United States Information Technology Report Q1 2010

US spending on IT products and services is forecast to grow to US$514.5bn in 2010 and to reach a level of US$647.7bn by 2014. In our core forecast scenario, US IT market growth will increase to 5.5% in 2010 and then advance at a compound annual growth rate (CAGR) of 5.9% over our five-year forecast period. After three quarters of decline as a result of the global economic crisis, the second half of 2009 finally brought a return to growth in US PC shipments and signs of improvement in key IT spending verticals. Going forward, key market drivers are expected to include:

Growing fixed and mobile broadband penetration

Product innovation such as feature-rich netbooks

Technology innovation such as GPS technology and services

Business model innovations such as virtualisation and software-as-a-service (SaaS)

Economic recovery The recession may have had a lasting impact on the IT market by creating the conditions for the popularity of low-cost netbooks and notebooks and encouraging consideration of new IT delivery models such as SaaS. In the light of these and other changes, major vendors have also adjusted their competitive strategies.

Industry Developments
In August 2009 the federal government reported on its 2009 calendar year IT spending. In full-year 2009, total IT spending including all federal IT investment was measured at US$74.2bn, up 1.99% on the previous year’s total of US$72.8bn. Looking forward to 2010, budgeted federal IT spending is set to rise to US$78.4bn.

In September 2009, HP’s EDS unit won a US$30mn contract from the US Department of the Treasury’s Office of the Comptroller of the Currency (OCC) to provide and maintain end-user computing resources and mobility services.

Competitive Landscape
The US PC competitive landscape is dominated by two big domestic vendors, Dell and HP, which together have at least 50% of the US market. While Dell remained slightly ahead in PC market share in Q309, HP was particularly successful in using the lower priced notebooks trend to bolster its position. In July 2009 the company was selling a US$298 laptop at Wal-Mart stores, while a rival Dell product, also produced for Wal-Mart, retailed for US$398.

Following the success of its Wal-Mart product, HP continued with its low-price strategy for the back-to-school season.

The launch of Microsoft’s Windows 7 operating system, in October 2009, was the most significant event for Microsoft since the launch of Windows 95. Microsoft has received credit for a much smoother launch of Windows 7 compared with its previous operating system, due in large part to better cooperation with other players in the software value chain, including PC vendors and end-users. A wave of new PCs were released in Q409 with the new operating system, while Acer and Dell said that, as of launch date, there was zero inventory of Vista machines going into stores.

Consolidation is expected to continue to shape the IT services landscape over our forecast period.

In October 2009, computer hardware giant Dell made a US$3.9bn purchase of Perot Systems, while Xerox followed later in the month with its US$6.4bn acquisition of Affiliated Computer Services. Meanwhile, HP said that its integration of EDS was ahead of schedule.

Computer Sales
The US addressable market for PCs and accessories is estimated at US$116.1bn in 2010, with low single-digit growth compared with 2009.

In H209, the US PC market finally showed signs of recovery, with positive growth of nearly 4% in Q309, following three consecutive quarters of shipments decline. In H109 PC shipments were down between 1- 2%, compared with the same period of the previous year. Notebooks are the fastest growing PC market segment and were on course to account for around 58% of unit sales in 2009, rising to a projected 81% by 2014. Netbooks are forecast to account for around 12% of notebook sales in the US last year. However, the netbook growth trajectory should flatten as the price differential with fully featured notebooks becomes less significant.

Software
The US software market is estimated at US$149.2bn in 2010, with single-digit growth from 2009. Software CAGR for 2010-2014 is projected at around 6.8%, as the addressable market grows to around US$194.3bn. The launch of Windows 7 is expected to provide a boost to the operating system market in 2010. 2010 should see a boost from systems upgrades deferred from last year when the economic crisis had an impact across sectors.

Drivers of demand for enterprise software include increasing operational efficiency, coordinating global supply chains and modernising logistics and warehouse functions. More investment can be expected to be in utility software and serviced-oriented architectures rather than traditionally packaged PC software.

IT Services
The US IT services market is estimated at US$229bn in 2010 with a sharp deceleration in spending expected compared with 2006-2008.

IT services spending is expected to record growth of 5.5% in 2010, after a sharp deceleration last year. Spending on IT services is quite closely correlated with GDP growth – bad news in a recession. In early 2009 many vendors reported that they were not seeing many major blow-offs on existing deals. The most severely hit area is likely to be softer project-type spending such as consulting and software development. In the near term, budgets had often already been commissioned, and so the effects were more likely to be felt in the second half of 2009 and in 2010.