Australia information technology report q1 2010

Q1 2010
Published by Business Monitor International Ltd.
www.businessmonitor.com
INFORMATION TECHNOLOGY REPORT
ISSN 2041-7160
Published by Business Monitor International Ltd.
AUSTRALIA
INCLUDES 5-YEAR FORECASTS TO 2014
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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

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CONTENTS
Executive Summary 5
SWOTS 8
Australia IT Sector SWOT 8
Australia Political SWOT 8
Australia Economic SWOT 9
Australia Business Environment SWOT 9
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
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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

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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 7 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
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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 7 operating system. Microsoft received credit for a smoother launch of Windows 7 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 e-
business products will be increasingly popular with the small and medium-sized enterprise (SME) market,
as companies look to enhance productivity through automating essential functions.
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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 2010-
2014. 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.


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SWOTS
Australia IT Sector SWOT
Strengths
 Strong government support for ICT programmes
 IT-literate population
 Strong financial sector
 Relatively unaffected by global economic crisis compared with Europe and the US

Weaknesses
 Australia has a relatively mature domestic market, with relatively slow growth rates
 Sensitive to volatility in the global economy

Opportunities

 The National Broadband Network programme will have many direct and indirect
benefits for the IT market
 Phase two of the computers for schools project is expected to generate an additional
US$800mn of spending
 Other major IT projects in areas such as healthcare and smart cards
 Green IT as companies look to make power savings

Threats
 The biggest threat is slowdown the global economic slowdown affecting Australia’s
economic activity and leading to a scaling back of IT budgets
 The cheaper Australian dollar will affect consumer and business demand in the
import-dependent IT market

Australia Political SWOT
Strengths
 Australia is a mature democracy with a broadly stable party system
 Economic stability over recent years supports the current political system, and radical
groups are unlikely to gain substantial support

Weaknesses
 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
 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
 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
 Australia’s early support for the US ‘war on terror’, among other things, has made
Australians abroad a target for Islamic extremists
 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

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Australia Economic SWOT
Strengths
 A modern economy supported by a sound financial system and a highly educated
workforce
 Continuity in policymaking. This lowers risks for investors and reduces the economy’s
vulnerability to governmental change

Weaknesses
 The persistent current account deficit, which increases vulnerability to capital flows
and, by extension, currency volatility
 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

Opportunities
 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
 A low level of government debt has provided a certain amount of flexibility in fiscal
policy to support domestic demand through the downturn.

Threats
 The currency’s vulnerability to commodity prices – and risk appetite in general –
complicates exchange rate forecasting over the near term
 Australia is vulnerable to droughts, which have become increasingly severe in past
years as a result of global climate change

Australia Business Environment SWOT
Strengths
 A highly educated workforce and comparatively modern transport infrastructure
underpins economic prospects
 The economy is very open, with the IMF awarding Australia its highest rating in the
index of trade restrictiveness

Weaknesses
 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
 With a population of just under 22mn, the domestic consumer base is small by
regional standards

Opportunities
 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
 Corporate taxes for foreign investors in Australia are higher than in other states
 Recent investment proposals by Chinese firms regarding the resource extraction
sector have raised fears that strategic assets will be lost to foreign players






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Asia IT Business Environment Ratings
BMI’s Asia IT Business Environment Ratings compare the potential of a selection of the region’s
markets over our forecast period, through to 2014. The ratings reflect our consideration of political and
economic risks, as well as risks associated specifically with IT intellectual property (IP) rights protection
and the implementation of government spending projects.
In 2009 the global economic slowdown had a marked impact across Asian IT markets, with spending
growth declining sharply in states like Malaysia, but holding up relatively well in others like Australia.
Australia’s top ranking is in part due to government ICT programmes, such as the government National
Broadband Network project. The ambitious broadband plans will drive development of Australia’s digital
economy and feed demand for PCs. Government tenders will also generate opportunities in years to come
in areas such as education, e-government, transport and healthcare.
The two smaller, but mature, IT markets of Singapore and Hong Kong take second and third spots in our
rankings table respectively, due primarily to their high country structure scores. Hong Kong continues to
offer investors in the IT field opportunities associated with its growing links to the vast Chinese market.
Singapore benefits from high broadband penetration and initiatives such as the government’s ambitious

‘Intelligent Nation 2015’ plan and the standard operating environment.
On the downside, the continued restructuring of both economies to a more service-oriented economic
model may limit long-term growth prospects, although this also brings opportunities in sectors such as
financial services and banking. Businesses will probably remain cautious and value-focused in the near
term, By the end of 2009, surveys showed significantly better business sentiment.
South Korea, in fourth place in our table, was hit by the global economic downturn, but BMI forecasts
that Korean per capita IT spend will rise from US$750 in 2010 to US$921 in 2014 Consumers seem
willing to upgrade their PCs, and there is also a trend for households to own more than one PC. There will
be a number of key growth areas such as industry-specific software applications, and IT outsourcing,
which is expected to show a strong demand trajectory.
In China, factors such as the vast potential rural market, government spending and demand from key
verticals such as telecoms should drive growth. Key sectors currently include telecoms, government,
energy, social security, education and transport. However, there are still risks associated with IP rights
protection and piracy and a lack of business environment transparency. Pressure on hardware prices is
also a risk in the current environment.
Malaysian IT spending growth will be driven by a rise in the current PC penetration level of around 35%,
rising incomes and a high-tech focused national development plan. The subsidised roll-out of a high-
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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 as the government implements measures to make Malaysia a growing regional services
and outsourcing hub.
In the Philippines, the IT market will be driven by further growth in the local IT and business process
outsourcing (BPO) sector. The Philippines has a lower PC penetration than many other Asian countries,
and the IT market offers correspondingly high growth potential over the forecast period. However, there
are challenges such as labour shortages and rising wages.

In 2009, the Indian authorities announced a series of measures to stimulate the domestic IT market as well
as assist domestic IT companies. The potential is plain, with less than 2% of the population owning a
computer, about one-fifth the level in China. Realisation of this long-term growth potential depends on
fundamental drivers such as raising India’s low computer penetration, rising incomes, falling computer
prices and the government’s ambitions to connect the vast rural areas to the outside world.
Three South East Asian markets occupy the final three positions in our table, with low rankings due
primarily to business environment factors, despite considerable growth potential. In Thailand, once an
upturn starts, IT spending could spurt forward again as customers make good on pent-up demand. The
fundamentals of growing affordability and low PC penetration should keep the market in positive territory
during the forecast period. A number of factors should also support momentum, including a Government
PC for Education programme, and 3G mobile and WiMAX broadband service roll-outs.
Similarly, with ICT penetration of only around 20% and development restricted to richer areas such as
Java, the Indonesian IT market has much latent growth potential. BMI expects the Indonesian market to
bounce back strongly from the deceleration last year and become one of the best regional IT market
growth prospects over BMI’s five-year forecast period. The small and medium-sized enterprise (SME)
sector will drive demand for basic hardware and applications as enterprises look to enhance productivity
Sri Lanka’s IT market has felt the effects over the years of the country’s political economic instability,
from disruption of distribution channels and a flourishing grey market to underdeveloped telecoms
infrastructure. However, the market will feature on IT vendors’ radar as among the best potential growth
prospects in South Asia Computerisation has only just got started in the government service, and major
public and private sector organisations remain largely underpenetrated in terms of basic enterprise
software

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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 47 90 62 70 88 81 67.6 3
South Korea 63 70 66 75 68 71 67.2 4
China 69 25 54 35 69 55 54.2 5
Malaysia 50 50 50 35 71 57 52.0 6
Philippines 48 40 45 43 57 51 46.7 7
India 52 10 37 45 54 50 41.1 8
Thailand 45 15 35 35 62 51 39.5 9
Indonesia 37 30 35 35 36 36 35.1 10
Sri Lanka 33 10 25 35 36 36 28.2 11
Source: BMI. Scores out of 100, with 100 highest. The IT BE Rating is the principal rating. It comprises two sub-
ratings ‘Limits Of Potential Returns’ and ‘Risks To Realisation Of Returns’, which have a 70% and 30% weighting
respectively. In turn, the ‘Limits’ Rating comprises IT Market and Country Structure, which have a 70% and 30%
weighting respectively and are based upon growth/size/maturity/govt. policy of the IT industry (Market) and the
broader economic/socio-demographic environment (Country). The ‘Risks’ rating comprises Market Risks and Country
Risk which have a 40% and 60% weighting respectively and are based on a subjective evaluation of industry

regulatory and IP regulations (Market) and the industry’s broader Country Risk exposure (Country), which is based on
BMI’s proprietary Country Risk Ratings. The ratings structure is aligned across the 14 Industries for which BMI
provides Business Environment Ratings methodology and is designed to enable clients to consider each rating
individually or as a composite, which the choice 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.



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Asia Regional IT Markets Overview
IT Penetration
Internet Penetration Broadband Penetration
(per 100 population) (per 100 population)

e/f = estimate/forecast. Source: BMI

e/f = estimate/forecast. Source: BMI

Across Asia, government ICT initiatives and growing affordability will drive increases in PC penetration
during BMI’s forecast period to 2013. While some cities and regions stand out, there is an unbalanced
pattern of regional development, with PC penetration in countries like Singapore being above 50%, while
in other countries, such as Indonesia, it is less than 2%.
The two Asian giants, China and India, embody the region’s growth potential, as in both countries
computer ownership remains the preserve of a minority. In China, PC penetration was only around 16%
in 2007 – although it was far higher in cities like Shanghai and Beijing – and projected to pass 25%
overall by 2013. In India, less than 2% of people own a computer. However, some 45% of the population

is under 25, which provides a promising demographic context for increased PC ownership. The
government’s ultimate target of 1bn internet-connected computers in India is equivalent to the total
estimated number of PCs in the world today.
Around the region, affordable computer programmes are finding favour with governments. In early 2009,
China announced a new subsidised PC programme aimed at rural residents. In the Philippines, where
penetration is currently around 5%, the government launched its PC4All programme in 2007. In
Indonesia, penetration of around 2% could double by 2013 if government initiatives are followed through.
The Indonesian government is also rolling out new e-learning initiatives, with a target of raising the
current 1:3,200 ratio of PCs to students in public schools to 1:20.
A similarly broad range is found with respect to internet penetration. India and Indonesia are now above
17% penetration, despite a lack of fixed-line infrastructure in those countries. Both have deployed fixed
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wireless technologies as one alternative solution and overall penetration should pass 30% in both by
2012. The fastest growth is projected for India, in which penetration is projected to increase from 17.7%
to 44% by 2013, while Indonesia suffers from high tariffs.
Singapore should also see strong momentum and is projected to record more than 86% broadband
penetration by 2013. This is due partly to the Infocomm Development Authority’s ambitious ‘Intelligent
Nation’ initiative. Meanwhile, some 46% of Malaysians had internet access in 2008. Across the region,
government programmes are an important driver of ICT penetration. The Chinese government has a five-
year plan to make the internet available in every administrative village in central and eastern China and
every township in the west.
Dial-up technology is still the dominant access method. However, even in developing markets, the
number of broadband subscribers continues to gain ground steadily. In China, broadband penetration is on
course to reach 20% by 2013. In India, where the government designated 2007 as ‘the Year of
Broadband’, penetration should increase tenfold to reach 5.4% by 2013 from around 0.5% currently. This
is far below government targets, however. Malaysia and Singapore will also see strong growth in the

number of broadband subscribers.
Governments around the region are interested in WiMAX as a potential alternative broadband access
method, with India and Malaysia among the countries where network deployments are planned.
Meanwhile, the growth of Wi-Fi coverage will be one driver of notebook sales in places like Hong Kong,
where the government has committed another HKD200mn to the deployment of a Wi-Fi network
covering more than 200 public venues.
Market Growth And Drivers
IT Market Sizes (US$mn) IT Market Sizes As % Of National GDPs
(2008e) (2008e and 2013f)

e = estimate. Source: BMI

e/f = estimate/forecast. Source: BMI

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Most Asian IT markets are expected to remain in positive growth territory in 2009, despite an expected
impact on IT spending from the global economic slowdown. Across the region, demand from both
business and consumer segments weakened in H208, after robust sales in the first half of the year. The
difficult economic headwinds will persist in 2009, but strong fundamental demand drivers meant that
there will be continued opportunities. Key factors include cheaper PCs and reform in sectors such as
telecommunications and finance, as well as government initiatives.
In China, the falling stock market and high inflation affected consumer sentiment in 2008, while declining
external demand influenced business investment plans. However, BMI expects IT market growth to be
maintained by an expansion into western China, rural areas and lower-tier cities, as well as growing
demand from SMEs. IT spending will also receive a boost from government spending and IT projects
associated with the Shanghai World Expo in 2010.

In India, IT spending growth slowed significantly in 2008 and is expected to ease further in H109, before
starting to recover in H209. Fundamental market drivers include the government’s ambitions to connect
the vast rural areas to the outside world, coupled with falling computer prices. In early 2009, India’s
government announced a series of measures to stimulate the market. Meanwhile, India’s business process
outsourcing industry is growing at around 40% per annum and will continue to generate opportunities for
vendors of IT products and services.
As mentioned above, the Philippines is one of
the countries currently benefiting from low-
priced PC programmes (PC4ALL), which
provide opportunities for vendors to penetrate
the low-income segments. Other regional
computer sale drivers over the forecast period
include education, lower prices, IP telephony,
cheaper processors as well as notebook
entertainment and wireless networking features.
Meanwhile, in Indonesia, relatively low levels
of government IT spending may mean that the
IT market lacks a stabiliser that could help
immunise it from the slowdown. Once again,
however, the basic demographics of low computer penetration and growing affordability should keep the
market in positive territory.
In more developed markets, such as Hong Kong and Singapore, there were indications of declining
consumer and business sentiment in H208, but IT spending remained in positive territory for the year as a
whole. The Singaporean government continued to be a major factor in 2008, with the US$1.3bn Standard
IT Markets Compound Growth
(2008e-2013f, %)

e/f = estimate/forecast. Source: BMI
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Operating Environment tender award. In Hong Kong, rising unemployment and exposure to the financial
crisis will contribute to slower growth in 2009, but this will be partly counteracted by higher government
IT spending as well as cross-border trade and co-operation.
The largest IT market in the region is, unsurprisingly, China, estimated at US$73.1bn in 2008, trailed
distantly by India (US$13.8bn) and Singapore (US$4.8bn). Singapore’s IT market (including
communications) is the largest as a proportion of national GDP (2.7%), followed by China, Hong Kong
and Malaysia, all at 1.9%.
The fastest growing IT market over the forecast period looks set to be India, with 2008-2013 compound
growth of 79%, taking first place due largely to low PC penetration. China is second, with the IT market
growing by an estimated 74% over the forecast period.
Sectors And Verticals

Regional IT markets will remain hardware-centric, with hardware accounting for 45-68% of total
spending in all markets. However, spending on software and services will grow faster. Notebook sales are
growing much faster than the PC market as a whole with growth driven by falling prices and more
features.
This year is likely to be a challenging year for hardware sales. In many markets, demand proved quite
robust in H108 and exceeded forecasts, but there were signs of a slowdown towards the end of the year.
Demand from under-penetrated rural areas, affordable computer programmes and growing broadband
penetration should generally prevent stagnation.

Market Structure (% Of Total IT Market)
2008e (LHS) vs 2013f (RHS)

e/f=estimate/forecast. Source: BMI
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In both emerging and more mature markets, the growing popularity of broadband will help to support
computer sales. China Telecom is among regional telecoms companies to have rolled out PC bundling
offers as part of its broadband packages. Meanwhile, a wave of 3G launches across the region should also
provide a stimulus to sales of notebooks, with Vodafone Hong Kong among service providers offering
3G/HSPA USB modems bundled with their 3G services.
In much of emerging Asia, demand from smaller towns and rural areas will provide the main source of
growth, along with replacement of desktops with notebooks. SMEs will be one of the strong growth
segments over the forecast period, with SME demand for servers and networking equipment a significant
growth opportunity.
Due in part to high levels of piracy, software’s share of IT spending is relatively low, ranging from 11-
25% among countries covered by BMI. Efforts are being made to tackle the issue of piracy, but despite
government crackdowns in China and the Philippines, software piracy remains above 70% in most of
emerging Asia.
Despite the economic downturn, there are still 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 and to encourage vendors to promote software-on-demand solutions. There is a growing trend for
smaller companies to seek greater efficiency by using IT to improve productivity and reduce costs
(including labour costs). In general, enterprise resource planning (ERP) and other e-business products still
dominate the enterprise software market, but vendors are also looking to other areas such as customer
relationshiop management (CRM) and business intelligence, where faster growth is possible.
The IT services segment accounts for 17-40% of spending in the Asian markets covered by BMI. The
economic situation and credit tightening are likely to have an impact on projects in some verticals, but
continued demand in sectors like telecoms and banking will help to prevent stagnation. Government
spending will account for a larger share of spending in many markets. In China, government stimulus
packages should drive IT-related investments, while Singapore government ICT tenders were worth an
estimated US$1bn in 2008 and the Hong Kong government’s Digital 21 initiative will continue to
generate a number of projects.

Regionally, hardware deployment services remain the largest IT services category, with other
fundamental services including system integration, support systems, training, professional services,
outsourcing and internet services. Main spenders across the region include banks and financial institutions
as well as governments. Even in emerging markets like India, IT vendors are having to pay more attention
to value-added services such as technical support and product troubleshooting, or basic IT and hardware
consulting.
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In many countries, the number and size of local outsourcing deals are increasing. Outsourcing could
account for as much as 30% of China’s IT services spending by 2013, while in India there have been
some large contracts such as that awarded by Idea Telecom to IBM. Singapore – where the government
was to tender a major outsourcing contract in 2008 – and Hong Kong have both seen a trend towards
larger outsourcing projects in the public and private sectors.


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Market Overview
Government Authority
Government Authority Department for Broadband, Communications and the Digital Economy
Chairman Stephen Conroy

The Department for Broadband, Communications and the Digital Economy was established in 2007
following the election of the Rudd government and was a successor to the former Department of

Communications, Information Technology and the Arts. The main policy responsibilities of the ministry
include:
 Broadband policy and programmes;
 Postal and telecommunications policies and programmes;
 Spectrum policy management;
 Broadcasting policy;
 National policy issues relating to the digital economy;
 Content policy relating to the information economy.
Background
Australia’s IT market is based substantially around imports, with a relatively small local IT sector.
Multinational brands such as HP, IBM, SAP, Dell and Acer dominate the market where most have a
substantial presence.
The local IT sector is mainly made up of small companies involved in software development and ICT
manufacturing with military applications. The sector employs around 270,000 people, with more than
95% of firms employing less than 20 workers.
Hardware
Australian computer hardware sales are projected at US$7.8bn in 2010 and, following a deceleration in
2009, 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 segment 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.
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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 Q109. The main
growth area was consumer notebooks, which grew by at least 25%, while consumer desktops recorded a

double-digit decline.
Netbooks were the fastest-growing PC market segment, with triple-digit growth in H109 over the same
period of 2008. Netbook shipments reached close to 15% of notebook sales in Q209, with more than
90,000 units sold. However, the popularity of netbooks added to the downward pressure on average sales
prices as consumers demonstrated a preference for lower-priced models.
The economic slowdown therefore had an impact on computer sales in 2009, despite a boost from the
stimulus package and lower interest rates in H109. Amid economic uncertainty, some IT budgets were cut
in the commercial sector in 2009, with the replacement cycle for computer systems stretching for some
companies. However, government ICT programmes and continuing demand for notebooks and netbooks
helped to prevent stagnation.
Corporate IT spending had started to recover by the end of 2009, as companies looked to achieve greater
efficiencies in the wake of the economic slowdown. There could be a boost, particularly in the second
half of 2010, from computer hardware tenders delayed from 2009. The launch of Microsoft’s Windows 7
operating system also has the potential to help trigger a new cycle of hardware upgrades in
2010, although much will depend on business confidence.
More than 90% of Australian households now have a PC, but consumers have appeared willing to spend
on upgrading their notebook computers, and it is also becoming more popular to purchase a second
household PC. Indeed, around 30% of households have more than one PC. Penetration is also high among
businesses, with around 95% of small businesses and 100% of medium-sized and large businesses having
computers. Small business comprise more than 99% of all Australian businesses and slighly more than
50% of business PC sales.
Unsurprisingly, given the high penetration levels in both business and consumer segments, the Australian
PC market is dominated by replacement sales. Upgrades are estimated to account for at least 80% of
business purchases and more than 50% in the case of hoseholds.
A number of factors should help to keep computer hardware demand in positive growth territory. First,
government programmes related to computers in education will provide a bottom for the market. In 2009,
the second phase of the government’s computers for schools programme was expected to provide 141,600
new computers to schools around the country, with the value of the programme forecast to have reached
around AUD260mn by the end of 2009. In July 2008, the government passed a measure that
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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, the government’s ambitious broadband plans will also drive expansion. The government’s
NBN plan should drive development of Australia’s digital economy and services such as online banking
and shopping. Converged multimedia services such as Internet Protocol television (IPTV) will also feed
demand for PCs and notebooks with entertainment features. Bundling deals by 3G mobile telecoms
service providers like Vodafone will help to drive sales of portable computers as connectivity devices.
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.
Over the forecast period, ERP, CRM and other e-business products will be increasingly popular with the
SME market, as companies look to enhance productivity through automating essential functions. As
evidence of the importance of this segment to vendors, Microsoft recently teamed up with Telstra to offer
a suite of enterprise software products to SMEs. In terms of verticals, the public and financial sectors,
healthcare, telecoms, utilities and SMEs are seen as having the most growth potential.
Growing PC shipments, new technologies and business models including 3G mobile, WiMAX as well as
industry trends such as software-as-a-service (SaaS), green IT and virtualisation will provide areas of
software segment growth going forward. In 2010, Microsoft’s new Windows 7 operating system,
launched in October 2009, has the potential to have an impact, although much will depend on consumer
and business confidence. There should also be a boost from systems upgrades delayed from 2009.
Software piracy has fallen in Australia in recent years but remains an issue in some segments of the
market. According to the Business Software Association, the overall software piracy rate had dropped to

28% from 31% in 2003. However, most of the fall occurred in the consumer segment, where the drop in
‘white box’ PCs was credited with reducing the use of pirated software. Meanwhile, some recent studies
have found a rise in the use of illegal software among Western Australian companies, particularly in the
booming mining sector. The overall trend, however, has been one of improved general awareness, backed
by appropriate legislation.
The current economic crisis led some organisations to cut IT budgets or look to defer systems updates. In
April 2009, Telstra revealed that it had abandoned plans to migrate enterprise and government customers
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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 seemed less vulnerable to cutbacks than spending on hardware or services.
In late 2008, companies including AWB and Origin Energy announced that they were proceeding with
software upgrade projects worth tens of millions of dollars.
Vendors were looking to other areas such as business intelligence, where faster growth was possible.
Business intelligence demand has grown at a double-digit rate for the past few years and perhaps accounts
for around 5% of the total software market. Australia will remain a major market for business intelligence
software in the Asia Pacific, but growth may slow as users seek to get value from existing investments.
Security is likely to be another growth area. Meanwhile, the cost efficiencies of virtualisation – running
multiple systems on a single piece of hardware – makes sense in the current economic climate, but creates
new security issues. Local research has suggested that for the past few years, Australia has been in the
global vanguard of virtualisation of X86 servers, even if the rate is slackening somewhat. Given the focus
of many businesses of controlling costs, the pay-on-demand SaaS model has also grown in popularity.
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 2010-2014.

Research in 2009 indicated that the number of Australian companies, including SMEs, cancelling
outsourcing contracts as a result of the economic slowdown was relatively small.
Despite this, the economic situation and tighter credit had an impact on projects in some market
segments. There were a number of high-profile roll-backs of contacts last year. In March 2009, Telstra
launched a consolidation exercise to reduce its number of IT services providers from four to two. The
goal of the exercise was the cut IT system management costs. In the short term, maintenance and other
services generally regarded as operating expenses were less vulnerable to cutbacks than new projects
requiring major capital expenditure.
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 require
spending by banks and intense competition in the retail sector is spurring spending on CRM and back
office systems. Competition in the telecoms field is a driver for that key IT spending segment, where
deregulation has led to new entrants. The current economic crisis may reinforce the logic of outsourcing
non-core functions in some cases, as companies will be less willing to spend on in-house IT 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
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investments made in hardware and software. Outsourcing is an increasingly important spur to growth for
the IT services sector. However, traditional services such as desktop support are still the mainstay of the
market, while applications services support is less developed.
E-government projects will be an important opportunity for IT services vendors over the next few years
and a driver of IT projects in various sectors. Projects such as the standardised reporting systems scheme
for enterprises, scheduled to be launched in mid-2010, will encourage business spending on system
updates.
Industry Developments
Stimulus Package

The Australian IT market received a boost in 2009 from federal and local government stimulus spending
packages. The Rudd government’s five-year AUD15.1bn spending plan aimed to create 133,000 jobs and
revive productivity growth. Together with a AUD300mn local spending plan, the package was designed
to provide a stimulus across the economy.
Healthcare IT
Among sectors expected to be a priority for government IT projects is healthcare. Australia has a National
E-Health Transition Authority, which has the goal to create a paperless environment in Australia’s health
sector, including public hospitals. Meanwhile, another public body, the National Health and Hospitals
Reform Commission, has a focus on personal electronic health records. Recent healthcare IT projects
have included Northern Sydney Central Coast Health’s award to HP of a AUD1.15mn networking
contract, while the Prince of Wales Hospital in Sydney selected Siemens for an IP transition of its
communications network.
E-Government
In addition to computers in schools, a number of e-government projects continued to be rolled out last
year, despite the economic uncertainty. In mid-2010, the Australian government is expected to launch a
standardised reporting system scheme. The programme will involve implementation of a platform
allowing business to submit reports to a range of agencies.
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 other licences for passenger
transport and cards from a number of other licensing authorities. These programmes should drive IT
spending both in government and in tangential sectors.
While most government IT programmes were relatively immune to the global slowdown, the
economic slowdown encouraged the government to seek greater efficiency in IT procurement. In April
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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 expressed concerns about the implicatoins of such a move for smaller companies.
Education Projects
Around 1,400 high schools were expected to benefit from phase two of the government’s computers for
schools project, announced in January 2009. According to computer minister Julia Gillard, phase two will
provide 141,600 new computes to 1,394 schools around the country. By the end of 2009, the programme
would have provided almost AUD260mn of computers.
In December 2008, the federal government announced an additional AUD807mn for its signature
programme of installing computers in schools. The additional spending was due what the education
minister described as ‘the IT situation in schools being even bleaker than originally thought’.
As a result, total spending committed to the programme had reached AUD1.2bn. In July 2008, the
government introduced an education rebate, allowing households to reclaim a 50% refund on education
costs of up to AUD625 a year for primary students and AUD1,500 for secondary students, for broadband
and other IT related equipment.
The value of the Labor government’s huge investment has been questioned by some opposition
politicians. A recent survey found that 1% of parents believed that new computers should be a priority for
government. Meanwhile, the Australia Computer Society called for further initiatives beyond simply
providing students and teachers with hardware.
Table: Computers For Schools Programme, Phase Two – Planned Spending By State
State
Funding,
AUDmn Additional Computers
Total No Of Computers
Delivered Under The Plan
New South Wales 16.8 16,839 91,677
Victoria 44 43,999 64,128
South Australia 14.3 14,336 19,819
Queensland 41 40,955 computers delivered to 363 schools 47,759

Tasmania 5.2 5,269 computers delivered to 80 secondary schools 6,316
ACT 2.8 2,819 computers delivered to 24 secondary schools 5,837
Northern Territory 1.3 1,303 computers delivered to 37 secondary schools 2,041
Source: Official figures, BMI