Australia information technology report q1 2011

Q1 2011
Published by Business Monitor International Ltd.
www.businessmonitor.com
INFORMATION TECHNOLOGY REPORT
ISSN 2041-7160
Published by Business Monitor International Ltd.
AUSTRALIA
INCLUDES BMI'S FORECASTS
Business Monitor International
Mermaid House,
2 Puddle Dock,
London, EC4V 3DS,
UK
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:



© 2011 Business Monitor International.
All rights reserved.

All information contained in this publication is
copyrighted in the name of Business Monitor
International, and as such no part of this publication
may be reproduced, repackaged, redistributed, resold in
whole or in any part, or used in any form or by any
means graphic, electronic or mechanical, including
photocopying, recording, taping, or by information
storage or retrieval, or by any other means, without the

express written consent of the publisher.

DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as
to the accuracy or completeness of any information hereto contained.




AUSTRALIA INFORMATION
TECHNOLOGY REPORT
Q1 2011
INCLUDES 5-YEAR FORECASTS TO 2015


Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: January 2011

Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 2

Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 3

CONTENTS
Executive Summary 5
SWOT Analysis 8
Australia IT Sector SWOT 8
Australia Political SWOT 8
Australia Economic SWOT 9
Australia Business Environment SWOT 10
IT Business Environment Ratings 11
Table: Regional IT Business Environment Ratings 11
Asia IT Market Overview 14
IT Penetration 14
Australia Market Overview 21
Government Authority 21
Background 21
Hardware 22
Software 24
IT Services 26
Industry Developments 28
Healthcare IT 28
Table: Computers For Schools Programme, Phase Two – Planned Spending By State 30
Industry Forecast Scenario 31
Table: Australia’s IT Sector – Historical Data & Forecasts (US$mn Unless Otherwise Stated) 33
Internet 34
Table: Telecoms Sector Internet Historical Data & Forecasts 34

Macroeconomic Forecast 36
Australia – Economic Activity 38
Competitive Landscape 39
Computers 39
Software 41
IT Services 43
Internet Competitive Landscape 45
Table: Australia Dial-up And Broadband Internet Subscriptions (‘000) 45
Internet Service Revenues 47
ADSL2+ 48
Naked DSL 49
WiMAX 49
Company Profiles 51
HP Australia 51
SAP (Australia) 52
BMI Methodology 53
How We Generate Our Industry Forecasts 53
Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 4

IT Industry 53
IT Ratings – Methodology 54
Table: IT Business Environment Indicators 55
Weighting 56
Table: Weighting Of Components 56
Sources 56

Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 5

Executive Summary
Market Overview
Australia’s IT market should continue to provide opportunities in consumer, government and business
sectors in 2011, following a strong recovery in 2010.The total size of the domestic IT market is projected
by BMI to increase from US$20.2bn in 2011 to US$25.5bn in 2015.
IT spending in 2011 should receive a boost from growing demand across IT spending sectors to take
advantage of opportunities presented by cloud computing. In 2010 a wide range of leading Australian
private and public sector organisations launched cloud initiatives.
Several factors underpin our forecast of a 6% 2011-2015 CAGR for the Australian IT market.
Government tenders will drive considerable spending in years to come. Banks will continue to need to
spend on regulatory compliance, 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 are driving that key IT spending segment.
Industry Developments
In November 2011, the Australian Senate passed a bill to restructure Telstra, to increase competition as
Telstra’s infrastructure is incorporated in the new National Broadband Network (NBN.) The NBN project
aims to connect 93% of the population by 2017 and rectify a situation where Australian broadband
charges have been ranked the fifth most expensive among OECD countries.
In 2010, government projects in sectors such as e-government, healthcare and education drove significant
opportunities for IT vendors. The Australian government announced plans for a standardised reporting
system scheme, while the National E-Health Transition Authority has set the goal to create a paperless
environment in Australia’s health sector, including public hospitals.
In 2010, national and state governments continued to roll out new initiatives, with the Victoria
government investing more than US$150mn in IT in schools. Around 1,400 high schools were expected

to benefit from the second phase of the government’s computers for schools project, announced in 2009.
Company News
In 2010, the release of Apple’s iPad opened a new competitive battleground, with rival vendors to Apple
planning to release their own tablet devices. The iPad was officially launched in Australia in May
2010, and, by the end of the year, telecoms operators such as Telstra were competing to offer tablets
bundled with data services. Telstra announced in October 2010 that it would release its own-branded
tablet, called the T-touch Tab, which would run on its Next G network.
Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 6

In 2010, software vendors are positioning themselves to take advantage of growing demand in
Australia for cloud computing services. US Software-as-a-Service (SaaS) pioneer Salesforce.com has
enjoyed growing success in the segment, with estimates that around 10 of Australia’s largest financial
institutions, including ANZ Bank, use at least some Salesforce.com modules.
Vendors in the Australian market are investing in infrastructure to provide cloud computing services
locally. IT services group CSC Australia planned to launch both infrastructure-as-a-service (IaaS) and a
range of Microsoft SaaS from its local data centres. Meanwhile, Japanese IT leader Fujitsu announced in
April 2010 that it would deploy a second IaaS offering from an Australian data centre.
Computer Sales
Australian computer hardware sales are projected at US$8.9bn in 2011 and, following a strong recovery
in 2010, are forecast to grow at a 2011-2015 CAGR of around 4% to reach US$10.2bn by 2015. In the
first three quarters of 2010, the PC market recorded double-digit shipments growth, compared with the
same period of 2009.
More than 90% of Australian households now have a PC, but consumers appear willing to spend on
upgrading their notebook computers; it is also becoming more popular to purchase a second household
PC. Small business comprises more than 99% of all Australian businesses and slightly more than 50% of
business PC sales.

Software
Software is expected to account for about 17% of the Australian IT market in 2011, with estimated
spending of US$3.4bn. As the focus moves from hardware to services and solutions, the share of the
market accounted for by software is forecast to rise by 2015, with businesses seeking greater leverage
from their investments. Software sales are forecast to have a CAGR of around 8%, rising to US$4.7bn by
2015.
Given many businesses’ focus on controlling costs, cloud computing models have also grown in
popularity and spread beyond initial core application areas. 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.
IT Services
IT services are expected to account for about 40% of the domestic IT market in 2011, with spending of
US$7.9bn. CAGR for the segment is estimated at 8% over 2011-2015. Demand picked up in H110 with
the revival of several IT projects that had been shelved as a result of the economic slowdown, and
IT services are forecast to be one of the most dynamic sectors of the Australian IT market.
Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 7

In 2011, 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.
E-Readiness
Many 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. 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.


Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 8

SWOT Analysis
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 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
 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 such as 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.


Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 9

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 Information Technology Report Q1 2011



© Business Monitor International Ltd Page 10


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$5mn or more.

 With a population of less than 22mn, the domestic consumer base is small by
regional standards.

Opportunities
 Australia has opened talks with China, the Association of Southeast Asian
Nations, Malaysia, the Gulf Co-operation 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.

Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 11

IT Business Environment Ratings
Table: 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 56

100

71

80

71

75

72.2

1

Singapore 53

100

69

70

85

79

72.1

2

Hong Kong 48

95

65

70

87

80

69.4

3

South Korea 52

75

60

75

71

72

63.8

4

Malaysia 41

50

44

35

77

60

49.1

5

China 52

35

46

35

68

55

48.7

6

Philippines 37

45

40

43

52

48

42.2

7

India 49

15

37

45

56

51

41.4

8

Thailand 40

20

33

35

73

58

40.4

9

Indonesia 38

35

37

35

52

45

39.1

10

Sri Lanka 30

10

23

35

44

41

28.3

11

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 Market and Country Structure, which have a 70% and 30% weighting respectively and
are based upon growth/size/maturity/govt policy of 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. Source: BMI

BMI’s Asia IT Business Environment Ratings compare the potential of a selection of the region’s
markets over our forecast period through to 2015. Our Q111 ratings reflect our consideration of the
political and economic risks, as well as risks associated specifically with IT intellectual property (IP)
rights protection and the implementation of state spending projects.
Across the Asia Pacific region, the onset of the global economic recovery and an upwards trend in
consumer confidence has led to improved trading conditions for IT vendors. The Philippines was the only
market to rise in our Q111 our rankings, but many markets recorded stronger-than-expected year-on-year
(y-o-y) growth in computer shipments in 2010.
Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 12

Australia retains its top regional rating this quarter. The market received a boost from the confirmation
that the new government will continue to implement the National Broadband Network project, which will

drive the 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 smaller, but mature, IT markets of Singapore and Hong Kong take second and third spots
respectively in our ratings table, due primarily to their high Country Structure scores. Computer sales
were strong in Hong Kong in 2010, as the economy recorded positive growth following a contraction in
2009. Hong Kong continues to offer IT investors opportunities associated with its growing links to the
vast Chinese market. Both Hong Kong and Singapore are expected to emerge as cloud computing hubs,
due to growing interest in cloud computing in the region.
Singapore benefits from high broadband penetration and initiatives such as the government’s ambitious
Intelligent Nation 2015 plan and the standard operating environment. IT services spending will be
boosted by the continuing boom in IT-enabled services such as call centres and back-office financial
services. Other promising sectors for IT services include healthcare, as the government launches a series
of initiatives to develop health technology.
On the downside, the continued restructuring of both economies to a more service-oriented 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 over the short term.
BMI forecasts per capita IT spending in South Korea, fourth place in the table, will rise from US$780 in
2011 to US$1,000 by 2015, with South Koreans increasingly choosing to spend on IT products due to a
substantial increase in their disposable incomes. Consumers appear willing to upgrade their PCs, and
there is also a trend for households to own more than one computer. There will be many key growth
areas, including cloud computing and IT outsourcing, which are 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. Over the forecast period, expectations about China’s
long-term economic growth will drive IT investments. Key sectors 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.
Malaysia keeps its fifth place in our regional ratings in Q111. IT spending growth will be driven by a rise

in the PC penetration level from around 35%, rising incomes and a hi-tech-focused national development
Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 13

plan. The subsidised rollout of a high-speed broadband network will address a relative lack of 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 only market to improve its ranking this quarter, 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.
India was another country to record impressive year-on-year computer sales growth of approximately a
third in H110. The potential is obvious, with less than 2% of the population owning a computer – about
20% of the level in China. Realisation of this long-term growth potential depends on fundamental drivers
such as increasing India’s low computer penetration, rising incomes, falling computer prices and the
government’s ambitions to connect the country’s vast rural areas to the rest of the world.
Three South East Asian markets occupy the final three positions in the table, with low scores due
primarily to business environment factors, despite considerable growth potential. In Thailand, 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 the
government’s PC for Education programme and 3G mobile and WiMAX broadband service rollouts.
Similarly, with ICT penetration of only about 20% and development restricted to richer areas such as
Java, the Indonesian IT market has much growth potential. BMI expects the Indonesian market to be one
of the region’s fastest growing over the 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 benefited from the restoration of peace and improvements in the security
situation, which have helped to release pent-up demand for IT solutions. The country had felt the effects
of instability over the years, from disruption of distribution channels and a flourishing grey market to
underdeveloped telecoms infrastructure. However, the market will feature on IT vendors’ radars as one of
the best potential growth prospects in South Asia. Computerisation has only just got started in
government services, and major public and private sector organisations remain largely underpenetrated in
terms of basic enterprise software.

Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 14

Asia IT Market Overview
IT Penetration
Across Asia, government ICT initiatives and growing affordability will drive increases in PC penetration
during BMI’s five-year forecast period. While some cities and regions stand out, there is an unbalanced
pattern of regional development, with PC penetration in countries such as Singapore being above 50%,
while in other countries such as Indonesia, it is less than 2%.
The two Asian leaders, China and India, embody the region’s growth potential, as computer ownership
remains the preserve of a minority in both countries. In China, PC penetration was only around 18% in
2008 – although it was far higher in cities such as Shanghai and Beijing – and projected to pass 30%
overall by 2014. 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.
Lower price will help to drive higher PC penetration in developing markets. The average price of a PC in
India has nearly halved over the past few years, and rising incomes and greater credit availability will
continue to bring computers within the reach of lower-income demographics.
Around the region, affordable computer programmes continue to find favour with governments. In 2009,

China launched a subsidised PC initiative aimed at rural residents. Australia’s computers for schools
programme had provided almost AUD260mn of computers by the end of 2009. 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. The highest levels of internet
penetration are found in South Korea, Hong Kong and Australia, with estimated 2010 narrowband
penetration rates of 74.3%, 73% and 67.7% respectively. Singapore has by far the highest rate of
broadband penetration, which was estimated at 154% in 2010. Meanwhile, the Philippines has the lowest
level of internet usage, with just 6.6% narrowband and 4.9% broadband penetration estimated in 2010.
The fastest growth is expected in Indonesia, where narrowband penetration is projected to leap from 30%
in 2010 to 61.2% by 2014. India is now above 20% narrowband penetration despite a lack of fixed-line
infrastructure, and this should reach 30% by 2014. Fast growth is also projected for Sri Lanka, where
penetration is projected to increase from 10.9% to 21.6% by 2014.
Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 15

Some 48.3% of Malaysians had internet access in 2010. 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 in many states. However, even in developing
markets, the number of broadband subscribers continues to gain ground steadily. In China, broadband
penetration is on course to reach 34.3% by 2015, surpassing narrowband penetration of 33.6%. In India,
where the government designated 2007 as ‘the year of broadband’, penetration should increase eightfold
to reach 8% by 2013 from around 1% currently. This is far below government targets, however.
Singapore will also see continued strong growth in broadband penetration, which is projected to reach
202% by 2015.

Meanwhile, the growth of Wi-Fi coverage
will be one driver of notebook sales in
places such as Hong Kong, where the
government has committed another
HKD200mn to the deployment of a Wi-Fi
network covering more than 200 public
venues.
IT Growth and Drivers
Most Asian IT markets are expected to
report stronger growth in 2010. Across the
region, 2010 should see IT spending a
boost from systems upgrades deferred
from the previous year, although much
will depend on business confidence. In some cases, companies had IT budgets that were not spent due to
economic uncertainty, and in H110 vendors reported a pick-up in project flows.
Strong fundamental demand drivers of IT spending meant that there will be continued opportunities. Key
factors common to most markets include cheaper PCs and reform in sectors such as telecommunications
and finance, as well as government initiatives.
In the largest market, China, an expansion in consumer credit, as well as a commitment to modernisation
in sectors such as education, healthcare and manufacturing, will help to sustain market growth. BMI
expects China’s IT market growth to be maintained by an expansion into the western region, rural areas
and lower-tier cities, as well as growing demand from small and medium-sized enterprises (SMEs). IT
spending will also receive a boost from government spending and IT projects associated with the
Shanghai World Expo in 2010.
2010 IT Market Sizes
US$mn*


* estimate. Source: BMI

Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 16

The long-term potential of India’s IT market is plain: less than 3% of people in India own a computer
(about one-fifth of the level in China), meaning particular potential in the lower-end product range.
India’s IT market appears to be positioned for a strong recovery in 2010 thanks to an improving economy
and stronger consumer sentiment as well as government support for modernisation in lagging sectors. It is
estimated that around 5% of India’s 7.5mn SMEs could implement a technology solution in 2010.
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.
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, the basic demographics of
rising computer penetration and growing
affordability should drive growth. SMEs
represent a growth opportunity, as currently only around 20% of Indonesian SMEs are estimated to make
use of IT. Compliance with government and international regulations will be a driver in financial,
manufacturing and other sectors.

In more developed markets such as Hong Kong and Singapore, robust retail sales led the way in early
2010 as spending recorded positive growth following a contraction in 2009. In Hong Kong, consumer
spending is expected to remain strong in 2010, as evidenced by the positive early reception for Apple’s
iPad. IT market growth will be driven by 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$92.5bn in 2010, trailed
distantly by Australia (US$19.4bn), India (US$16.1bn) and South Korea (US$16.1bn). Singapore’s IT
market (including communications) is the largest as a proportion of national GDP (2.66%), followed by
Hong Kong (2.07%).
IT Market Sizes As % Of National GDPs
2010-2014


Source: BMI

Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 17

The fastest-growing IT markets over the forecast period look set to be Sri Lanka and India, with 2010-
2014 compound growth of 109% and 104% respectively, driven by increasing PC penetration. China is
third, with the IT market growing by an estimated 64% over BMI’s five-year forecast period.
Sectors And Verticals
Regional IT markets remain hardware-centric, with hardware accounting for 42-71% of total spending in
all markets in 2010. 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.
BMI expects a trend of rising hardware

investment to establish itself over the next
few quarters. The PC market contracted in
many markets in H109, following a
slowdown towards the end of 2008.
However, growth had returned in most
markets by the end of 2009. Sales of
Microsoft’s Windows 7 operating system
and new Intel core technology also have
the potential to help trigger a new cycle of
hardware upgrades in 2010, although
much will depend on business confidence.
In mature markets such as Australia and
Singapore, PC sales are dominated by replacement sales. In the former, upgrades are estimated to account
for at least 80% of business purchases and more than 50% in the case of households. 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.
In less developed markets, demand from under-penetrated rural areas, affordable computer programmes
and growing broadband penetration should generally drive growth. 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.
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. The Australian government’s National Broadband Network plan
IT Markets Compound Growth

2010-2014f, %

f = forecast. Source: BMI

Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 18

should drive development of Australia’s digital economy and services such as online banking and
shopping.
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. However, netbooks and notebooks face competition from other form factors such as
smartphones – from Palm, Research in Motion, Apple and other vendors – and tablet notebooks,
spearheaded by Apple’s iPad.
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.
Across the region, 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, ERP and other e-business
products still dominate the enterprise software market, but vendors are also looking to other areas such as
CRM and business intelligence, where faster growth is possible.
The economic slowdown may have encouraged companies to consider cloud computing solutions such as
software-as-a-service (SaaS). The hosted application model may already account for between one-fifth
and one-quarter of China’s software revenues. SaaS has also enjoyed steady growth in the Hong Kong
market over the past three years with, according to vendor estimates, around 8% of local enterprises now
use an SaaS security solution. Improved broadband infrastructure will assist the popularisation of the
rented software model in markets such as Indonesia.

Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 19

Market Structure (% Of Total IT Market)
2010f

2014f



f = forecast. Scores out of 100. Source: BMI


New platforms and services in the telecoms field is a driver for that key IT spending segment, where an
industry restructuring with the advent of 3G mobile services has led to more competition. Meanwhile,
expanding technology adoption in the logistics industry and public transport will be a source of IT
services projects. Sectors such as hospitals and real estate will also provide opportunities.
The IT services segment accounts for 17-40% of spending in the Asian markets covered by BMI. The
global economic slowdown and credit tightening had an impact on projects in some verticals, but in 2010,
a brightening business climate should mean more opportunities in key IT-spending verticals such as
financial services, telecoms, government, healthcare and logistics.
Government spending will account for a larger share of spending in many markets. In China, government

stimulus packages have helped to drive IT-related investments, while in Singapore, government ICT
projects such as SOE2 provide significant opportunities, with the government planning to invest around
SGD1.73bn in ICT projects in its last fiscal year through March 2010. Australia’s National E-Health
Transition Authority has targeted the creation of a ‘paperless environment’ for the health sector and was
also expected to launch a standardised reporting system scheme in 2010. Meanwhile, the Hong Kong
government’s Digital 21 initiative will continue to generate spending.
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 such as India, IT vendors are having to pay more
Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 20

attention to value-added services such as technical support and product troubleshooting, or basic IT and
hardware consulting.
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 Cellular 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.
Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 21

Australia Market Overview

Government Authority
Government Authorit
y

Department for Broadband, Communications and the Di
g
ital Economy

Chairman

Stephen Conroy

The Department for Broadband, Communications and the Digital Economy was established in 2007 after
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, and 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 fewer than 20 workers.
Australia Information Technology Report Q1 2011

© Business Monitor International Ltd Page 22

Hardware
Australian computer hardware sales are projected at US$8.9bn in 2011 and, following a strong recovery
in 2010, are forecast to grow at a 2011-2015 CAGR of around 4% to reach US$10.2bn by 2015. The main
drivers of growth in the PC segment will be new form factors such as tablets, government programmes,
and growing broadband penetration. The fastest-growing segment is notebooks, which already accounts
for more than 50% of the market by value.
In the first three quarters of 2010, the PC market recorded double-digit shipments growth, compared with
the same period of 2009. The main driver was consumer notebooks, with total notebook sales forecast at
3.2mn units, after sales achieved annualised growth of more than one-third in H110. Meanwhile, business
sales received a boost from computer hardware tenders delayed from 2009. Migrations to Microsoft’s
Windows 7 operating system and new Intel core technology fuelled hardware upgrades and should
continue to do so in 2011, although much will depend on confidence.
Demand slowed sequentially in the traditionally slower third quarter, but enterprise demand for
desktops held up. Sales in the fourth quarter of 2010 were expected to receive a boost from strong
holiday season demand, with iPads and external hard drives among popular hardware purchases.
Going into 2011, as the market stabilises, government programmes should help to keep computer
hardware demand in positive growth territory. First, government subsidies of computers in education will
provide support for the market. In 2010, national and state governments continued to roll out new
initiatives, with the Victoria government investing more than US$150mn in IT in schools.
The second phase of the national 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
estimated to have reached around AUD260mn by the end of 2009. In July 2008, the government had
passed a measure allowing 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.
Secondly, the government’s ambitious broadband plans will also drive expansion. The government’s
National Broadband Network 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 such as Vodafone will help drive sales of portable computers as
connectivity devices.
Overall, hardware spending accounted for around 45% of the domestic IT market in 2010 as demand
bounced back from a sharp deceleration in 2009. Unsurprisingly, given the high penetration levels in both
Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 23

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
households. BMI expects a trend of rising investment to establish itself over the next few quarters.
PC penetration is high among businesses, with around 95% of small businesses and 100% of medium-
sized and large businesses having computers. Small business comprises more than 99% of all Australian
businesses and slightly more than 50% of business PC sales. Corporate IT spending had already begun to
recover by the end of 2009, and companies will look to achieve greater efficiencies in the wake of the
economic slowdown.
The PC market contracted in H109, after a slowdown towards the end of 2008. 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 limit stagnation. The decline slowed to low single digits in
the second quarter.
The main growth area is consumer notebooks, which grew by at least 25%, while consumer desktops
recorded a double-digit decline. Total notebook sales are forecast at around 3.4mn units in 2011. More
than 90% of Australian households now have a PC, but consumers seem willing to spend on upgrading
their notebook computers; it is also becoming more popular to purchase a second household PC. Indeed,
around 30% of households have more than one PC.

Netbooks were the fastest-growing segment during the economic downturn with triple-digit growth for
the relatively low-priced connectivity devices in H109 over the same period of 2008. Netbook shipments
reached nearly 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 preferred
lower-priced models.
In 2010, netbooks sales growth slowed from the first quarter of the year, due in large part to the
popularity of tablets, as well as a blurring of the netbook and notebook categories. Going forward,
consumer purchases are likely to be motivated by speed and processing power and there could be a trend
of demand for higher functionality netbooks.
Both netbooks and notebooks face competition from other form factors. Vendors are offering
smartphones from Palm, RIM, Apple and others as alternative connectivity solutions, which often
include a Wi-Fi option. 2010 also saw the emergence of tablets, led by Apple’s iPad. Several other
vendors followed Apple in releasing net tablet devices — which have a form factor between the size of a
smartphone and a netbook — onto the Australian market. According to an estimate by market research
firm Telsyte, by the end of September 2010, around 300,000 tablets had been sold in the Australian
Australia Information Technology Report Q1 2011



© Business Monitor International Ltd Page 24

market, of which the large majority were thought to be iPads. At the end of 2010, telecoms operators such
as Telstra were competing to offer affordable tablets bundled with data services.
Tablets are being designed to appeal to consumers who find a smartphone inconvenient for consuming
video media or surfing the web, but for whom a netbook is still too big or heavy. Demand should
continue to grow as consumers shift their social networking habits from smartphones and PCs to tablets.
Tablets are more expensive than most smartphones, but, despite a previous mixed record with this form
factor, are seen as a growth area in 2011. Another area that vendors will watch is the e-reader market,
with the release of Kindle’s new lower cost Wi-Fi Kindle, which will retail in Australia for AUD178,
likely to help to bring down average prices.

Software
Software is expected to account for about 17% of the Australian IT market in 2011, with estimated
spending of US$3.4bn. As the focus moves from hardware to services and solutions, the share of the
market accounted for by software is forecast to rise by 2015, with businesses seeking greater leverage
from their investments. Software sales are forecast to have a CAGR of around 8%, rising to US$4.7bn by
2015.
Over BMI’s five-year 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 2010, the public and financial sectors,
healthcare, telecoms, utilities and SMEs were among the verticals vendors saw as having the most growth
potential.
Migrations to the Windows 7 operating system retains the potential to make a positive impact on sales in
2011. Industry trends such as cloud computing, virtualisation and green IT will drive software segment
growth, as will rising PC shipments, new technologies and the growing ubiquity of 3G mobile and
WiMAX.
2010 saw a boost from systems upgrades previously deferred as a result of the economic situation.
Routine software procurements were also squeezed as enterprises focused on costs and made cuts to
protect the bottom line. In 2010 therefore, some companies had IT budgets that were left unspent from the
previous year due to economic uncertainty.
Demand slowed in 2009 as companies reviewed IT budgets and looked to defer systems updates in light
of the global economic slowdown. In April 2009, Telstra revealed it had abandoned plans to migrate
enterprise and government customers to a new billing software platform due to cost concerns. Towards