. For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Score a weighted average of the total score. As most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our score is revised on a quarterly basis. This ensures the score draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Ltd Page 95 United States Information Technology Report Q3 2015 Sector-Specific Methodology In constructing these indices, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk/Reward Index Indicators Rationale Rewards Industry IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones. Sector value growth, % year-on-year (y-o-y) Denotes sector dynamism. Scores based on annual average growth over five-year forecast period. Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development. Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales, compared to services/ software, indicates that the overall IT market is immature. Country Urban-rural split Urbanisation is used as a proxy for development. Mainly rural states score lower. GDP per capita, USD A high GDP per capita supports long-term industry prospects. Overall score for Country Rewards is also affected by the coverage of the power transmission network across the state. Risks Industry Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting. ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code. Country Short-term external risk Score from BMI's Country Risk Index (CRI). It evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Score from CRI, 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 Score from CRI to denote ease of trading with the state. Legal framework Score from CRI denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Score from CRI denotes ease of conducting business in the state. Corruption Score from CRI 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 96 United States Information Technology Report Q3 2015 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. The following weighting has been adopted: Table: Weighting Of Components Component Rewards Weighting, % 70, of which - Industry 65 - Country 35 Risks to 30, of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Ltd Page 97 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... enterprise hardware and software upgrade demand from 2015 US IT market growth will be sustained in 2015 by the supportive economic environment When compared with its developed market peers, the US market is expected to continue to perform well US economic © Business Monitor International Ltd Page 14 United States Information Technology Report Q3 2015 growth for 2015 is forecast at 2.9% in real terms (up from... launches across a diverse set of mass-market platforms © Business Monitor International Ltd Page 26 United States Information Technology Report Q3 2015 Opportunities In Automation Manufacturing Nominal GVA, % of Total 25 20 15 10 5 2013 2014 Argentina Venezuela 2015f Brazil Canada 2016f 2017f Chile Colombia United States 2018f Mexico 2019f Peru f = BMI forecast Source: National sources, BMI Greater access... partnerships with operators or by selling to them direct © Business Monitor International Ltd Page 17 United States Information Technology Report Q3 2015 Another technology trend is the adoption of cloud computing services, with surveys showing high levels of satisfaction with cloud services among US chief information officers, reflecting the fact it is already the world's leading cloud market This means... USD331.4bn, over the forecast period (2015- 2019) © Business Monitor International Ltd Page 19 United States Information Technology Report Q3 2015 Macroeconomic Forecasts Economic Activity BMI View: Real GDP growth in the US will accelerate in the coming years, on the back of stronger private consumption and low borrowing costs We forecast headline growth of 2.9% in 2015 and 2.6% in 2016, up from 2.4%... Monitor International Ltd Page 15 United States Information Technology Report Q3 2015 make savings in its USD80bn IT budget The recession may have had a lasting impact on the IT market by encouraging consideration of cloud computing models such as software-as-a-service (SaaS) The strongest outlook is for enterprise spending on IT in 2015 BMI expects spending will accelerate in 2015 as confidence begins to... Business Monitor International Ltd Page 29 United States Information Technology Report Q3 2015 decline is expected to continue to diminish in 2015 as demand stabilises with core users still requiring the additional productivity features offered by notebooks and desktops versus tablets Hardware Market (2012-2019) 250,000 200,000 150,000 100,000 50,000 0 2012 2013 2014e 2015f Personal computer sales, USDmn... dollar, which will weigh on net exports Growth To Pick Up Real GDP Growth, % chg y-o-y 4 2 0 -2 -4 2008 2009 2010 2011 2012 2013 2014 2015f 2016f f = BMI forecast Source: BEA, BMI © Business Monitor International Ltd Page 20 United States Information Technology Report Q3 2015 Expenditure Breakdown Private Consumption: The outlook for the consumer sector continues to improve, as unemployment maintains... 21 United States Information Technology Report Q3 2015 Low Price Growth Will Support Consumption US - Inflation, % chg y-o-y Source: Bloomberg Gross Fixed Capital Formation: Private fixed investment was among the strongest drivers of growth in 2014, expanding by 5.3% in real terms, and we expect that amid low interest rates and broadly improving economic conditions, this trend will continue in 2015. .. strength will remain a theme in 2015 and 2016 Apart from bolstering imports, this will also weigh on US export competitiveness, producing significant headwinds for autos and aircraft manufacturers Finally, the steep decline in the price of oil will weigh on US producers' margins, and reduce © Business Monitor International Ltd Page 22 United States Information Technology Report Q3 2015 the pace of domestic... Business Monitor International Ltd Page 24 United States Information Technology Report Q3 2015 Industry Risk Reward Index BMI View: The medium-term outlook for the Americas' IT market has stabilised in the wake of telecoms and business environment reforms that benefit Mexico and Argentina in particular These two countries rapidly ascended our IT Risk/Reward Index for Q31 5, overtaking politically and economically . Q3 2015 www.bmiresearch.com UNITED STATES INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 2042-4205 Published by:BMI Research United States Information Technology Report. 86 Americas 86 United States Information Technology Report Q3 2015 © Business Monitor International Ltd Page 4 Demographic Forecast 88 Table: Population Headline Indicators (United States 1990-2025). downtrend. United States Information Technology Report Q3 2015 © Business Monitor International Ltd Page 13 Industry Forecast Table: IT Industry - Historical Data And Forecasts (United States 2012-2019)