United states information technology report q2 2012

Q2 2012
Published by Business Monitor International Ltd.
www.businessmonitor.com
INFORMATION TECHNOLOGY REPORT
ISSN 2041-7101
Published by Business Monitor International Ltd.
UNITED STATES
INCLUDES BMI'S FORECASTS
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UNITED STATES
INFORMATION
TECHNOLOGY REPORT
Q2 2012
INCLUDES 5-YEAR FORECASTS TO 2016


Part of BMI's Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: April 2012
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CONTENTS
Executive Summary 5
SWOT Analysis 7
US IT Sector SWOT 7
US Political SWOT 7
US Economic SWOT 8
US Business Environment SWOT 8
IT Risk/Reward Ratings 9
Table: Regional IT Risk/Reward Ratings 12
Americas IT Markets Overview 13
IT Penetration 13
Sectors And Verticals 17
United States Market Overview 21
Government Authorities 21
Overview 22
Hardware 24
Software 29
Services 32
Industry Developments 34
Industry Forecast 37
Table: USA IT Sector – Historical Data & Forecasts (US$mn Unless Otherwise Stated) 40
Industry Forecast Internet 41
Table: Telecoms Sector – Internet – Historical Data & Forecasts 41
Macroeconomic Forecast 43
Table: United States – GDP By Expenditure, Real Growth % 47

Competitive Landscape 48
Hardware 48
Tablets 49
Software 52
Company Profiles 58
Hewlett-Packard 58
Dell 64
Table: Selected Dell Mergers And Acquisitions 69
Microsoft Corporation 70
IBM 75
Country Snapshot: US Demographic Data 80
Section 1: Population 80
Table: Demographic Indicators, 2005-2030 80
Table: Rural/Urban Breakdown, 2005-2030 81
Section 2: Education And Healthcare 81
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Table: Education, 2002-2005 81
Table: Vital Statistics, 2005-2030 81
Section 3: Labour Market And Spending Power 82
Table: Employment Indicators, 2001-2006 82
Table: Consumer Expenditure, 2000-2012 (US$) 82
Table: Average Annual Wages, 2000-2012 (US$) 83
BMI Methodology 84
How We Generate Our Industry Forecasts 84
Transport Industry 84

Sources 85

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Executive Summary
Market Overview
BMI View:USA IT spending is expected to reach US$558bn in 2012, up 5.5%, with BMI upwardly
revising its forecast due to macroeconomic factors. Overall moderate growth in budgets is expected in
2012, but much depends on the economic situation. Despite a drive to cut expenses across government,
many public sector organisations have appeared willing to continue to spend on IT. US businesses
remain cautious, but there is pent-up demand from projects delayed as a result of the economic situation
and cloud computing is expected to be increasingly important.

Headline Expenditure Projections
Computer hardware sales: US$142bn in 2011 to US$147bn in 2012, +3.6% in US dollar terms.
Forecast in US dollar terms upwardly revised due to macroeconomic factors, but parts shortages could
restrain growth in H112.
Software sales: US$153bn in 2011 to US$163bn in 2012, +6.4% in US dollar terms. Forecast in US
dollar terms upwardly revised due to analyst modification, with more investment in utility software and
serviced-orientated architectures rather than traditionally packaged PC software.
IT services sales: US$235bn in 2011 to US$249bn in 2012, +6.0% in US dollar terms. Forecast in US
dollar terms upwardly revised due to analyst modification as spending on IT services is quite closely
correlated with GDP growth
Risk/Reward Ratings: The USA's score was 76.25 out of 100.0. The USA ranks first in our
latest Americas RRR table, ahead of Canada, as well as Latin American giants such as Brazil and Mexico.
The country ranking was secured by its global highest Industry Rewards score of 82.50, while its

rating was also boosted a relatively high Country Rewards score of 90.00.
Key Trends & Developments.
 IT vendors will be concerned when it comes to the effect of the ongoing US federal deficit issue
and the failure of politicians to agree a deficit reduction programme. If automatic federal
spending cuts kick in during the next fiscal year, this could hit IT projects. The November 2012
elections will also create uncertainty about the trajectory of future government IT spending.
 In 2012 there are expected to be many more contracts for provision of cloud services, following
contracts awarded in 2011 by the cities of New York and Los Angeles, and the General Services
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Administration (GSA) of the federal government. The recession may have had a lasting effect on
the IT market by encouraging consideration of cloud computing models such as SaaS.
US PC sales are forecast to report single-digit growth in 2012, after an annualised contraction in Q411,
closing off a difficult year. The market slowdown was due in part to base effects, but a contributory factor
was disappointing sales in the consumer segment, particularly notebooks. Meanwhile, a shortage of hard-
disk drives resulting from floods in Thailand is forecast to restrain market growth in H112, with faster
growth likely in H212.

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SWOT Analysis
US IT Sector SWOT

Strengths
 The largest IT market in the world, with spending forecast to pass US$529bn in 2011.
 Despite the challenging trading conditions, overall IT spending is still expected to
remain in positive growth territory.

Weaknesses
 During the recession in 2009, customers postponed projects and reduced short-
term spending, particularly in areas such as consulting and software development.

Opportunities
 Demand for new IT strategies to take advantage of innovations such as virtualisation,
data centre consolidation, and cloud computing.
 As economic woes ease, IT vendors should see more growth from traditional big-
spending sectors such as banks, financial services, retail and manufacturing.
 The growing popularity of mobile broadband networks is driving netbook sales.
 New business models such as SaaS and virtualisation will continue to make progress.


Threats
 There is a risk that recovery could be anaemic in 2011, in which case spending on
technology could have another hard year.
 A large federal budget deficit could lead to pressures on public sector IT spending.



US Political SWOT
Strengths
 The US is an undisputed superpower, and therefore occupies centre stage in most
international diplomacy. Long-standing democracy with vigorous and open political

debate; the US continues to attract large numbers of immigrants committed to
citizenship and self-advancement.

Weaknesses
 Political debate between Republicans and Democrats has historically been polarised
and divisive. As today's superpower, the US attracts the enmity of a wide range of
political groups opposed to the current international status quo.

Opportunities
 The changing political mood (as evidenced by the popularity of unconventional
candidates in the 2008 presidential election, including President Barack Obama's),
and the widespread dissatisfaction of the voting public, may encourage both major
parties to experiment with more consensual approaches to certain policy areas.
Though we are not optimistic, the ongoing budget debates will provide a pertinent
test of the degree to which bipartisan cooperation is possible.

Threats
 The perception of inflexibility and bias in US foreign policy, particularly in the Middle
East, may stiffen opposition and at worst provide fertile recruiting ground for radical
anti-US groups such as Al Qaeda. Partly as a reaction to foreign policy difficulties,
US public opinion may return to isolationist and protectionist modes.

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US Economic SWOT
Strengths

 The world's largest economy with an impressive record of entrepreneurial dynamism,
innovation and a high research and development spend. Despite some threats to its
reserve status, the US dollar is treated as an international currency, meaning that
investors around the world are prepared to hold US debt. Because of this, the US is
uniquely able to run large fiscal and current account deficits.

Weaknesses
 Despite the dollar's role as an international currency, excessive US debt levels are a
risk. A decision by Japanese and Chinese central banks to reduce their larger dollar
holdings could cause sharp falls in the value of the US currency. Low savings rate by
US households on a historic basis, although this has begun to reverse.

Opportunities
 Further liberalisation of international trade through the WTO, coupled with a more
competitive dollar exchange rate, could boost export growth and help restore balance
to the US's external imbalances.

Threats
 Intensified competition from China and other low-wage economies could accelerate
the loss of manufacturing jobs. Large growth in public spending, coupled with tax
cuts, will worsen the fiscal deficit, eventually forcing more restrictive monetary policy
and slower growth.



US Business Environment SWOT
Strengths
 The US boasts the world's largest single internal consumer market, which presents
tremendous opportunities for businesses of all types and sizes.
 Few countries offer better environments for entrepreneurial activity, with a highly

flexible labour force, a legal system that is friendly to business, and significant
centres of technological innovation (such as California's Silicon Valley).

Weaknesses
 Much of the country's physical infrastructure is in need of improvement, with
congested roads and airways.
 US corporate tax is, on average, among the highest in the OECD.

Opportunities
 The Obama administration is committed to improving the nation's infrastructure, with
stimulus package funds being dedicated to that purpose.
 The US has often been the origin of new drivers of economic growth booms, and
sectors ranging from biotechnology to alternative energy are being discussed as
possible catalysts.

Threats
 Government intervention in the economy puts the country's reputation for free
enterprise at risk.
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IT Risk/Reward Ratings
BMI's Americas IT Risk/Reward Ratings (RRRs) compare the potential of a selection of the region's
markets over our forecast period to 2016. The ratings reflect our consideration of political and economic
risks, as well as risks associated specifically with IT intellectual property rights protection and the
implementation of government information and communications technology (ICT) projects.
The US retains its top position in our regional rankings as by far the largest IT market in the region and

the world, accounting for about 25% of global IT spending. In the 'Limits of potential returns' arena,
Industry Rewards has fallen marginally while Country Rewards has not changed. This reflects our view
that the relatively strong growth witnessed in 2011 will slow slightly through 2012, while there has been
little change to the demography of the country.
The US is likely to retain its position at the top of our table through 2012, given the sheer size and
advanced nature of its IT market. However, in 2012, it is expected that the IT sector as a % of GDP will
drop 0.1pps, but return to its current level in 2013 (0.6%). We believe this year will be a stormy one for
IT firms, with economic uncertainty affecting IT investments.
However, there will be opportunities for expansion in this market, and one major possibility will be
demand from private and public sector organisations aiming to use cloud computing services. In 2012
further contracts for cloud computing provision are likely to be signed, while the rate of growth in
traditional big-spending IT verticals such as financial services, retail and manufacturing will depend on
confidence in a sustainable economic recovery.
During the next few years, across consumer and business segments, US IT spending is expected to be
driven by a number of factors including product and technology innovation, and investment in fixed and
mobile broadband infrastructure as well as economic recovery. It is likely to be the second fastest
growing market worldwide, second only to China.
Canada is in second place for another quarter in our IT RRRs. The country maintains this position from
Q112. The country's Industry Rewards score fell this quarter, however, as we predict the IT market to
deteriorate over the course of the year. The Canadian IT market revenues expanded by 6% in 2011, but
we believe this number will drop to just 0.2% in 2012, as the country struggles to bolster demand.
However, there may be growth in IT expenditure driven by Canada's broadband plan. One key initiative is
Broadband Canada, which has a mandate to expand broadband coverage to underserved areas. Further,
despite Canada being relatively mature, BMI believes software vendors across industries such as
consumer products, telecommunications, energy, engineering, construction, transport and food and
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beverage still have plenty of potential for growth. Growing interest in cloud computing is expected, with
Canada currently lagging the US and some other advanced markets.
Out of the Latin American countries, Brazil is the highest ranked IT market. We expect Brazil's growth
trajectory to stay strong throughout 2012 and beyond as the government continues to support the
widespread development of IT infrastructure, particularly in the telecoms sector. The Brazilian
Development Bank (BNDES) has made available a number of loans to telecoms firms looking to expand
into less developed regions of the country and as a result equipment vendors have capitalised on this.
Further, the country will continue to invest in the modernisation of services ahead of the World Cup in
2014 and Olympics in 2016. This will buoy up expenditure on IT services.
Mexico follows Brazil, and has enjoyed minor rises in Industry Rewards this quarter. This is the result of
strong H211 sales, although these remain less than half the size of Brazil's. However, we believe that
Mexican expenditure on IT is to grow at a double-digit compound annual growth rate (CAGR) in our
forecast period to 2016.
Brazil and Mexico together account for around 75% of PC sales in Latin America. Brazil's much bigger
market is already estimated to be the fifth largest PC market in the world. Despite this, Brazil's company
spending on IT, measured as a percentage of revenues, is understood to lag behind global peers. Growing
broadband penetration, including 3G mobile, will drive the PC markets of both countries.
Expenditure on IT projects in Brazil is likely to be very high over the coming years, as the country
promotes its national broadband plan, the PNBL, and also develops mobile network in more remote areas.
Further, the promotion of e-government services is likely to drive growth in business for technology firms
in the years to come.
Another driver of growth in the Latin American IT market is outsourcing. Given strong trade links
between Mexico and the US, Mexico stands to benefit from this growth, as seen in cities such as
Monterrey. However, due to the escalating drug-related violence in the city, many companies are
increasingly less willing to operate there. While we continue to believe it will remain a hub for
outsourcing, we believe these problems may impact on the potential for stronger growth in the market.
However, Brazil is also not without problems, with issues such as inequality and unnecessary bureaucracy
hindering rapid development of services.
Chile takes fifth place once again in our rankings. Chile experienced gains in its Country Risk and

Country Rewards scores, while there was no change in industry outlook. The country has an excellent
track record of fiscal discipline, although it may return to fiscal deficit in 2012 on the back of falls in
copper prices and an increase in public spending. Despite this, we do not see this as much of a threat and
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believe the counter-cyclical policies to stimulate private consumption in the country will continue to have
positive benefits to the IT industry.
President Sebastián Piñera highlighted the importance of the information society in Chile in November
2012, when he underlined his 'Estrategia Digital' for the years ahead. Chile's fifth place in our table
reflects its status as one of the most developed markets in the region. Chilean IT spending is projected to
grow at a CAGR of 11% until 2014. A wide-ranging government plan to increase ICT utilisation in
government and other sectors such as healthcare and education will encourage IT investment. The 2010
earthquake diverted consumer funds from technology to other priorities, but reconstruction offers
opportunities for government agencies to advance IT modernisation.
However, PC penetration is still relatively low – below 20%. Chile is propelled to a relatively high
position in our RRRs due to the fact that it has the highest Country Risk rating of any of the Latin
American states. Despite this, there is notable room for expansion.
Peru is next in our rankings, but has suffered falls to its Country Rewards score. The market has a free
trade agreement with the US, which is likely to lead to an increase in demand for IT in the country. The
IT market represents approximately 0.8% of GDP, with the market worth US$1.4bn in 2011. CAGR is
high – 11% – and there is huge potential for growth in the market.
Argentina is seventh in our rankings, but like Peru, suffered falls in our Q212 rankings. This was due to a
reduction in Industry Rewards scores, the result of a decrease in projected CAGR from 15% last quarter
to 11% from 2011-2015. There are strong doubts that the expansionary fiscal policy eagerly pursued by
the government is sustainable. This may pose a serious threat to public expenditure on IT over the coming
years, despite government tenders appearing to dominate the market in 2012.

Most IT expenditure in Argentina happens in Buenos Aires, where approximately one quarter of
computer sales take place. IT spending is driven by the expanding availability of credit, increasing
broadband penetration and social policies to promote the information society. However, escalating
inflation is causing costs to rise, deterring investors and raising doubt over the sustainability of the
government's profligate spending habits.
In eighth place is Colombia, which experienced a marginal rise in Industry Rewards, but a larger fall in
Country Rewards, which overall brings its scores down. The country had been enjoying strong growth in
consumer electronics sales, but this is beginning to slow down. While we expect the Colombian IT
market to be worth US$3bn in 2012, lower levels of investment in the sector when compared to its peers
puts Colombia nearer the bottom of our RRRs.
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However, we believe the market has great growth potential, and the economy continues to grow strongly.
With PC penetration only at 10% of the population, there exist great opportunities to expand on this.
There are also growth opportunities through government programmes, and it is clear that these are a
priority for the Santos administration. The president has outlined objectives to expand infrastructure in the
country, promoting the network rollout while increasing access to the internet. The government aims to
triple the number of municipalities from 200 to 700 by 2014, and increase internet connections from
2.2mn to 8.8mn by the same year. This growth will have future benefits for the Colombian IT market and
we would expect to see the country climb in our table over the coming years.
At the bottom of the ratings is Venezuela, and unfortunately we do not expect the Venezuelan market to
enjoy anywhere near the same growth as we predict for Colombia. The country suffers severe balance of
payments problems, with rising concern over government appropriation and potential devaluation of the
fixed exchange rate a mounting possibility. While the government is doing its best to avoid capital flight
in attempts to avoid this devaluation, the financial account deficit continues to grow and poses an ever
greater threat to the stability of the bolívar. This serves to deter investors from Venezuela, and the IT

market will be reliant on public programmes to sustain it. We believe there will be flat or negative growth
over our forecast period, despite improvements in PC penetration, which will arise from programmes to
promote low-cost PCs for low income households.
Table: Regional IT Risk/Reward Ratings
Limits of potential returns Risks to realisation of returns


Industry
Rewards

Country
Rewards

Limits

Industry
Risks

Country
Risk

Risks

IT RRR

Regional
Ranking

United States 82.5

90.0

85.1

50.0

59.2

55.5

76.25

1

Canada 65.8

90.0

74.3

50.0

70.3

62.2

70.66

2

Brazil 73.3

70.0

72.2

45.0

43.7

44.2

63.78

3

Mexico 65.8

60.0

63.8

52.5

60.5

57.3

61.84

4

Chile 55.8

70.0

60.8

50.0

73.5

64.1

61.78

5

Peru 55.0

50.0

53.3

45.0

67.9

58.7

54.89

6

Argentina 46.7

70.0

54.8

45.0

53.4

50.0

53.39

7

Colombia 53.3

50

52.1

47.5

56.3

52.75

52.34

8

Venezuela 38.3

70.0

49.4

40.0

47.6

44.5

47.95

9

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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Americas IT Markets Overview
IT Penetration
A mixed regional picture is found with relation to internet penetration. In the US and Canada, internet
penetration in 2011 was estimated at 83.4% and 85.5% respectively. In Latin America, the highest rate in
2011 was in Colombia (53.2%), having experienced solid recent progress on this indicator. One feature of
Latin America is that a large amount of internet access occurs outside the home. For example, data
suggest 68% of Mexican internet users go online from places such as schools, workplaces and internet
cafés. Recent data from Peru suggest nearly 75% of internet users use a public access point.
The fastest growth in internet penetration is expected in Peru, while Brazil and Colombia will also see a
solid advance. Dial-up technology is still the dominant access method. However, the number of
broadband subscribers continues to increase, with progress expected in all markets. Brazil's National
Broadband Plan announced in May 2010 should help to drive future growth in demand for IT products
and services.
Canada was estimated to have the region's
highest broadband penetration in 2011, of
42.8%, which should rise to 58.5% by
2015. Broadband penetration in the USwas
estimated at 28.1% in 2010, and is forecast
to reach 32.5% by 2015.
Meanwhile, in Latin American markets,
broadband penetration is on course to
reach as high as 23.1% in Argentina and
18.7% in Mexico, and to pass 10% in
Brazil, Chile, Colombia and Venezuela
within our forecast period. However, much
broadband penetration growth is now

being driven by mobile broadband users, thanks to the continued expansion of 3G mobile services across
the region.
Across Latin America, low average incomes and low PC penetration rates restrain information society
development, and thousands of towns and villages still lack access to information communication
technology (ICT). While some cities and regions stand out, there is a general pattern of underdeveloped
potential, with IT spending as a percentage of GDP well below 2% in countries covered by BMI.
Broadband Penetration

Per 100 Population


e/f = estimate/forecast. Source: BMI

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However, government initiatives and growing PC affordability are now driving improvements on many
ICT indicators. In Brazil, a National Broadband Plan announced in May 2010, and modernisation ahead
of Brazil's hosting of the 2014 FIFA World Cup and 2016 Summer Olympics, should help to drive ICT
utilisation.
Growing affluence has brought computers within the reach of a greater proportion of the population. PC
penetration is around 30% in Brazil, but is set to rise to above 40% by 2015, while Argentina is forecast
to progress from a current rate of 25% to at least 32% in 2015. A similar situation prevails in Chile and
Mexico, where PC penetration is estimated to be below 25%. Colombia's PC penetration reached 12.8%
as of mid-2009, surpassing the government's previous 2010 target of 10.8%. BMI estimates PC
penetration in Peru could reach 25% within the forecast period, from less than 20% currently.
ICT initiatives are central to the development plans of many regional governments. In 2010, the

Argentine government launched a tender to provide 3mn PCs to public schools nationwide. In Brazil,
thousands of rural schools have received computers and in December 2010, Brazilian states and
municipalities began to receive funds awarded under the 'computer for every student' programme. In
Chile in 2010, the government launched a programme called 'Yo Eiljo mi PC' ('I choose my PC').
Meanwhile, Colombia's Zona Clic programme is expected to involve the requisition of as many as 90,000
computers over the next few years.
Most governments also have a particular focus on promoting IT use by small and medium-sized
enterprises (SMEs), as Latin American SMEs typically invest less in IT than comparable companies
elsewhere. A recent study by the Getulio Vargas Foundation found that Brazilian companies on average
spent around 5.5% of revenues on IT investments, compared with 7% globally. Studies in Chile have
shown that around a quarter of companies have no computers.
Chile's state development agency, the Corporación de Fomento de la Producción de Chile (CORFO), has
launched a programme to provide funding for projects that implement ICT for local SMEs, and similar
initiatives have been seen in Mexico and elsewhere.
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Market Growth And Drivers
Across the Americas, in 2011, a greater
range of financing options for consumers
and more flexible terms from retailers will
be the main drivers of consumer IT
spending growth. Key IT market drivers
will include growing mobile and fixed
broadband penetration, product innovation
such as feature-rich netbooks, technology
innovation such as 3G technology and

services, and economic recovery.
However, in Canada and the United States
consumers remain in a phase of
retrenchment thanks to the often stretched
state of household balance sheets.
Businesses are expected to increase their
IT investments in 2011 thanks to a general
economic recovery and improved credit
availability. There will be a boost from
tenders previously delayed as a result of
the economic situation. Meanwhile,
improved bank profitability should support
more demand from this key IT-spending
vertical. Migrations to Microsoft's
Windows 7 operating system, and new
Intel core technology, should help to
trigger new cycles of hardware upgrades,
but in the US and Canada, some of this
pent-up demand may not be realised in
2011 due to doubts about the strength of the economic recovery. Across the region, small and medium-
sized enterprises (SMEs) have great potential to drive enterprise application spending over the next few
years. Brazil still has an estimated 400,000 small businesses that do not have more than a very basic IT
system. In the US market, too, in early 2011, there were indications of improved SME confidence.
In some countries such as Colombia, government programmes and growing computer affordability will
support more spending on IT products and services. In Argentina in 2011, a number of IT tenders at
federal and provincial levels were expected to be bid on ahead of October's presidential elections. The
IT Market Sizes

2011e (US$mn)

e = forecast. Source: BMI

IT Market Sizes

As % Of National GDPs


e/f = estimate/forecast. Source: BMI

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Brazilian government's US$344mn modernisation strategy should mean enhanced IT spending in 2011
and over the next few years.
Some structural risks pertain to our forecast scenario. Many Latin American markets, from Argentina to
Mexico, are characterised by significant income and geographical disparities. Mexico's underpenetrated
south east and Pacific regions are expected to offer growth opportunities over BMI's five-year forecast
period, particularly in the south east. The Argentine market is dominated by the capital Buenos Aires,
which has higher per capita income and
education levels compared with the rest of
the country.
Brazil's IT market also has a distinct
regional structure, with most spending
accounted for by the south east region,
which includes São Paulo as well as Rio de
Janeiro. São Paulo alone accounts for

around 35% of spending and Rio de
Janeiro, Espírito Santo and Minas Gerais
for 25%. Brazil remains on course to
become one of the top four computer
markets as an expanding economy lifts
millions into a middle class. The
fundamentals of rising computer
penetration and growing affordability should keep the market on an upward path.
Colombia's IT market continued to grow during the global economic slowdown as government
programmes and growing computer affordability help to sustain spending on IT products and services.
Meanwhile, Chile retains some strong IT market fundamentals including consumer affluence and a
relatively favourable business environment. Mexico's close economic ties to the US represent
vulnerability as well as opportunity. There are opportunities in key IT verticals such as financial services,
telecoms and government, with other growth sectors including healthcare, utilities and SMEs.
Aside from regional trends, particular factors are forecast to market demand in individual markets.
Infrastructure investments following 2009's award of the 2016 Olympic Games to Rio de Janeiro is
expected to drive new Brazilian market spending on IT systems and solutions, as happened in South
Africa when it hosted the 2010 FIFA World Cup. In Venezuela, the steep devaluation of the bolívar for
non-essential imports such as computers will depress spending as consumers grapple with runaway
inflation and the attendant erosion of real wages. Meanwhile, following the Chilean earthquake,
rebuilding began apace in H210.
IT Markets Compound Growth

2011e-2015f (%)


e/f = estimate/forecast. Source: BMI

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The largest IT market in the region is, vastly, the US, with spending estimated at US$529.3bn in 2011,
while Canada is a distant second with US$44.7bn. Brazil is estimated at US$27.8bn in 2011, making it
the largest IT market in the Latin American region, and a major global market in its own right. Mexico is
the second largest Latin American market with an estimated value in 2011 of US$14.4bn. Argentina and
Brazil are set to be the fastest-growing markets with projected 2011-2015 compound growth of 78% and
66% respectively. This compares with a compound growth rate for the United States over the same period
of 22%. The slowest growing market is forecast to be Venezuela, with a -3% growth rate in US dollar
terms.
Sectors And Verticals
Hardware accounts for less than one-third of IT spending in the United States (27%). In contrast, Latin
American IT markets remain hardware centric, with hardware accounting for between 43% (in Brazil)
and 67% (in Venezuela) of the total spending in these markets.
Sales of computer hardware are projected to report solid growth in 2011, consolidating a strong PC
market rebound in 2010.However, in all markets spending on software and services is projected to
increase its share of the IT spend by 2015.
Notebook sales are growing much faster than the PC market as a whole, but there will be intensifying
competition for PCs from tablets and smartphones, and a fall-off in netbook demand. The PC market
2011 growth rate will suffer from base effects compared with 2010, when the market bounced back
thanks to pent-up demand in the wake of the global economic crisis. However, commercial updates,
expected to gather pace in the second half of the year, should help to keep overall growth on track.
Tablets will be a growth area across the region in 2011, with robust sales of the first generation iPad in
2010 followed by strong early interest in the iPad2 ahead of its April 2011 launch. In the US market, a
Morgan Stanley report in H111 found that some 51% of CIOs expected to buy tablets for their
employees in 2011. However, tablets, at prices of US$400-800, are expensive relative to average salaries
in most Latin Americas countries. The Latin American tablet market should receive a boost in 2011 from
expanding locally based production of tablets, in Argentina, Brazil and elsewhere. In Brazil, the

Communications Ministry has suggested the inclusion of tablets in digital inclusion programmes.
With the rise of tablets, the netbook surge may have reached a plateau in most markets, with some
vendors reporting a sharp drop in 2010. In 2010, Canadian netbook sales were down by around 25%
compared with the previous year. One additional pan-regional driver both of increased notebook sales and
of lower prices is the move of telecoms operators into the PC retail space.
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Software is estimated to account for 12-19% of IT spending in Latin American markets covered by BMI,
compared with 29% in the United States. Despite the economic downturn, there are expected to be
opportunities for software vendors in most markets. Across the region, companies are investing
to improve decision making and optimise performance. Mobility, smart devices, broadband and cloud
services are among the trends encouraging more software spending by Mexican SMEs, which have to
deal with increasing data flow. Migrations to Microsoft's Windows 7 operating system will continue to
drive revenues in 2011. As of July 2010, around 500,000 Windows 7 licences were estimated to have sold
in the Argentine market.
Some markets, particularly Venezuela, will be influenced by their governments' drives to promote open
source software. Following criticism of the initial programme, the second phase of Argentina's Mi PC
was widened to offer consumers the option of purchasing PCs with Linux operating systems. In the US
the key issue and precondition for the more widespread adoption of open source will be the development
of a support infrastructure. Customers are increasingly looking to vendors to offer support for open-
source software. BMI expects this trend to continue with the development of more support infrastructure
for the most important open source applications.
In general, enterprise resource planning (ERP) and other e-business products still dominate the Latin
American enterprise software market, but vendors are also looking to other areas where faster growth is
possible. In Argentina, ERP solutions are estimated to represent more than 80% of the enterprise software
total. Customer relationship management (CRM), the next largest category, is still less than 10% of the

total. Demand for ERP solutions will remain robust in the near term due to the large potential market
represented by SMEs in many parts of the country.
Vendors will increasingly look, however, to applications such as CRM and business intelligence, where
faster growth is projected. The business intelligence segment is another strong performer, with sales of
databases growing steadily. High single-digit growth is forecast in 2011, as data proliferation continues to
be a priority issue for chief technology officers, fuelled by an uptick in merger and acquisition (M&A)
activity and new regulations. Looking ahead, security software also should provide opportunities, with
some demand for more sophisticated security solutions.
Software-as-a-service (SaaS) has enjoyed steady growth in most markets, and improved broadband
infrastructure will assist the popularisation of the rented software model. Brazil is thought to be one of the
most promising regional markets for the SaaS model, with growing demand in sectors such as retail,
finance and healthcare. There are estimates that around 50% of Mexico's large companies have conducted
cloud pilots. In Chile, too, vendors have reported that large companies have been the most enthusiastic
early adopters of cloud solutions.
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Usage of the cloud for information storage appears relatively low in the US and Canada compared with
some other mature markets. However, 2010 saw a number of US government agencies at federal and
local level launch cloud strategies and pilot programs. A combination of enterprise objectives such as cost
reduction and greater efficiency should combine to drive more adoption of cloud services in 2011.
Verticals such as financial services, government, and telecoms are emerging as strong adopters of hosted
software. However, SaaS has also won more acceptance from smaller businesses as they have
increasingly had to meet performance, visibility and compliance standards previously expected more of
larger companies.
The IT services segment accounts for 15% to 40% of spending in the Latin American markets covered by
BMI, compared with above 40% in both the United States and Canada. The global economic crisis had an

impact on projects in some verticals and led to negative spending growth in some markets such as
Mexico. Much will depend on the speed of the US and global recovery, with the likelihood of budget cuts
increasing the longer the slowdown lasts.
The IT services has become one of the most dynamic drivers of IT sector spending in the region, and
this has attracted greater investment from international vendors. The increasing number of multinational
corporations operating in markets such as Mexico, Chile and Brazil is in itself an important driver for
spending, while local companies are trying to use computing resources more effectively and integrate
investments made in hardware and software.
In more developed markets such as the US and Canada, a major demand driver going forward will be
organisations looking for help to utilise efficiencies from cloud computing models such as SaaS and
infrastructure-as-a-service. In the US in 2011 there are expected to be many more contracts for provision
of cloud services, following on contracts awarded in 2011 by the cities of New York and Los Angeles
Outsourcing is also becoming an important spur to growth for the IT services sector, as several Latin
American markets try to consolidate their reputations as regional offshoring hubs. By some estimates,
outsourcing may be equivalent to as much as 30% of IT spending in Brazil, with demand growing around
10% each year. One driver for many markets will be ambitions to develop capabilities in the business
process outsourcing (BPO) area and capture a larger global market share. Chile's development as an
offshoring location will attract more investment in IT services, with sectors such as retail, distribution,
financial services, telecoms and healthcare all offering opportunities.
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Market Structure (% Of Total IT Market)

2011e

2015f



e/f = estimate/forecast. Source: BMI

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United States Market Overview
Government Authorities
Government Authorit
y

National Telecommunications and Information Administration (NTIA),
Department of Commerce

Assistant Secretary for Communications and
Information

Lawrence E Stricklin
g


Assistant Secretary for Communications and Information
Lawrence E Strickling

The Department of Commerce (DoC) regulates various information technology industry-related areas.
The DoC is host to several agencies including the National Telecommunications and Information
Administration (NTIA), which advises the president on telecommunications and information-related
issues.

NTIA itself has several sub-bodies including:
 The Office of International Affairs, which helps to foster the ability of US IT companies to
compete abroad.

 The Office of Policy Analysis and Development.
 The Office of Telecommunications and Information Appliances (OTIA).
Major programmes run by the OTIA include:

The US$4.7bn Broadband Technology Opportunities Program to develop broadband services to
underserved areas.


A programme to drive the transition to digital TV.
The Department of Commerce also hosts the National Institute of Standards and Technology, which is a
non-regulatory agency that promotes US innovation and standards.

Various other federal government ministries are also relevant to IT vendors.
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 Several departments including the Department of Defense, Homeland Security, Health and
Human Services, and the Department of Commerce itself are major purchasers of IT products

and services.

 The US Treasury is in charge of tax issues affecting the US industry, including such issues as
R&D tax subsidies.

The Office of E-Government and Information Technology within the Office of Budget Management is
responsible for monitoring federal IT spending across federal departments
.
Overview
IT Spending

–

2009


IT Segments

(US$bn)

2009e



Source: BMI

Source: BMI

The US accounts for around 25% of global IT spending in terms of both shipments and value.
Despite continued economic uncertainty, and the faster growing IT markets of countries such as China

and India, the US is forecast to maintain its global IT market leadership position for some time.
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BMI estimated US IT spending at around
US$529bin 2011. As a mature market, BMI
assumes that IT services accounts for
around 44% of US IT spending, compared
with 27% for hardware and 29% for
software.
Each segment comprises several sub-
segments. In the hardware segment,
notebook computers now account for around
58% of sales, and this share is expected to
rise to 81% by 2016, pushing desktops
down to less than one-fifth of unit sales.
However, rival and even more portable form
factors such as tablets are expected to
restrain growth of traditional notebooks.
Software also comprises several segments. The business software market (packaged software), including
enterprise resource management, customer relationship management, human resources management,
financial applications and so on, as well as business intelligence and other information-enabling
applications, is estimated to account for around a third of revenue. Middleware, including systems
management and database management software, accounts for between 15-20% of spending. Operating
systems of PCs, servers, and mainframes, as well as storage systems, account for around 20% of
spending. Internally developed software accounts for a declining share of the market. The software
market is being transformed with the rise of the SaaS delivery model.

The main segments in IT services include implementation, systems integration (SI), maintenance and
service, as well as higher value services such as consulting and software development, and managed
services/outsourcing.
PC Spending

–

Segments

2009
Source: BMI

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BMI counts most custom-developed
software in IT services. Custom-
developed software has declined in
importance as packaged software has
become more specialised and
customised to particular industries,
and it may now account for around
10% of commercial software value.
The two largest IT spending verticals
are discrete manufacturing and
government, which have typically
accounted for around 10% of total IT

spending each. Banking has
traditionally also accounted for a
similar amount although it remains to be seen what will happen to bank IT spending in the wake of the
financial crisis. Other significant IT spending verticals include retail, wholesale, telecoms and
construction.
US consumers are sophisticated and enthusiastic consumers of consumer electronics products including
computers. BMI estimates IT spend/capita was US$1,641 in 2010. However, a mature market with high
penetration rates requires product and technology innovation to drive continued growth: the average US
household has 2.5 PCs.
Hardware
BMI forecasts that the US computer and accessories market value will grow about 3.7% in 2012. We
have upwardly revised our figures due to macroeconomic factors and expect a modest rebound after a
disappointing year for PC sales in 2011 was closed out with negative annualised growth in
Q411. The computer hardware market's 2012-2016 CAGR is projected at 3.1% and the market value
could reach US$165bn by 2016.
Market Trends
PC shipments are expected to report stronger single-digit growth in 2012. However due to factors such as
parts shortages, resulting from the Thailand floods in H211, the full recovery may be deferred until H212.
The shortages of hard-disk drives, of which Thailand is the world's premier manufacturer, had a relatively
limited contribution to the sluggish market in Q411, but an impact is expected to be felt more in H212
and could persist in 2012.
Software Spending

–

Segments

2010
Source: BMI