United States Information Technology Report Q4 2009

The US IT market is the largest in the world, and spending on IT products and services is forecast to exceed US$500bn in 2010 and US$600bn by 2013.

In the core forecast scenario, US IT spending growth will be low single digit in 2010 and then advance at a compound annual growth rate (CAGR) of 6% over the forecast period. Spending is expected to remain in marginal positive growth territory in 2009. Key drivers going forward will include:

growing fixed and mobile broadband penetration
product innovation such as feature-rich netbooks,
technology innovation such as GPS technology and services
business model innovation such as virtualisation and software-as-a-service (SaaS); and
economic recovery.

As the recession eases in H209/H110, vendors should see more growth in traditional big-spending IT verticals such as banks and financial organisations, retail and manufacturing. For smaller business, vendors will increasingly need a customised approach based on industry-specific needs. Government remains a key end-user, with new government programmes in areas such as healthcare set to generate opportunities.

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.

The Obama administration has rolled out a new feature called ‘IT Dashboard’ to monitor IT projects across the federal government. The programme is intended to help provide information to help better decision making about IT projects from accountability to personnel and contracting.

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.

The top five leading vendors have above two-thirds of the PC market by volume, with US giant Apple and Asian challengers Acer and Toshiba completing the roster. There were signs in H109 that Apple had suffered from its high-end brand image in a recession market focused on value.

The launch of Microsoft’s Windows 7 operating system, scheduled for October 22 2009, will be the most significant event for Microsoft since the launch of Windows 95.

Microsoft has a lot riding on the new operating system release, given perceived problems with its previous operating system Windows Vista. In July 2009 Microsoft posted declines in profits and sales for its fourth 2009 fiscal quarter.

Leading IT services vendors such as Accenture and IBM generally saw revenues down between 10- 15% in H109 compared with 2008.

The fall of US financial giants Lehman Brothers and Merrill Lynch was ominous for Indian outsourcers who were highly exposed to the US financial services segment. These vendors were refocusing on opportunities in sectors such as telecoms, healthcare, utilities and manufacturing.

Computer Sales

The US addressable market for PCs and accessories is estimated by BMI at US$113bn in 2009, with negative growth compared with 2008.

The report projects that the US computer and accessories market will have a CAGR of 4% over the 2010-2013 period. In H109 PC shipments fell between 1-2%, compared with the same period of the previous year.

The consumer channel was the main growth area in H109, with consumers continuing to spend on notebooks, despite the recession.

Notebooks are the fastest growing segment and will account for 58% of unit sales in 2009, rising to a projected 76% by 2013. Netbooks are forecast to account for around 12% of notebook sales in the US this year. One driver, both of increased sales and of lower prices, is the move of telecoms operators into the PC retail space.

Software

The US software market is estimated at US$140.9bn in 2009, with low single-digit growth from 2008.

Software CAGR for 2009-2013 is projected at around 7%, as the addressable market grows to around US$183.5bn. Spending is expected to continue to grow despite the economic recession. However, the economic crisis led some companies to review IT budgets or look to defer systems updates.

The report projects that Windows 7 will provide a boost to the operating system software market in 2010.

Drivers of demand for enterprise software include increasing operational efficiency, co-ordinating 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$217bn in 2009 with a sharp deceleration in spending expected compared with 2006-2008.

IT services spending is likely to continue to slow in many sectors throughout 2009 as a result of the economic recession. 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 have often already been commissioned, and so the effects would be more likely to be felt in the second half of 2009 and in 2010.