Australia information technology report q3 2010

Q3 2010
Published by Business Monitor International Ltd.
www.businessmonitor.com
INFORMATION TECHNOLOGY REPORT
ISSN 2041-7160
Published by Business Monitor International Ltd.
AUSTRALIA
INCLUDES 5-YEAR FORECASTS TO 2014
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:



© 2010 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
Q3 2010
INCLUDES 5-YEAR FORECASTS TO 2014


Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Publication Date: July 2010

Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 2

Australia Information Technology Report Q3 2010



© 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 9
IT Business Environment Ratings 10
Asia IT Business Environment Ratings 10
Table: Asia Pacific IT Business Environment Ratings 10
Asia Regional IT Markets Overview 13
Australia Market Overview 20
Government Authority 20
Background 20
Hardware 20
Software 22
IT Services 24
Industry Developments 25
Table: Computers For Schools Programme, Phase Two – Planned Spending By State 27
Industry Forecast Scenario 28
Table: Australia’s IT Sector (US$mn Unless Otherwise Stated) 30
Internet 31
Table: Telecoms Sector – Internet – Historical Data & Forecasts 31
Macroeconomic Forecast 32

Table: Australia – Economic Activity 34
Competitive Landscape 35
Computers 35
Software 36
IT Services 38
Internet Competitive Landscape 40
Table: Australia Dial-up And Broadband Internet Subscriptions (’000) 40
Company Profiles 46
HP Australia 46
SAP (Australia) 47
Country Snapshot: Australia Demographic Data 48
Section 1: Population 48
Table: Demographic Indicators, 2005-2030 48
Table: Rural/Urban Breakdown, 2005-2012 49
Section 2: Education And Healthcare 49
Table: Education, 2002-2005 49
Table: Vital Statistics, 2005-2030 49
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 4

Section 3: Labour Market And Spending Power 50
Table: Employment Indicators, 2001-2006 50
Table: Consumer Expenditure, 2000-2012 (US$) 50
Table: Average Annual Wages, 2000-2012 51
BMI Methodology 52
How We Generate Our Industry Forecasts 52
IT Industry 52

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

Australia Information Technology Report Q3 2010



© 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 2010, following a relatively robust performance in 2009. The size of the domestic IT market is
projected by BMI to increase from US$19.1bn in 2010 to around US$23.7bn in 2014.
2010 should see IT spending a boost from systems upgrades deferred from last year, although much will
depend on business confidence. In H110, vendors reported a pick-up in demand with the revival of a
number of IT projects that had been shelved in 2009. Australian organisations implementing major IT
projects included retail giant Harvey Norman.
A number of factors underpin our forecast of a 5% 2010-2014 compound annual growth rate (CAGR) for
the Australian IT market. Government tenders will drive considerable spending in years to come.
Regulatory compliance will continue to need spending by banks and intense competition in the retail
sector is spurring spending on customer relationship management (CRM) and back-office systems.
Competition and new service platforms in the telecoms sector is a driver for that key IT spending
segment.
Industry Developments
Government IT spending was estimated at above US$4bn in FY2008/09. In 2010, government projects in
sectors such as e-government, healthcare and education will drive significant opportunities for IT

vendors. In mid-2010, the Australian government is expected to launch a standardised reporting system
scheme. The National E-Health Transition Authority has the goal to create a paperless environment in
Australia’s health sector, including public hospitals.
While most government IT programmes were relatively immune to the global slowdown, the financial
downturn encouraged the government to seek greater efficiency in IT procurement. There were reports in
2009 that the government was considering centralising the procurement of desktop computers, with the
appointment of a single supplier. The Australian Information Industry Association expressed concerns
about the implications for smaller companies.
In 2010, national and state governments will continue 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 phase two of the government’s computers for schools project, announced in 2009. By the
end of 2009, the programme was to have provided almost AUD260mn of computers.
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 6

Company News
In 2010, the release of Apple’s iPad is expected to open a new competitive battleground in tablet
notebooks, with rival vendors planning to release their own rival products. The iPad was officially
launched in Australia in May, with local telecoms companies Telstra and Optus offering what were
claimed to be some of the cheapest data rates in the world for iPad users.
In February 2010, Microsoft Australia received a boost when Qantas, one of the largest corporate users
of Lotus Notes in Australia, announced that it had dumped the IBM email system in favour of Microsoft
Outlook. A long-time user of Notes, Qantas announced that it would migrate 20,000 workers to Outlook
by the end of 2010, with the project being managed by Fujitsu.
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 software-as-a-service (SaaS) from its local data centres. Meanwhile, Japanese IT giant

Fujitsu announced in April that it would deploy a second IaaS offering from an Australian data centre.
Computer Sales
Australian computer hardware sales are projected at US$8.0bn in 2010 and, following a deceleration in
2009, are forecast to grow at a 2010-2014 CAGR of around 4% to reach US$9.3bn by 2014. The main
drivers of growth in the PC market will be government programmes, growing broadband penetration and
greater affordability. The fastest-growing segment is notebooks, which already accounts for more than
50% of the market by value.
The main drivers of growth in the PC segment will be government programmes, growing broadband
penetration and greater affordability. More than 90% of Australian households now have a PC, but
consumers appear willing to spend on upgrading their notebook computers and it is also becoming more
popular to purchase a second household PC. Small business comprise more than 99% of all Australian
businesses and slightly more than 50% of business PC sales.
Software
Software is expected to account for about 18% of the Australian IT market in 2010, with estimated
spending of US$3.4bn. As the focus moves from hardware to services and solutions, the share of the
market accounted for by software is forecast to rise to 20% by 2014, with businesses seeking greater
leverage from their investments. Software sales are forecast to have a CAGR of around 8%, rising to
US$4.6bn by 2014.
Given the focus of many businesses of 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
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 7

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 2010 with spending of
US$7.7bn, up from US$7.2bn in 2009. CAGR for the segment is estimated at 8% over 2010-2014.
IT services are forecast to be one of the most dynamic sectors of the Australian IT market.
In 2010, sectors such as government, telecoms, healthcare and banking should continue to supply demand
for implementation, consulting and managed services. Regulatory compliance will continue to need
spending by banks and intense competition in the retail sector is spurring spending on CRM and back-
office systems.
E-Readiness
A number of alternative Australian internet service providers (ISPs) are in the process of expanding the
coverage of their ADSL networks. Other broadband service providers, including Unwired, are rolling out
WiMAX networks, which will help to ensure greater choice and flexibility in the type of broadband
connection available. Australia is above the OECD average in terms of businesses purchasing online
(49% versus 33%) and selling online (27% versus 17%).
The central component of the Rudd government’s ICT strategy and overall domestic economic policy is
the construction of a National Broadband Network. 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 Q3 2010



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

Australia Political SWOT
Strengths
! Australia is a mature democracy with a broadly stable party system.
! Economic stability over recent years supports the current political system and radical

groups are unlikely to gain substantial support.

Weaknesses
! Despite enjoying general political stability over the years, the ruling party’s lack of a
clear majority in the upper house of parliament (senate) occasionally creates
difficulty in the passage of policy.
! As one of the region’s largest and most stable states, the country attracts many
refugees and economic migrants. The issue is a key source of domestic tension and
one that is unlikely to disappear over the medium term.

Opportunities
! Australia has historically enjoyed close military ties with the US. However, with the
rise of regional economic powers like China, it will need to balance competing
military and economic ties.

Threats
! Australia’s early support for the US ‘war on terror’, among other things, has made
Australians abroad a target for Islamic extremists.
! Australia’s close alliance with the US, particularly under John Howard, has left a
lingering feeling among some Asian governments that Canberra is Washington’s
‘deputy sheriff’ in the region.

Australia Information Technology Report Q3 2010



© 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 Business Environment SWOT
Strengths
! A highly educated workforce and comparatively modern transport infrastructure
underpin 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 just under 22mn, the domestic consumer base is small by
regional standards.

Opportunities
! Australia has opened talks with China, ASEAN, 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 Q3 2010



© Business Monitor International Ltd Page 10

IT Business Environment Ratings
Asia IT Business Environment Ratings
Table: Asia Pacific 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 84 78 71.9 2
Hong Kong 48 95 65 70 87 80 69.4 3
South Korea 52 75 60 75 71 73 63.9 4
Malaysia 41 50 44 35 77 60 49.2 5
China 52 35 46 35 68 55 48.7 6
India 49 15 37 45 58 53 41.9 7
Philippines 37 45 40 43 50 47 41.9 8
Thailand 40 20 33 35 73 58 40.5 9
Indonesia 38 35 37 35 52 45 39.2 10
Sri Lanka 30 10 23 35 43 40 28.0 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, with 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 2014. Our Q310 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. India and Malaysia were the
gained most in our rankings for Q310, but many markets recorded stronger than expected year-on-year
growth in computer shipments in Q110.
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 11

Australia retains its top regional rating this quarter. In Q110, a number of IT projects delayed from 2009
were launched across sectors, ranging from telecoms to retail, underlying the opportunities in the market.
Market development will be underpinned by government ICT programmes, such as 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 Q110, as the economy recorded positive growth following a contraction in
2009. Hong Kong continues to offer investors in the IT field opportunities associated with its growing
links to the vast Chinese market.
Singapore benefits from high broadband penetration and initiatives such as the government’s ambitious
Intelligent Nation 2015 plan and the standard operating environment. 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.
South Korea, in fourth place in the table, should have a resurgence in business orders in 2010 and BMI
forecasts that per capita IT spending will rise from US$750 in 2010 to US$921 by 2014. Consumers
appear willing to upgrade their PCs and there is also a trend for households to own more than one
computer. There will be a number of key growth areas, including industry-specific software applications
and IT outsourcing, which is expected to show a strong demand trajectory.
In China, factors such as the vast potential rural market, government spending and demand from key
verticals such as telecoms should drive growth. 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 rose from sixth to fifth in our regional ratings in Q210 and keeps its place. 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 plan. The subsidised rollout of a high-speed broadband network will
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 12

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 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 the another country to make gains in our IT market ratings last quarter, following year-on-year
computer sales growth of approximately a third in Q110. Even so, the market has yet to return to the high
growth recorded before the global economic crisis. The potential is obvious, with less than 2% of the
population owning a computer, about a fifth 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, once an
upturn starts IT spending could drive forward again as customers make good on pent-up demand. The
fundamentals of growing affordability and low PC penetration should keep the market in positive territory
during the forecast period. A number of factors should also support momentum, including 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 bounce
back strongly from the deceleration in 2009 and become one of the best regional IT market growth
prospects over the five-year forecast period. The SME sector will drive demand for basic hardware and
applications as enterprises look to enhance productivity.
Sri Lanka’s IT market has felt the effects over the years of the country’s political and economic
instability, 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 Q3 2010



© Business Monitor International Ltd Page 13

Asia Regional IT Markets 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 like Singapore being above
50%, while in other countries such as
Indonesia, it is less than 2%.
The two Asian giants, China and India,
embody the region’s growth potential, as
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 like 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.
Narrowband Penetration
(Per 100 Population)

Source: BMI
Broadband Penetration
(Per 100 Population)

Source: BMI
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 14

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 134% in 2010. Meanwhile, the Philippines has the lowest
level of internet usage, with just 6.6% narrowband and 8.1% 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.
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 43.4% by 2014, 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
174% by 2014.
Meanwhile, the growth of Wi-Fi coverage will be one driver of notebook sales in places like Hong Kong,
where the government has committed another HKD200mn to the deployment of a Wi-Fi network
covering more than 200 public venues.

Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 15

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 like 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 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*

*estimates. Source: BMI
IT Market Sizes As % Of National GDPs

2010-2014

Source: BMI
Australia Information Technology Report Q3 2010



© 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 improving an 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
cooperation.
The largest IT market in the region is, unsurprisingly, China, estimated at US$86.9bn in 2010, trailed
distantly by Australia (US$19.1bn), South Korea (US$16.1bn) and India (US$16.0bn). Singapore’s IT
market (including communications) is the largest as a proportion of national GDP (2.66%), followed by
Hong Kong (2.07%.)
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.
IT Markets Compound Growth
2010f-2014f, %

f = forecast. Source: BMI
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 17

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 like 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
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
Australia Information Technology Report Q3 2010

© Business Monitor International Ltd Page 18

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, 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.
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.
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,
Market Structure (% Of Total IT Market)
2010f 2014f


f = forecast. Scores out of 100. Source: BMI
Australia Information Technology Report Q3 2010

© Business Monitor International Ltd Page 19

a brightening business climate should mean more opportunities in key IT-spending verticals like 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 like India, IT vendors are having to pay more attention
to value-added services such as technical support and product troubleshooting, or basic IT and hardware
consulting.
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 Q3 2010



© Business Monitor International Ltd Page 20

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
following the election of the Rudd government and was a successor to the former Department of
Communications, Information Technology and the Arts. The main policy responsibilities of the ministry
include:
! Broadband policy and programmes;
! Postal and telecommunications policies and programmes;
! Spectrum policy management;
! Broadcasting policy;
! National policy issues relating to the digital economy;
! Content policy relating to the information economy.
Background
Australia’s IT market is based substantially around imports, with a relatively small local IT sector.
Multinational brands such as HP, IBM, SAP, Dell and Acer dominate the market, with most having a
substantial presence.
The local IT sector is mainly made up of small companies involved in software development and ICT
manufacturing with military applications. The sector employs around 270,000 people, with more than
95% of firms employing less than 20 workers.
Hardware
Australian computer hardware sales are projected at US$8.0bn in 2010 and, following a deceleration in
2009, are forecast to grow at a 2010-2014 CAGR of around 4% to reach US$9.3bn by 2014. The main
drivers of growth in the PC segment will be government programmes, growing broadband penetration and
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 21

greater affordability. The fastest-growing segment is notebooks, which already accounts for more than
50% of the market by value.
Overall, hardware spending accounted for around 43% of the domestic IT market in 2009.
Unsurprisingly, given the high penetration levels in both business and consumer segments, the Australian
PC market is dominated by replacement sales. Upgrades are estimated to account for at least 80% of
business purchases and more than 50% in the case of households. BMI expects a trend of rising
investment to establish itself over the next few quarters. The PC market contracted in H109, following a
slowdown towards the end of 2008. However, the decline slowed to low single digits in the second
quarter, with double-digit sequential growth from Q109.
The slowdown in 2009 was despite a boost from the stimulus package and lower interest rates. Amid
economic uncertainty, some IT budgets were cut in the commercial sector in 2009, with the replacement
cycle for computer systems stretching for some companies. However, government ICT programmes and
continuing demand for notebooks and netbooks helped to limit stagnation.
The main growth area was consumer notebooks, which grew by at least 25%, while consumer desktops
recorded a double-digit decline. 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.
Netbooks were the fastest-growing segment, with triple-digit growth in H109 over the same period of
2008. Netbook shipments reached close to 15% of notebook sales in Q209, with more than 90,000 units
sold. However, the popularity of netbooks added to the downward pressure on average sales prices as
consumers demonstrated a preference for lower-priced models.
Corporate IT spending is expected to pick up in 2010 and had started to recover by the end of 2009, as
companies looked to achieve greater efficiencies in the wake of the economic slowdown. PC penetration
is high among businesses, with around 95% of small businesses and 100% of medium-sized and large
businesses having computers. Small business comprise more than 99% of all Australian businesses and
slightly more than 50% of business PC sales.
There could be a boost, particularly in the second half of 2010, from computer hardware tenders delayed
from 2009. Sales of Microsoft’s Windows 7 operating system and new Intel core technology also has the
potential to help trigger a new cycle of hardware upgrades in 2010, although much will depend on

business confidence.
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 22

A number of 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 will continue 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 forecast
to have reached around AUD260mn by the end of 2009. Meanwhile, in July 2008, the government had
passed a measure that allowed households to reclaim a 50% rebate of up to US$625 a year for primary
and US$1,500 for secondary students for laptops and other IT-related equipment.
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 like Vodafone will help to drive sales of portable computers as
connectivity devices.
Software
Software is expected to account for about 18% of the Australian IT market in 2010, with estimated
spending of US$3.4bn. As the focus moves from hardware to services and solutions, the share of the
market accounted for by software is forecast to rise to 20% by 2014, with businesses seeking greater
leverage from their investments. Software sales are forecast to have a CAGR of around 8%, rising to
US$4.6bn by 2014.
2010 should see a boost from systems upgrades deferred from last year, although much will depend on
business confidence. In some cases, companies had IT budgets that were not spent due to economic

uncertainty. In May, retail giant Harvey Norman kicked off a AUD50mn+ project, postponed from 2009
due to the financial crisis, to replace all of its core business systems over the next five-years. More routine
software procurements were also squeezed as enterprises focused on costs and made cuts to protect the
bottom line.
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 are among verticals seen by vendors as having the most growth
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 23

potential. Towards the end of 2009, there was software spending by organisations such as Newcrest
Mining, National Australia Bank and the defence department.
Sales of the Windows 7 operating system have the potential to impact positively on sales this year. There
should also be a boost from systems upgrades delayed from 2009. Growing PC shipments, new
technologies and business models including 3G mobile, WiMAX as well as industry trends such as SaaS,
green IT and virtualisation will provide areas of software segment growth going forward.
Software piracy has fallen in Australia in recent years but remains an issue in some segments of the
market. According to the Business Software Alliance, the overall software piracy rate had dropped to
28% from 31% in 2003. However, most of the fall occurred in the consumer segment, where the drop in
‘white box’ PCs was credited with reducing the use of pirated software. Meanwhile, some recent studies
have found a rise in the use of illegal software among Western Australian companies, particularly in the
booming mining sector. The overall trend, however, has been one of improved general awareness, backed
by appropriate legislation.
Demand slowed in 2009 as some companies reviewed IT budgets and looked to defer systems updates in
light of the global economic slowdown. In April 2009, Telstra revealed that it had abandoned plans to

migrate enterprise and government customers to a new billing software platform due to cost concerns.
Vendors were looking to other areas such as business intelligence, where faster growth was possible.
Business intelligence demand has grown at a double-digit rate for the past few years and perhaps accounts
for around 5% of the total software market. Australia will remain a major market for business intelligence
software in the Asia Pacific, but growth may slow as users seek to get value from existing investments.
Security is likely to be another growth area. Meanwhile, the cost efficiencies of virtualisation – running
multiple systems on a single piece of hardware – makes sense in the current economic climate, but creates
new security issues. Local research has suggested that, for the past few years, Australia has been in the
global vanguard of virtualisation of X86 servers, even if the rate is slackening somewhat.
Given the focus of many businesses of controlling costs, cloud computing models have also grown in
popularity and spread beyond initial core application areas. SaaS and other services are likely to be
promoted by vendors and ICT service providers. IT services provider CSC Australia planned to launch
cloud computing services from its Australian data centres in July 2010. Vendors were looking for looking
for channel partners to help them offer cloud computing services to local organisations.
New cloud computing offerings and increased competition in this segment are expected to fuel further
demand from end-users to utilise this technology. In addition to cost savings, businesses will look to
boost efficiency and increase flexibility of response to customer needs. Large businesses are most likely
to put IT applications like mail, phone systems and document management into the cloud.
Australia Information Technology Report Q3 2010



© Business Monitor International Ltd Page 24

Australia’s ‘big four’ banks have been at the forefront of moves towards cloud computing after
revaluating their IT spend during the economic downturn. Meanwhile, the federal government is
exploring a shared services platform for more than 60 small agencies, following initiatives by larger
bodies such as the Department of Human Services. However, enterprise applications that require a high
level of customisation, or which are subject to regulatory or data-sensitivity constraints, are more likely to
stay on premise.

Australia faces a particular geographic challenge in that the servers large enough to host applications for
large organisations are realsticially likely to be in an offshore location – most likely the US – which raises
regulatory and data security issues. The financial services and government segments, which are the most
promising ones for large organisation adoption of cloud computing, are also particularly sensitive to
issues of data security. Finance regulatory body, the Australian Prudential Regulatory Authority,
considers every offshoring deal on a case-by-case basis.
IT Services
IT services are expected to account for about 40% of the domestic IT market in 2010, with spending of
US$7.7bn, up from US$7.2bn in 2009. CAGR for the segment is estimated at 8% over 2010-2014.
Research in 2009 indicated that the number of Australian companies, including SMEs, cancelling
outsourcing contracts as a result of the economic slowdown was relatively small.
In 2010, sectors such as government, telecoms, healthcare and banking should continue to supply demand
for implementation, consulting and managed services. H110 saw a pick-up in demand, with the revival of
a number of IT projects that had been shelved in 2009. Telecoms giant Optus was considering a virtual
desktop environment for its call centres and an upgrade to Windows 7, having put on hold a US$160mn
transformation last July. Meanwhile, bookseller chain Dymocks was said to be looking ‘very seriously’ at
cloud computing services.
Regulatory compliance will continue to require spending by banks and intense competition in the retail
sector is spurring spending on CRM and back-office systems. Competition in the telecoms field is a driver
for that key IT spending segment, where deregulation has led to new entrants. The current economic crisis
may reinforce the logic of outsourcing non-core functions in some cases, as companies will be less
willing to spend on in-house IT capabilities.
The IT services market is therefore becoming one of the most dynamic drivers of IT sector spending in
Australia. Local companies are trying to use computing resources more effectively and integrate
investments made in hardware and software. Outsourcing is an increasingly important spur to growth for
the IT services sector; according to a recent survey by market research firm Technology Advisory
Partners, Australia was the dominant buyer of outsourcing services in the Asia Pacific region in