Australia information technology report q2 2012

Q2 2012
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
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AUSTRALIA INFORMATION
TECHNOLOGY REPORT
Q2 2012

INCLUDES 5-YEAR FORECASTS TO 2016
ROMA

Part of BMI's Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: March 2012
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CONTENTS
Executive Summary 5
SWOT Analysis 7
Australia IT Sector SWOT 7
Australia Political SWOT 8
Australia Economic SWOT 8
Australia Business Environment SWOT 9
Risk/Reward Ratings 10
Table: Asia IT Risk/Reward Ratings Q212 15
Asia IT Market Overview 16
Sectors And Verticals 20
Australia Market Overview 23
Government Authority 23
Hardware 23
Software 26
IT Services 28
Industry Developments 30
Healthcare IT 31
Table: Computers For Schools Programme, Phase Two - Planned Spending By State 32
Industry Forecast 33
Table: Australia IT Sector - Historical Data & Forecasts (US$mn Unless Otherwise Stated) 35
Industry Forecast Internet 36
Table: Telecoms Sector - Internet - Historical Data & Forecasts 36
Macroeconomic Forecast 38

Table: Australia – Economic Activity 40
Competitive Landscape 41
Computers 41
Software 43
IT Services 44
Internet Competitive Landscape 46
Table: Australia Dial-Up And Broadband Internet Subscriptions, 2009-2010 47
Table: Australian Broadband Market, June 2009-June 2010 50
Company Profiles 57
Hewlett-Packard 57
SAP 63
Microsoft Corporation 67
Country Snapshot: Australia Demographic Data 72
Section 1: Population 72
Table: Demographic Indicators, 2005-2030 72
Table: Rural/Urban Breakdown, 2005-2012 73
Section 2: Education And Healthcare 73
Table: Education, 2002-2005 73
Table: Vital Statistics, 2005-2030 73
Section 3: Labour Market And Spending Power 74
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Table: Employment Indicators, 2001-2006 74
Table: Consumer Expenditure, 2000-2012 (US$) 74
Table: Average Annual Wages, 2000-2012 75
BMI Methodology 76

How We Generate Our Industry Forecasts 76
Transport Industry 76
Sources 77

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Executive Summary
BMI View: Australian IT spending is expected to reach US$21.6bn in 2012, up 4%, with BMI expecting
a deceleration. The market should continue to offer opportunities, despite business concerns about the
domestic carbon tax and the global economic situation. The government's ambitious broadband plans
will drive development of Australia's digital economy and services such as online banking and shopping.
Government tenders will drive considerable spending in future in areas such as education, e-government,
transport, and healthcare. One growth area will by demand across market segments to take advantage of
opportunities presented by cloud computing.
Headline Expenditure Projections
Computer hardware sales: US$9.2bn in 2011 to US$9.4bn in 2012, +1% in US dollar terms. Forecast in
US dollar terms downwardly revised due to analyst modification although government
programmes should help to shore up demand.
Software sales: US$3.5bn in 2011 to US$3.7bn in 2012, +7% in US dollar terms. Forecast in US dollar
terms downwardly revised due to analyst modification but enterprise resource planning (ERP), CRM and
other e-business products will be increasingly popular with the small- and medium-sized enterprise
(SME) market.
IT Services sales: US$8.1bn in 2011 to US$8.5bn in 2012, +6.0% in US dollar terms. Forecast in US
dollar terms downwardly revised due to analyst modification, with local companies trying to use
computing resources more effectively.
Risk/Reward Ratings: Australia's score was 70.9 out of 100.0. Australia ranks second in our latest Asia

region BER table, still ahead of larger rivals such as China, India and Indonesia. The country benefited
from a Country Structure score of 95.
Key Trends & Developments
 The PC market is expected to be affected by supply issues in H112 linked to the severe flooding
in Thailand in 2011. Vendors will look to ultrabooks as a new growth area, but sales are likely to
be restricted to 10-15% of the PC market in 2012, due to high prices. The PC market reported
mid-single digit growth in 2011, owing mainly to retailer promotions, which helped keep sales in
positive growth territory.
 In 2012 more leading Australian private and public sector organisations are expected to launched
cloud initiatives, with surveys indicating that cloud computing is a key priority for Australian
CIOs. Cloud initiatives have already been implemented by many of the country's leading banks.
Meanwhile, the government has adopted a six-year cloud computing strategy.
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Government subsidies of computers in education will provide support for the market. In 2011, national
and state governments continued to roll out new initiatives, and the Victoria government has invested
more than US$150mn in IT in schools. New South Wales and Queensland authorities were also rolling
out IT for schools projects.


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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.

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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 it is America's 'deputy sheriff'
in the region.



Australia Economic SWOT
Strengths

 A free-market economy supported by a highly educated workforce.
 Blessed with rich natural resources, Australia's economic activity will be augmented
by commodity exports and the high investment inflows into the mining sector.

Weaknesses
 The persistent current account deficit 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 high level of private sector debt – especially mortgage loans – poses a threat
to sustained growth.
 A collapse in exports from a drop in resource demand from China would severely
impact headline GDP growth.
 Australia is vulnerable to extreme weather that may lead to droughts and floods,
which have become increasingly severe in past years as a result of global climate
change.

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Australia Business Environment SWOT
Strengths
 A highly educated workforce and comparatively modern transport infrastructure
underpin economic prospects.
 A number of free trade agreements with countries such as New Zealand, Thailand
and the US serve as a boon for trading activities.

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 just over 22mn, the domestic consumer base is small by
regional standards.

Opportunities
 Australia is currently in talks with China, Malaysia, the Gulf Co-operation Council,
Indonesia, India, Japan and South Korea regarding potential bilateral free trade
agreements.
 Upgrade and expansion of urban infrastructure will be needed to sustain population
growth in Australia's main cities, providing opportunities for public-private
partnerships in the future. The government is also targeting infrastructure
improvements to rural areas.

Threats
 Corporate taxes for foreign investors in Australia remain higher than in other
countries, even as the government has promised to gradually reduce rates over the

medium term.
 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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Risk/Reward Ratings
BMI's Asia Pacific IT Risk/Reward Ratings (RRR) compares the potential of a selection of the region's
markets over our forecast period through to 2016. Our Q212 ratings reflect our consideration of the
political and economic risks, as well as the risks associated specifically with IT intellectual property (IP)
rights protection and the implementation of state spending projects.
There were several changes to the
country rankings as we fine-tuned our
methodology to better reflect the market
conditions. In this quarter's update,
highly urbanised Singapore overtook
Australia by outperforming the latter in
three out of the four components.
Although Singapore's IT market is
smaller than that of Australia, Singapore
has other redeeming factors. For one,
Singapore is strategically placed at the
heart of South East Asia amid emerging
markets such as Indonesia and Thailand.
Its strong infrastructure, political

stability and pro-business environment
attract foreign investors and spur
technological developments.
Singapore's ambitions to emerge as a regional cloud computing hub will fuel vendor investment in service
capabilities. Moreover, ambitious projects such as the national healthcare register and the schools
standard operating environment will bolster the IT market. Singapore benefits from high broadband
penetration and initiatives such as the government's ambitious Intelligent Nation 2015 plan.
Singaporean spending on IT services 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.
Although Australia fell to second position, it still has a respectable IT Rating of 70.9, which was
significantly higher than the regional average of 50.2. Due to the sheer mass of the country, it is inevitable
that certain regions suffer from a deficiency in IT services. However, the government has been looking to
resolve the issue with its ambitious National Broadband Network (NBN), which aims to deliver
nationwide high-speed broadband connectivity with a combination of fibre, fixed-wireless and satellite
Developed Countries Have Their Heads
Above The Rest
Asia Pacific IT Risk/Reward Ratings Q212


Source: BMI
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technologies. Furthermore, a number of leading Australian private and public sector organisations have
launched cloud initiatives, including many of the country's leading banks, while the government has also
unveiled a six-year cloud computing strategy.

IT verticals such as the government, telecoms, healthcare and banking should continue to supply demand
for implementation, consulting and managed services in the future. Meanwhile, the NBN should drive the
development of Australia's digital economy and feed demand for personal computers and mobile devices.
There were no changes to Hong Kong's IT Rating score or position on the table. Hong Kong has one of
the lowest fibre broadband tariff rates in the world, and this provides the backbone for next generation IT
services such as cloud computing and data centres. While we expect robust IT market growth in Hong
Kong due to the increasing investment opportunities arising from its growing links with the vast Chinese
market, we also highlight that the outlook for 2012 is looking more uncertain as we envisage a hard
landing in China.
Similar to its developed peers in the region, South Korea is also encouraging the utilisation of cloud
computing by small businesses. New cloud computing offerings and increased competition in this
segment are expected to fuel growing demand to use this technology. IT outsourcing is also expected to
show a strong demand trajectory. The government has also identified the potential and importance of
software development, highlighted by the ascendency of mobile operating system (OS) Android, and has
announced a plan to develop an open-source OS with domestic ICT firms. Regardless of whether the
project would succeed, it shows the forward-looking stance of the South Korean government and its
commitment to drive IT developments in the sector.
While the South Korean consumers have exhibited strong appetite for IT products, we expect private
consumption to be subdued in the near term. South Korea's household debt quandary leaves the economy
in a precarious position. While lower interest rates have reduced the risks of an implosion in the
household debt market, high debt levels still place a substantial constraint on consumption spending. A
deteriorating economy is likely to place considerable weight on consumers' debt repayment ability as
incomes are likely to get slashed while the jobless rate ticks up. A combination of seasonal factors, as
well as a worsening economy should keep downward pressure on consumer spending going into 2012.
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Malaysia remains in fifth position in our
Q212 regional ratings. Recent
developments such as a slowdown in
production activity and falling
commodity prices, which will
exacerbate the slowdown in mining
production, continue to support our
view that Malaysia's economic growth
will witness a significant slowdown in
2012. Consequently, government
spending may become more constrained
because of commitments to tackle the
budget deficit, but there will be growth
areas. IT spending growth will be driven
by the government's drive for greater
household broadband penetration of
75% by 2015.
The rollout of a Malaysian high-speed fibre broadband network will boost IT spending outside the Klang
Valley. Other projected growth and PC market drivers include a rise in the PC penetration level from
about 35%, tax exemptions for notebooks and growth in disposable incomes.
There are increasingly attractive opportunities in the IT services area as the government implements
measures to make Malaysia a growing regional services and outsourcing hub. Guiding the government
and industry is the country's Economic Transformation Programme, which has earmarked areas such as
cloud computing as one of its top 10 strategic technology priorities.
One of BMI's key macro themes for Asia Pacific in 2012 is a growth slowdown across the board with
recession risks highest in countries such as Australia, Hong Kong and Singapore due to factors such as a
slowdown in the US and Europe as well as a Chinese hard landing.
2012 may be the year in which China's economy goes from - as the title of our China Special Report in
October 2011 put it - 'Miracle To Meltdown'. We have warned for years about the imbalances inherent in

the Chinese economic growth model, which are characterised by a major overemphasis on investment at
the expense of consumption, underpinned by unsustainable credit expansion. Now, several indicators
point to a Chinese hard landing. While the definition of hard landing is up for debate, we generally
consider it to include the following characteristics: a contraction in manufacturing output as reported by
the purchasing manager index (PMI) surveys; a contraction in services sector PMI; a sustained fall in
Country Structure A Letdown

Asia Pacific IT Risk/Reward Ratings Q212


Source: Q212
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imports; double-digit house price declines; elevated banking sector stress; and growing expectations of
currency weakness.
A Chinese economic slowdown would negatively affect the IT market growth, albeit at a lesser extent
than other industries such as infrastructure or automotives. Factors such as the vast potential rural market
and a commitment to modernisation in sectors such as education, healthcare and manufacturing are
among the expected drivers. We expect growing interest in cloud computing will be stimulated by the
establishment of government pilot programmes. However, there are still market risks associated with IP
rights protection in China as well as piracy and a lack of business transparency.
In the Philippines, the IT market will be driven by the local IT and business process outsourcing (BPO)
sector. The BPO industry, which accounts for around 30% of IT spending, continues to grow. The
Philippines has a low PC penetration, like many other developing Asian countries, and the IT market
offers corresponding high growth potential over the forecast period. The Philippines is also looking at
cloud computing as the next growth driver, with the private sector leading the charge. Domestic firms

have partnered with foreign IT companies in order to provide the necessary infrastructure and technology
to expand their products portfolio, which should attract businesses including small and medium-sized
enterprises (SMEs) as they look to cut costs amid an uncertain global economy.
India's IT industry possesses significant growth potential as only a small portion of the country's massive
population has access to a personal computer. Significant opportunities will also be created by demand
from Indian businesses and government agencies to help use more advanced IT solutions to improve
efficiency and reduce costs. Consequently, India had a relatively high IT Market score of 49.0. However,
the country was significantly let down by its weak Country Structure score.
India is in the midst of a significant cyclical slowdown. Industrial production growth stalled to a 21-
month low of 3.3% year-on-year in July 2011, led by a downturn in both capital goods and consumer
durables activity. The latter is of particular concern from a GDP accounting perspective given that
households make up the lion's share of GDP (at an estimated 62% in FY2010/11), and in line with our
view, the Indian consumer has started to tighten spending on 'big ticket' purchases. Although many Indian
private and public sector organisations have started to consider upgrading their IT infrastructure, further
deterioration in the global economy could once again force them to scale back on investments.
The global consumer electronics industry has been severely disrupted by the flooding in Thailand, as
output of key components for hard disk drives by Thai plants has been dramatically cut. Companies that
were directly affected by the disaster have announced that they are looking to relocate some of their
operations to alternative countries in order to diversify risk and minimise disruptions, which is a blow to
the Thai IT sector.
However, we retain an overall bullish stance due to the Thai government's flood rehabilitation and IT
proliferation plans. We expect the launch of more compatible products to leverage on the long-awaited
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launch of 3G services. Intel predicts that ultrabooks could account for as much as 40% of the notebooks
sold in Thailand in 2012, although BMI has a more conservative forecast as we foresee tablet computers

as a serious threat. Meanwhile, the Thai government has earmarked the ICT industry as an important
growth driver. Besides a plan for 3G operators to provide broadband and Wi-Fi services freely available
in schools nationwide as part of a universal social obligation initiative, the government also has a One
Tablet Per Child project, which intends to bridge the digital and education divide.
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
fastest growing in the region over the five-year forecast period. Spending in some key IT verticals, such
as financial services and banking should continue to be significant in 2012. Government IT spending is
also expected to increase and could have accounted for as much as 25% of the IT market. The SME sector
will drive demand for basic hardware and applications as enterprises focus on enhanced productivity.
Sri Lanka's IT market has benefited from the restoration of peace and improvements in the security
situation, which helped release pent-up demand for IT solutions. The country has felt the effects of
instability over the years, from disruption of distribution channels and a flourishing grey market to the
underdeveloped telecoms infrastructure. However, Sri Lanka will feature on IT vendors' radars as one of
the best potential growth prospects in South Asia. Computerisation has only started in government
services. Major public and private sector organisations remain largely underpenetrated in terms of basic
enterprise software.
However, initiatives such as network expansion projects by telecoms providers to increase internet
penetration rates in Sri Lanka and free training tools for SMEs from the International Finance Corporation
(a member of the World Bank Group) to boost adoption of IT services cloud help the country to close the
gap with its regional peers.
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Table: Asia IT Risk/Reward Ratings Q212

Limits Of Potential Returns



Risks To Realisation Of
Potential Returns












Country IT Market

Country
Structure

Limits

Market
Risks

Country
Risk

Risks

IT Rating

Regional
Rank

Singapore 57.0

100.0

72.1

70.0

85.1

79.0

74.1

1

Australia 55.5

95.0

69.3

80.0

71.2

74.7

70.9

2

Hong Kong 48.3

95.0

64.7

70.0

87.4

80.4

69.4

3

South Korea 53.3

75.0

60.9

75.0

71.4

72.8

64.5

4

Malaysia 41.3

55.0

46.1

35.0

76.7

60.0

50.3

5

China 53.1

30.0

45.0

35.0

68.4

55.1

48.0

6

Philippines 39.3

45.0

41.3

42.5

52.2

48.3

43.4

7

India 49.0

15.0

37.1

45.0

55.6

51.3

41.4

8

Thailand 37.5

20.0

31.4

35.0

72.6

57.6

39.2

9

Indonesia 37.5

35.0

36.6

35.0

51.6

45.0

39.1

10

Vietnam 38.1

15.0

30.0

35.0

44.2

40.5

33.2

11

Sri Lanka 30.0

10.0

23.0

35.0

44.2

40.5

28.3

12

Scores are weighted as follows: 'Rewards': 70%, of which Industry Rewards 65% and Country Rewards 35%; 'Risks':
30%, of which Industry Risks 40% and Country Risks 60%. The 'Rewards' rating evaluates the size and growth potential
of a telecoms market in any given state, and country's broader economic/socio-demographic characteristics that impact
the industry's development; the 'Risks' rating evaluates industry specific dangers and those emanating from the state's
political/economic profile, based on BMI's proprietary Country Risk Ratings that could affect the realisation of
anticipated returns. Source: BMI

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Asia IT Market Overview
IT Penetration
Across Asia, government ICT initiatives and
growing affordability will help to 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 above 50%, while in other
countries, such as Indonesia, it is below 5%.
The two Asian leaders, 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 25% in 2010 - although it was far higher in cities such as Shanghai and Beijing and urban PC
penetration is projected to pass 60% by 2015. In India, less than 5% of people own a computer. However,
some 45% of the population is under 25, which provides a promising demographic context for increased
PC ownership. PC penetration in Vietnam was estimated by BMI at around 15% in 2010. Notebooks are
owned by an estimated 7% of the Vietnamese population, which points to significant growth potential for
the local PC market.
Lower prices will help to drive higher PC
penetration in developing markets. The average
price of a PC in the Indian market 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. Even in more mature markets, there

is room for development, however, with official
data suggesting that as many as 25% of Hong
Kong households do not have a computer at home.
Around the region, affordable computer
programmes continue to find favour with
governments. In China, a subsidised household
Narrowband Penetration

Per 100 Population


e/f = estimate/forecast. Source: BMI

Broadband Penetration

Per 100 Population


e/f = estimate/forecast. Source: BMI

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electronics products initiative aimed at rural residents has helped to boost PC sales in areas where
penetration was low. In Australia 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.
In Indonesia, PC 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. Meanwhile, in 2010, the Vietnamese
government launched a programme entitled One Teacher-One Computer, which offered discounts on PCs
for teachers and students.
A similarly broad range is found with respect to internet penetration. The highest levels of internet
penetration are found in Singapore, South Korea, Hong Kong and Australia, with estimated 2011
penetration rates of 78.5%, 76.4% and 75.5% and 67.4% respectively. Singapore has by far the highest
rate of broadband penetration, which was estimated at 160.2% in 2011. Meanwhile, the Philippines has
the one of lowest levels of internet usage, with just 7.1% narrowband and 6.1% broadband penetration
estimated in 2011.
The fastest growth is expected in Indonesia, where internet penetration is projected to leap from 36% in
2011 to 67.4% by 2015. India is now at above 28% internet penetration despite a lack of fixed-line
infrastructure, and this should reach 36% by 2015. Steady growth is also projected for Sri Lanka, where
penetration is projected to increase from 14.1% to 19.4% by 2015. Some 60.4% of Malaysians had
internet access in 2010.
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. Broadband penetration
has been boosted by growing numbers of mobile broadband users, as 3G mobile services are expanded
across the region. In China, broadband penetration is on course to reach 33.1% by 2015. In India,
penetration should increase sixfold to reach 9.4% by 2015 from around 1.5% currently, although this
remains below government targets. Singapore will also see continued strong growth in broadband
penetration, which is projected to reach 186% by 2015.
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. In Australia, the government's commitment to develop
the National Broadband Network should further the development of Australia's digital economy.
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.
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IT Growth And Drivers
Across the region in 2011, IT spending should
benefit from improved economic circumstances
and tenders, previously deferred as a result of the
economic situation, although much will depend on
business confidence. Strong fundamental demand
drivers of IT spending mean 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 some of the region's largest markets, such as
China, lower-tier cities and towns will be among
the fastest growing segment of the IT market. BMI expects China's IT market growth to be driven by an
expansion into western China and rural areas well as growing demand from small and medium-sized
enterprises (SMEs). The Chinese IT market will also receive a boost in 2011 from a 50% increase in
import tariffs on some electronics products, such
as laptops.
In Thailand in 2011, demand will be bolstered by
market expansion in the relatively underpenetrated
rural areas. SIS forecasts that market growth in
upcountry areas will be 30% in 2011, double that
forecast for the country as a whole. A similar
situation pertains to India where in 2011 there are
expected to be strong growth opportunities in

smaller cities.
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 strong growth thanks to an improving economy and consumer sentiment, and government support for
modernisation in lagging sectors. 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.

2011e IT Market Sizes

US$mn


e = estimate. Source: BMI

IT Market Sizes

As % Of National GDPs


e/f = estimate/forecast. Source: BMI

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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
cooperation.
The largest IT market in the region is, unsurprisingly, China, estimated at US$105.4bn in 2011, trailed
distantly by Australia (US$20.8bn), India (US$19.7bn) and South Korea (US$17.8bn.) Singapore's IT
market (including communications) is the largest as a proportion of national GDP (2.2%), followed by
Hong Kong (2.1%). Thailand's IT market was affected last year by a number of exogenous events
including floods in the north east of the country, and political unrest. However, in 2011 the country looks
to be back on track.
The fastest growing IT markets over the forecast period are projected to be India and Indonesia with
2011-2015 compound growth of 109% and 91% respectively, driven by increasing PC penetration. Sri
Lanka is third with the IT market growing by an estimated 89% over BMI's five-year forecast period,

while China's total growth is estimated at a still healthy 70%.
IT Markets Compound Growth

2011e-2015f (%)


e/f = estimate/forecast. Source: BMI

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Sectors And Verticals
Regional IT markets remain hardware-centric, with hardware accounting for 25-74% 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.
In mature markets such as Australia and Singapore, PC sales are dominated by replacement sales. In
Australia, 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.
Tablet sales will lead to a new PC market growth area, with triple-digit growth projected in many
markets. In China it is estimated that tablets could account for around 6-7% of computer sales in 2011.
However, partly thanks to the tablets surge, demand for netbooks has lost momentum in some markets.
Sales, although initially promising, have sometimes fallen short of perhaps unrealistic expectations. In
Australia, netbooks sales growth slowed from the first quarter of 2010, and this has continued into 2011.
In less developed markets, demand from under-penetrated rural areas, affordable computer programmes

and growing broadband penetration should generally drive growth. In China, as in much of emerging
Asia, demand from smaller towns and rural areas where PC penetration is relatively low will provide the
main source of growth. Another driver will be 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.
Falling prices is another major driver, placing pressure on margins. As of the third quarter of 2010, the
average price of a PC in China was estimated to have fallen to around US$600, considerably below the
price level in developed markets. In India, the average price of a PC 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.
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, broadband plans will also help to popularise tablets.
At the end of 2010, Australian telecoms operators such as Telstra were competing to offer affordable
tablets bundled with data services.
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
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smartphones from Palm, RIM, 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 9-25%
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.

In 2011, sales of Microsoft's Windows 7 operating system and new Intel core technology retain the
potential to help trigger hardware upgrades, although much will depend on business confidence.
Hundreds of large enterprises and thousands of small enterprises in China have already started migrating
to Windows 7, and this process is expected to continue in 2011.
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). As Asian companies have become more
integrated into the global supply chain, their multinational business partners often encourage them to
install backoffice systems to meet efficiency requirements.
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 relationship management
(CRM) and business intelligence, where faster growth is possible. Although the market remains relatively
small, more companies are looking at computing solutions such as Software-as-a-Service (SaaS). Cloud
computing business models such as SaaS offer smaller businesses a cost-effective way to deliver
applications such as payroll, tax-return processing and recruitment.
The hosted application model may already account for between one-fifth and one-quarter of Chinese
software revenues and SaaS has also enjoyed steady growth in the Hong Kong market over the past few
years. Improved broadband infrastructure will assist the popularisation of the rented software model in
markets such as Indonesia. Meanwhile, around one-third of Australian organisations already use some
cloud computing.
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.
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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. 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
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 and Hong Kong have both seen
a trend towards larger outsourcing projects in the public and private sectors.
Market Structure (% Of Total IT Market)

2011e

2015f



e/f = estimate/forecast. Source: BMI


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Australia 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 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 and;
 Content policy relating to the information economy.
Background
Australia's IT market is based on 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.
Hardware
Australian computer hardware sales are projected at US$9.4bn in 2012, with the popularity of tablets
keeping demand buoyant in 2011 despite a moderation compared with 2010. Sales are forecast to grow at
a 2012-2016 CAGR of around 3% to reach US$10.3bn by 2016, with drivers including new products such
as ultrabooks and tablets, as well as government programmes and growing broadband penetration. The
fastest-growing segment is notebooks, which already accounts for more than 60% of the market by value.

In 2012, the PC market is projected to report low single-digit growth. Business demand remains affected
by concerns about the economic situation in Europe and the US, as well as domestic issues such as the
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proposed carbon tax. Meanwhile, a shortage in the supply of hard-disk drives (HDDs) resulting from the
Thailand floods was also a drag on the market in H112. Meanwhile, vendor expectations of a substantial
boost from their promotion of ultrabooks may not be realised until prices come down closer to their US
market level.
Many of these adverse factors also hit the market in 2011. In Q311, shipment recorded a single-digit
annualised decline, although they were up quarter-on-quarter. Shortages of AMD processors also had an
impact on the market, particularly the self-assembled sector, in Q411. Despite this, aggressive promotions
and discounting by retailers such as Harvey Norman with its 2-for-1 offer, as well as sales of tablets,
helped to shore up volume sales. In Q411, seasonal demand and educational procurements boosted the
market back into growth territory.
Government programmes are a significant factor in the PC market. Firstly, government subsidies
of computers in education provide support for the market. National and state governments have continued
to roll out new initiatives, with the Victoria government investing more than US$150mn in IT in schools.
In Q411, large education programmes were launched in Queensland and New South Wales, although the
Thailand floods were expected to mean some delays in supplies.
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 already 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 further the 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.
Single-digit growth in PC shipments is forecast in 2012, as the market is affected by weaker consumer
confidence. The main driver has been consumer notebooks, with total notebook sales forecast of 3.3mn
units in 2011, after sales achieved annualised growth of one-third in 2010. Meanwhile, business sales
received a boost from computer hardware tenders previously delayed because of the economic
situation. Migrations to Microsoft's Windows 7 operating system have fuelled hardware upgrades and
should continue to do so, although much will depend on confidence.
Overall, hardware spending accounted for around 45% of the domestic IT market in 2011, although this
share is set to decline. Unsurprisingly, given the high penetration levels in business and consumer
segments, the Australian PC market is dominated by replacement sales. Upgrades are estimated to