United states information technology report q3 2013

There are areas of the market that are expected to outperform over the medium term, for instance cloud computing and big data, and towards the latter part of the forecast period real-tim

Q3 2013 www.businessmonitor.com

UNITED STATES

INFORMATION TECHNOLOGY REPORT

INCLUDES 5-YEAR FORECASTS TO 2017

Technology Report Q3 2013

INCLUDES 5-YEAR FORECASTS TO 2017

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: June 2013

Business Monitor International

© 2013 Business Monitor International

All rights reserved

All information contained in this publication iscopyrighted 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 ormechanical, including photocopying, recording,taping, or by information storage or retrieval, or byany other means, without the express written consent

of the publisher

DISCLAIMER

Technology Report Q3 2013

INCLUDES 5-YEAR FORECASTS TO 2017

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: June 2013

Business Monitor International

© 2013 Business Monitor International

All rights reserved

All information contained in this publication iscopyrighted 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 ormechanical, including photocopying, recording,taping, or by information storage or retrieval, or byany other means, without the express written consent

of the publisher

DISCLAIMER

BMI Industry View 7

SWOT 9

IT SWOT 9

Industry Forecast 11

Table: US IT Industry - Historical Data And Forecasts (US$mn unless otherwise stated) 11

Broadband 15

Table: Telecoms Sector - Internet - Historical Data & Forecasts 15

Macroeconomic Forecasts 17

Macroeconomic Forecast 17

Table: US - Growth Revisions (%) 17

Table: UNITED STATES - GDP BY EXPENDITURE, REAL GROWTH % 25

Industry Risk Reward Ratings 26

Industry Risk/Reward Ratings 26

Table: IT Market Risk/Reward Ratings, Q313 28

Market Overview 29

Hardware 29

Software 36

Services 42

Industry Trends And Developments 45

Regulatory Development 48

Table: IT Regulatory Authorities 48

Company Profile 50

Microsoft Corporation 50

Hewlett-Packard 57

IBM 64

Table: IBM Acquisitions, 2012 (Total Value, US$3.964bn) 66

Dell 70

Regional Overview 76

Demographic Forecast 80

Demographic Outlook 80

Table: The United States' Population By Age Group, 1990-2020 ('000) 81

Table: The United States' Population By Age Group, 1990-2020 (% of total) 83

Table: The United States' Key Population Ratios, 1990-2020 84

Table: The United States' Rural And Urban Population, 1990-2020 84

Methodology 85

Methodology 85

IT Industry Forecasts 85

IT Risk/Reward Ratings - Methodology 86

Table: IT Business Environment Indicators 87

Weighting 88

Table: Weighting Of Components 88

Sources 88

BMI Industry View

BMI View: US IT spending is expected to reach US$588bn in 2013, up 6.6% from 2012 The market as a

whole continues to grow despite macroeconomic uncertainty; however there are some areas where sales are in decline, for instance desktops and notebooks as tablet sales surge There are areas of the market that are expected to outperform over the medium term, for instance cloud computing and big data, and towards the latter part of the forecast period real-time enterprise software and solutions Meanwhile, as political negotiations concerning the 'fiscal cliff' continued in the wake of the November 2012 elections, public IT procurements remained constrained due to the budget constraints faced by many government entities.

Headline Expenditure Projections

■ Computer Hardware Sales: US$144bn in 2012 to US$152bn in 2013, an increase of 4.7% Tablet sales

are driving market growth, while a new generation of ultra-thin notebooks and hybrids/convertiblesbuilding on Windows 8 and Haswell chipsets should also see growth

■ Software Sales: US$161bn in 2012 to US$173bn in 2013, an increase of 7.6% Forecast in US dollar

terms unchanged, but more investment is expected in utility software and serviced-orientatedarchitectures rather than traditionally-packaged PC software

■ IT Services Sales: US$246bn in 2012 to US$263bn in 2013, an increase of 7.2% Cloud computing is

the key growth area, but over the medium term we expect real-time enterprise and big data services willdevelop rapidly

■ Risk/Reward Ratings: The US's score was 79.1 out of 100.0 The US retains first place in our latest

Americas RRR table, ahead of Canada, as well as Latin American giants such as Brazil and Mexico

Key Trends & Developments

The US PC market is undergoing a period of rapid change as the sales mix shifts rapidly towards tablets.The latest data show desktop and notebook shipments declined by around 10% y-o-y to Q113 - in starkcontrast to the rapid growth of tablet sales We expect this trend to continue in the short term, however overthe medium term the outlook is uncertain Vendors are blurring device distinctions with innovation inhybrids/convertibles, as well as ultra-thin notebooks, that have the potential to insulate PC sales againstcontinued decline by offering a blend of mobility and functionality There is evidence that these designshave begun to gain traction with consumers, for instance in South Korea, however the extent to which theywill capture the attention of consumers in the US is an unknown

The uncertainty around public sector spending is hanging over the IT market in the US Automatic budgetenforcement procedures known as sequestration commenced on March 1 2013, after initially being delayed

from a January rollout The sequester requires cuts in discretionary spending to achieve US$1.2trn insavings from 2013-2021 Major cuts to federally-funded research and development (R&D) are alreadyplanned for 2013, and this could also hit IT projects Given continuing split party control of the legislativebranch of government, with Republicans continuing to control Congress, and Democrats having the

majority in the Senate, the November 2012 elections have failed to resolve uncertainty about the trajectory

of future government IT spending

Weaknesses ■ Due to the recession and subsequent slow economic recovery, customers postponed

IT investments and reduced short-term spending, particularly in areas such asconsulting and software development

■ Desktop and notebook sales appear to be in long-term decline due to longerreplacement cycles and the preference for mobile devices including tablets,smartphones and convertibles/hybrids

Opportunities ■ As economic woes ease, IT vendors should see more growth from traditional

big-spending sectors such as banks, financial services, retail and manufacturing

■ Potential for growth in the hardware market through form factor evolution, ie, thin notebooks, hybrids/convertibles and tablets

ultra-■ Cloud computing, with a large number of federal and state cloud computingprogrammes generating opportunities

■ New business models such as SaaS and virtualisation will continue to claim a largeshare of IT budgets

Threats ■ Enterprise and consumer concerns around data security and privacy could prove a

drag on adoption of cloud services and big data solutions

■ BMI forecasts that economic recovery could remain anaemic in 2013, in which case

spending on technology could have another hard year

SWOT Analysis - Continued

■ The large federal budget deficit could lead to pressures on public sector IT spending

Industry Forecast

Table: US IT Industry - Historical Data And Forecasts (US$mn unless otherwise stated)

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

IT Market Value 508,970 529,329 551,031 587,620 622,113 654,649 681,490 705,410 o/w Hardware 139,610 141,478 144,679 151,506 157,450 162,574 165,993 168,459

- PC 113,084 114,880 118,636 125,447 130,369 134,611 137,442 139,484

- Servers 12,565 12,733 13,021 13,636 14,171 14,632 14,939 15,161 o/w Software 145,311 152,976 160,626 172,760 184,456 195,740 205,469 214,445 o/w Services 224,049 234,875 245,727 263,353 280,206 296,335 310,028 322,506

IT Market, % of GDP 3.5 3.5 3.5 3.5 3.6 3.6 3.6 3.6

e/f = BMI estimate/forecast Source: BMI.

BMI has made a minor downward revision to our growth outlook for 2013 on the basis on stronger

macroeconomic growth forecast We expect US spending on IT products and services to reach US$587.6bn

in 2013, an increase of 6.6% over 2012, and then reach US$705bn by 2017 We believe there is mediumterm growth potential in the US IT market through sales of tablets, ultra-thin notebooks and hybrids/convertibles, as well as adoption of cloud computing, big data and machine-to-machine (M2M)

communications in the enterprise market These growth trends will support a CAGR of 5.1% 2013-2017;however, there is downside risk to our core scenario as a result of global economic headwinds

2013 Outlook

The US IT market has a mixed outlook for 2013,

with some areas of high growth, but also significant

drags on the market The level of support from the

economic environment is also mixed, with real terms

private final consumption growth of 2.2% forecast

for 2013, which is positive for the retail hardware

market However, government expenditure is

forecast to contract by 1.5% in real terms in 2013,

illustrating the difficulties vendors will face in

boosting sales to the public sector

Uncertainty continues to be generated by the

political tensions around the issue of the US federal

deficit Automatic federal spending cuts known as

sequestration commenced on March 1 2013, and this

could potentially hit IT projects Given the continued

split of party control of the legislature, the

November 2012 elections have not made much progress in addressing the trajectory of future government

IT spending

Despite a drive to cut expenses across government, many public sector organisations have appeared willing

to continue to spend on IT We expect growth momentum for cloud services to continue to build in 2013there are expected to be many more contracts for provision of cloud services, with the continued

implementation of the federal government of its Cloud First cloud migration strategy Departments such asthe US General Services Administration are already making significant use of cloud services, as the

government seeks to make savings in its US$80bn IT budget The recession may have had a lasting impact

on the IT market by encouraging consideration of cloud computing models such as SaaS In light of theseand other changes, major vendors have also adjusted their competitive strategies, with the old desktop-centric model of software delivery appearing increasingly outdated

Another drag on the IT market is the decline in desktop and notebook shipments The most recent data showthat PC shipments (excluding tablets) declined by around 10% y-o-y to Q113 as consumers continue toexhibit a preference for tablets There had been some hope on the part of vendors that the release of

Industry Trends - IT Market

2010-2017

e/f - BMI estimate/forecast Source: BMI.

Microsoft's Windows 8 OS in October 2012 would lead to increased sales of desktops and notebooks,

however this has not materialised in early 2013 There is potential for innovative hybrid/convertible designs

to experience growth, particularly following the release of Intel's new Haswell chipsets in June 2013, which

also represents a source of potential growth for longer battery life, higher performance and slimmer

notebooks

Turning to the enterprise market, overall moderate growth in budgets is expected in 2013, but much

depends on the economic situation Despite the return of economic growth, US businesses remain cautious.There is pent-up demand from projects delayed as a result of the economic situation, but some of this maynot be realised The growing market for cloud solutions and virtualisation will constrain demand for on-premises computer networks Regardless of the exact strength and nature of the recovery, the currenteconomic environment will offer some opportunities to vendors

Another service enabled by mobile broadband is the M2M market, or Internet of Things, which is a mediumterm opportunity for IT software and service providers to partner with telecoms operators In 2013 leadingsoftware and services firms, including SAP and Wipro, have partnered with M2M communications

providers to tap growth in the nascent market

Cloud computing models are expected to be increasingly important, with surveys finding high levels ofsatisfaction with cloud services among US CIOs Vendors are now rolling out more customised SaaSsolutions for small and mid-sized businesses The rollout of more service offerings, including from newmarket players, will fuel demand Virtualisation is making headway and will continue to do so, and it isproceeding to more and more parts of the datacentre Another growth opportunity will be private and publicsector organisations looking for help to utilise efficiencies from cloud computing models such as Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS) The federal government's Cloud First initiative isone of a number of federal and local government agency cloud migrations and pilot programmes

The economic downturn may also have accelerated the growth of outsourcing of non-core processes and ashift Already more and more software development has been outsourced to India and other locations, andvendors will be able to make the case that external spending on IT solutions can help the bottom line andadd to efficiency This trend has spread to government where in 2011 more agencies, in search of costsavings, are likely to go down the path of datacentre consolidation The Office of Budget Management in

2010 called for federal agencies to consider such initiatives

Segments

Despite pressure to reduce the deficit the government remains a key end-user, with federal IT spendinghaving reached a level of around US$80bn as departments continue to issue IT tenders, despite a drive tomake savings through closing hundreds of federal datacentres in 2012-2015 New government programmes,including the expansion of healthcare, should generate lucrative new opportunities for IT vendors, although,because of the ever-growing budget deficit, there will be increased pressure to reduce costs

As the recession eases, IT vendors should experience more growth from traditionally big-spending sectorssuch as banking, financial services, retail and manufacturing With mergers and acquisitions expected in thebanking industry among the fallout of the financial crisis, more opportunities should be generated

Small businesses are also a target for vendors There are more than 8mn small businesses in the US, which

is a substantial market However, particularly in a difficult economic climate, there are significant

differences between the needs of businesses in different industries Increasingly, vendors will need tocustomise approaches based on industry-specific needs

Summary

The hardware market is predicted to grow from US$152bn in 2013 to US$168bn in 2017 Software

spending should rise from US$173bn to US$214bn, and IT services from US$263bn to US$323bn, over theforecast period

Table: Telecoms Sector - Internet - Historical Data & Forecasts

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

No of internet users ('000) 239,893 255,318 265,851 272,097 276,422 278,769 283,924 292,014

No if internet users/100

e/f = BMI estimate/forecast Source: BMI, FCC

Internet and broadband penetration continues to

grow, as wireless technology becomes more

widespread and more popular among subscribers

The fixed broadband market grew 7.7% y-o-y to

2012, although the most significant growth is in the

wireless broadband sector

As wireless broadband becomes a more popular way

to connect to the internet, fixed-line numbers will

inevitably fall We have factored this into our

forecasts, and although we have extended our

forecasts through to 2017, we have not changed our

forecast growth rates this quarter, as Q113 data

support our view of growth We believe that the

market will remain buoyant, and experience strong

growth over our forecast period The overhaul of the

USF (see Broadband section) and replacement with

the CAF will lead to increased focus and attention on

promoting broadband connectivity and roll-out In May 2013, the FCC announced a further US$485mn hadbeen provided to the CAF, to further expand broadband to unserved and underserved rural areas Thisrepresents a small proportion of the population but the government is keen to promote universal access tohig-speed internet

Industry Trends - Fixed-Line

Sector

2010-2017

e/f = BMI estimate/forecast Source: BMI, FCC

We believe about 84.2% of Americans used the internet by the end of 2011, and there were around 29.4fixed broadband subscribers per 100 inhabitants We continue to expect steady increases in internet usersthroughout the period, with total internet users reaching 292.0mn in 2017.

High-speed internet is central to the marketing strategies of telecoms operators, with cable companies andmobile operators pursuing the high revenue area At the same time, the sheer popularity of internet-basedservices means that the point is fast approaching when most Americans will view such services as beingessential to their daily lives The Broadband Technologies Opportunities Program backs up this view andefforts to extend broadband services into rural areas will ensure that this trend continues, particularly asservice providers and content developers/vendors grow their product portfolios and become more adept atmarketing and pricing content that appeals to a broad range of consumers Similarly, the FCC's NationalBroadband Plan aims to ensure universal access, competition and the efficient allocation of spectrum tobenefit the broadband sector Increased revenue derived from such activities will allow operators to expandinto new markets and it seems increasingly likely that fixed-line operators will need to become broadband-focused in order to survive

There were 93.3mn fixed broadband connections by the end of Q412, up from 84.9mn at the end of 2011.The rise of mobile broadband will slow down fixed broadband growth rates over the coming years, as theseare not recorded in our broadband forecasts Especially with the launch of LTE, we expect to see a risingpopularity of 4G USB modems, which will impact wireline growth This is evident in Verizon's Q113results, which show that 26.3mn subscribers were using LTE, approximately 26.6% of its subscriber base.This is likely to be the highest total number of users of all the operators, due to Verizon's early moveradvantage

There is still some real scope for continued growth, with the fixed broadband market expected to reachabout 108.2mn subscribers by the end of our five-year forecast period to 2017, pushing the penetration rate

up to 32.9%

Macroeconomic Forecasts

Macroeconomic Forecast

BMI View: We have downgraded our US real GDP growth forecast for 2013 to 2.1% from 2.3%, owing

mainly to base effects from late 2012 and the decision to maintain the 'sequester' cuts to federal

spending Our core view on the US economy is that the recovery is becoming increasingly entrenched, and that by 2014 many of the headwinds to growth will be dissipating.

The near-term US economic outlook will be shaped in large part by fiscal retrenchment, above and beyondthe 'fiscal cliff' deal reached in January that we wrote about in our previous economic activity update Theimplementation of the 'sequester' spending cuts in March will amount to US$1.2trn over a decade, and moreimmediately, US$85bn in the 2013 fiscal year BMI's core forecast was for about US$55bn in sequester

reductions in 2013, which is half of the US$110bn originally scheduled, predicated upon a compromise to

reduce the sequester impact (see our online service, March 6, 'Sequester Impact To Be Relatively Modest').

The final sequester figure is about US$30bn more than that assumption, which is about a 0.2-0.3% of GDPdifference from our baseline Added to poor base effects from weak growth in Q412 (just 0.4% quarter-on-quarter annualised), we have revised down our real growth forecast for 2013 to 2.1% from 2.3%

Nonetheless, our core view remains the same, which is that US economic activity is likely to pick up as theyear progresses, led by business and residential investment Our 2014 growth forecast of 2.7% represents amajor bounce from 2013 and is an upgrade from our previous projection of 2.5%

Table: US - Growth Revisions (%)

The spending cuts come at a bad but not necessarily a disastrous time The tax increases that came intoeffect at the beginning of 2013 will take their toll, but we still believe that the economy is due to pick upsteam in the second half of the year That outlook is somewhat more restrained now that the sequester is inplace, but an improvement in the private sector will very likely be more than enough to fend off downsiderisks to growth from the sequester The spending reductions also are unlikely to come all at once, but it isunclear how they will be distributed over the course of the rest of the fiscal year, meaning the impact oneconomic growth as a whole is difficult to measure.

A Rising Tide

US - Real GDP & Components

Real GDP growth, % change y-o-y Private final consumption, contrib to real GDP growth (pp) Fixed capital formation, contrib to real GDP growth (pp)

0 1 2 3

e/f = BMI estimate/forecast Source: BEA, BMI

For now, the jury is still out, but we think that on balance, the data indicate an increasingly firm recovery,particularly within the private sector Data in the opening months of 2013 have generally been positive, withthe first really negative blip coming in the first week of April, when non-farm payroll jobs were estimated tohave grown by only 88,000 in March, well below the average of 150,000 over the previous three months.The unemployment rate decreased to 7.6% from 7.7% in February, but only because of a sharp decline inthe labour force participation rate to the lowest level since 1979

Employment Data Points To Flattening Growth

US - Non-Farm Payrolls & Real GDP Growth

Source: Macrobond, BLS, BMI

The ISM manufacturing purchasing managers' index indicated expansion in March at 51.3%, down from54.2% in February Taken together with the non-farm payroll figures, and a tick up in initial jobless claims,

it is possible that we are seeing the first signs of the sequester spending cuts taking hold

Then again, the economy's recovery appears to be increasingly cemented For one thing, private creditmarkets - which collapsed in 2008 - have been healing slowly, and we have begun to see a consistent rise inyear-on-year credit growth to households and businesses

Credit Market Continues To Heal

US - Credit Market Debt Outstanding By Sector, % chg y-o-y

Source: Federal Reserve, BMI

For another thing, we maintain our upbeat outlook on major cyclical sectors of the economy, such asresidential investment, and increasingly believe that business investment will pick up as well In the earlieststages of the recovery (2009-2010), our biggest reason for refuting the likelihood of a double-dip recessionwas that many key components of GDP were at or near such low levels that it was difficult to see how theywould make significant negative contributions in future quarters The accompanying chart shows theaggregate level of three key cyclical elements of GDP - equipment and software investment, durable goodsconsumption, and residential construction - as a percentage of GDP Growth in these categories of GDPhave typically helped lead the US out of recession, and have done so since 2009, rising from 16% of GDP

to 18% as of Q412, around the lowest levels in the post-World War II period The prospect of a continuedrebound in these cyclical areas underpins our thesis for continued growth in residential construction andbusiness investment as 2013 and 2014 proceed

Plenty of Room For Recovery

US - Cyclical Components Of GDP, % Of GDP

Note: Includes residential construction, business investment and consumer durables consumption Source: BEA, BMI

Consumption Holding Up Despite Headwinds

US - Private Consumption, % chg annualised, q-o-q & m-o-m

Source: Macrobond, BMI

Our forecast for improving yet below-trend consumption is predicated upon several factors The increase inpayroll tax beginning in 2013, which will take a US$1,000 chunk out of annual income for workers makingthe median annual income of around US$50,000, will be a headwind However, recent data show thatdespite this decline, real disposable income has been rising slowly in year-on-year terms, and given theweak inflation picture in the US, we see potential for additional strength Household balance sheets continue

to recover following a steep contraction during the recession While the total net worth of households andnon-profit organisations remains below the pre-crisis peak of 2007, it has been growing very strongly inrecent quarters Furthermore, with interest rates set to remain low for the next few years, consumer creditgrowth could pick up further as the cost of borrowing remains low Given the improved economic outlook,consumers will be more willing and able to take on credit, while banks, with improved cash buffers andincreased stability, will be more willing to lend Already, monthly consumption figures to February suggestthat the Q113 figure could come in above 2.0% quarter-on-quarter annualised, which would be an

improvement from 1.8% in Q412

Fixed Investment: Owing largely to weak base effects from Q412, we have downgraded our 2013 real

fixed investment growth projection to 6.8% from 8.1% However, due to our belief that residential

construction will remain strong and business investment will pick up following a period of major policyuncertainty, we have raised our 2014 investment forecast to 7.0%, from 5.7% Core durable goods orders toMarch 2013 imply increasingly strong equipment and software investment going into 2013, followingthe contraction in Q312 We believe that with corporate profits around record levels, and with a significantamount of uncertainty now in the past following the fiscal cliff deal at the turn of the year, businesses willhave an increasing propensity to invest

Business Investment Likely To Pick Up

US - Core Durable Goods Orders & Real Business Investment

Source: Macrobond, BMI

The US residential construction sector returned to growth in 2012, with a 15.6% increase in spendingdriving 11% growth in overall construction spending Housing starts and building permits have both hitmulti-year highs, with February housing starts coming in at 917,000, the highest rate since mid-2008.Despite this, the sector remains significantly below trend, implying further upside over the medium

term With new order bookings from US homebuilders continuing to post strong growth, residential

construction is likely to continue to support growth through 2013

Net Exports: We have revised down our 2013 growth forecasts for exports and imports of goods and

services, in large part due to base effects from 2012 Our 2013 export growth forecast is 3.5% (down from

5.8% previously), and our import growth forecast is now 2.8% (down from 4.6% previously) That said, thechanges mostly offset each other, and we now forecast net exports will make no contribution to real GDPgrowth, up slightly from our previous forecast for net exports to subtract 0.1 percentage points from realgrowth However, these forecast revisions somewhat obscure the trends we see developing in the USeconomy Our Shipping team highlights the increased throughput at the Port of Los Angeles in the firstmonths of the year as evidence that both exports and imports are accelerating relative to last year Weexpect these dynamics to persist throughout 2013 and into 2014 as a strengthening consumer boosts importsand the external environment gradually improves.

Trade Growth Is Strengthening

Port Of Los Angeles Container Throughput, % chg y-o-y (Jan-Feb 2012 & Jan-Feb 2013)

Source: Port Authority, BMI

Government Consumption: We have revised down our 2013 government consumption growth forecast to

-1.5% from -0.1% previously, owing almost entirely to the implementation of the sequester spending cuts inMarch It is entirely possible that the Republicans and Democrats come up with a compromise to push backsome of the cuts, perhaps by rearranging some of them to ensure that some areas of spending are fullyfunded while keeping the overall reduction at current levels Crucially, a government shutdown - whichcould have resulted from impasse over the 'continuing resolution' - has been averted by an agreement

reached in March, meaning that from a federal standpoint at least, this year is likely to represent the troughfor government consumption From a state and local spending standpoint, we expect the worst is over andthat the consistent drag on US growth from this category will flatten out as 2013 proceeds.

Table: UNITED STATES - GDP BY EXPENDITURE, REAL GROWTH %

2009 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Real GDP growth, % change y-o-y 1 -3.1 2.4 1.8 2.1 2.2 2.7 2.6 2.4 2.4 Private final consumption, real

growth % y-o-y 1 -1.9 1.8 2.5 1.9 2.2 2.5 2.2 2.0 2.0 Government final consumption, real

growth % y-o-y 1 3.7 0.6 -3.1 -0.8 -1.5 0.0 0.7 0.5 0.5 Fixed capital formation, real growth

% y-o-y 1 -19.0 -0.2 6.6 8.5 6.5 7.2 5.3 5.3 5.3 Exports of goods and services, real

growth % y-o-y 1 -9.1 11.1 6.7 3.4 3.5 5.2 5.1 5.0 5.0 Imports of goods and services, real

growth % y-o-y 1 -13.5 12.5 4.8 2.4 2.8 5.1 4.2 4.0 4.0 Net exports of goods & services, real

growth % y-o-y 1 -28.2 18.2 -2.8 -1.8 -0.4 4.6 -0.1 -1.0 -1.3

Notes: e BMI estimates f BMI forecasts Sources: 1 BEA/BMI.

Industry Risk Reward Ratings

Industry Risk/Reward Ratings

There were considerable movements in our Risk/Reward Ratings this quarter as Brazil edged Chile out fromthird place and Argentina jumped two places The top two and bottom two markets remained unchanged,with developed markets USA and Canada leading the region as usual Venezuela languishes at the bottom

of our ratings, notable for being the only market with a score below 50 points The overall regional averageimproved from 60.2 points to 60.4, a definite positive sign for investors in the region

The distance between second-placed Canada and now third-ranked Brazil is considerably reduced incomparison to last quarter This is in part due to a decrease in Canada's scores as it lost on both industryrewards and country risks, but there is also a notable improvement in our outlook for the Brazilian market.Part of the change can be attributed to BMI's move to local currency forecasting, ironing out some of the

impact of the dollar exchange rate fluctuations throughout the quarter As IT services become a greater part

of each market, the impact of acquiring software licences and hardware in US dollars is reduced to someextent

The US dominates the global IT market so its position high above regional peers is to be expected Animproved country risk outlook reflects the economy's stronger position with the uncertainty over politicalfuture now left behind as President Barack Obama is several months into his second term The IT marketbenefits from strong replacement rates among the population, which is accustomed to using IT services anddevices at work and at home There is a change in the outlook for the hardware sector, though, as tabletsbecome an increasingly important form factor, but the greatest impact on the US' position is its increasingmove to IT services We see this segment permeating more areas of consumers' lives and continuing todrive demand in the IT market

These trends are largely reflected in the Canadian market, too, but the country's much smaller populationmeans its IT market size is notably smaller There are fewer businesses and potential clients in Canada, butspending is high, marking the country out from others in the region that have larger populations For thisreason the country has the potential to be overtaken by the likes of Brazil as the latter's market offers stronggrowth potential

Brazil's strong growth outlook reflects an increasing awareness of the need for IT among businesses in thecountry, a feature of the majority of markets in the region However, Brazil offers particularly strongprospects as the region's largest market along with its strong economy While the economic growth story

has cooled somewhat, there are still opportunities as Brazil looks forward to hosting international sportingevents and will need to update infrastructure and services to manage this.

Brazil holds the second highest industry rewards score, helping it overtake Chile, which scores less thanArgentina, Mexico and Peru for industry rewards However, Chile's strong position in our ratings reflects itsmore advanced market, with a population that is more accustomed to using IT services and devices Thisoften leads international IT companies to first launch products in Chile, further cementing its position.However, with a considerably smaller potential market, its position is under threat from the larger markets

in Latin America

Argentina jumped up the table as a result of the move to forecasting in local currency rather than USdollars This offers a higher growth rate than previously However, Argentina's improved position isprecarious, with its score only slightly above Mexico, which it displaced The Mexican consumer outlookhas improved over the past year, and this should provide a boost to the IT market Argentina's strong growthprospects in local currency are a definite advantage, but the equipment used by IT companies is oftencharged in dollars, potentially causing difficulties for the Argentine market's growth potential

However, both Peru and Mexico saw lower total scores, reflecting falling country risk ratings In Peru's casethe slowdown in China will affect demand for commodities, which we believe will have an impact on theoverall growth rate for the economy With IT market growth so closely linked to the developments in theeconomy, this has slowed our expectations Although Peru offers strong potential, our downgraded forecastslowered the country's score

Colombia and Venezuela remain at the bottom of our ratings, with the latter offering limited prospects.Despite the death of Hugo Chavez in March 2013, we foresee little chance of there being any major changeswith his successor winning the resulting election This spells a continued difficult time for companies in the

IT sector in Venezuela, which relies on business demand for much of its growth Although there are

opportunities with government expansion, we believe these are not sufficient to make up for the potentialfrom business growth, which remains stifled

Table: IT Market Risk/Reward Ratings, Q313

Country Industry Rewards Country Rewards Industry Risks Country Risks IT Rating Rank Previous Rank

USA 85.8 90.0 50.0 66.8 79.1 1 1 Canada 62.5 90.0 50.0 66.7 68.5 2 2 Brazil 73.3 75.0 45.0 50.8 66.3 3 4 Chile 54.2 75.0 50.0 68.2 61.3 4 3 Argentina 60.0 70.0 40.0 52.1 58.6 5 7 Mexico 60.8 60.0 52.5 48.1 57.3 6 5 Peru 58.3 50.0 45.0 55.1 54.1 7 6 Colombia 55.0 55.0 47.5 46.8 52.6 8 8 Venezuela 40.0 70.0 35.0 34.6 45.8 9 9

Market Overview

Hardware

BMI forecasts that the US computer and accessories market value will grow by 4.7% to US$152bn in 2013.

Sales of desktops and notebooks are in decline in 2013, extending the trend from 2012, however this isprimarily a result of consumers opting for the tablet form factor As a result growth of PC shipments hasbeen maintained overall, while data centre construction is helping to maintain server

volumes The computer hardware market's 2013-2017 CAGR is projected at 3.1% and the market valueshould reach US$168bn by 2017

Market Trends

The PC market was sluggish in 2012, a situation that

may be attributed to a range of factors including the

sluggish economic recovery and the growing

popularity of alternative connectivity devices such as

smartphones, which vendors claim have cannibalised

sales of traditional notebooks The new category of

ultrabooks, heavily hyped by chip-maker Intel,

failed to provide much support to sales in 2012, and

US PC shipments dipped by around 5%, due to

mixed consumer sentiment as well as supply-side

constraints

Breaking the usual seasonal trend, PC sales

continued to dip downwards in Q312, as retailers

scaled back their orders in response to weak

back-to-school demand Volume sales were estimated to

have fallen by a double-digit factor, more than

previously forecast

Retailers also claimed that many businesses and consumers were waiting for the October 2012 release of

Microsoft's new Windows 8 operating system before investing in an upgrade, however, adoption has thus

far been sluggish Analyst firm IDC reported in Q113 that the PC industry had banked on Windows 8 andless expensive ultrathin notebooks to boost PC sales However, a lack of touch screen components for

Hardware Market (US$mn)

2010-2017

e/f - BMI estimate/forecast Source: BMI.

ultrathin notebooks led to a lack of Windows 8 computers The release of Windows 8 still has potential toboost PC sales, as the market adjusts to delayed hardware upgrades, and could also provide a fillip to theultrabook market as tablet makers leverage its capabilities to offer devices with touchscreens and

convertible designs

PC sales had also endured a year of overall stagnation in 2011, although there were growth areas such astablets A number of factors dragged down the US PC market in 2011, including the sluggish economicrecovery and competition from other form factors, particularly tablets The marked slowdown was largelydriven by disappointing sales in the consumer segment, particularly of notebooks The surge in demand fortablets contributed to restrained growth for traditional notebooks Vendors also pointed to a lack of

promotions and compelling reasons for customers to upgrade On the positive side, however, the slowgrowth was partly accounted for by base effects, compared with the market rebound in 2010 US sales did atleast manage positive growth in Q311 in contrast to negative growth in Canada, but the first increase forthree quarters was followed by two negative quarters in Q411 and Q112

Public sector spending was also weaker than usual, due to the current fiscal constraints In contrast, businesssegment demand continued to grow across all segments, although there is underlying vulnerability tonegative sentiment about the economic recovery The growing interest in cost-savings from IT solutionsbased on the cloud and virtualisation will restrain demand for on-premises computer hardware

In 2012, BMI expected single-digit overall PC market growth There was a pick-up in H212, supported by

base effects, and driven by new product releases and back-to-school and final quarter holiday seasonpromotions

However, the PC market will likely continue to struggle in the face of competition from rival connectivitydevices, with average prices and margins reporting further decline The sluggish economic situation hascreated significant downwards pressure on prices, with consumers unwilling to pay big money and lookingfor 'good enough' solutions to their computing needs The professional segment remained weak in 2012 asgovernment agencies and educational institutions faced tight budget constraints

Servers

There continues to be significant investment in datacentres in the US to meet growing demand for consumerand enterprise cloud services and storage solutions This has attracted the attention of vendors including theMay 2013 announcement that Lenovo will release a rebranded version of its LenovoEMC storage solutions

in North America The EZ Media and ix Series Desktop line now carry the Lenovo Iomega brand and the pxSeries Desktop and ox Series rack mount families are now branded as LenovoEMC products.

In June 2013 it was reported that Microsoft was set to invest US$678mn to expand its data centre in Iowa.The project was awarded tax benefits and aims to create 29 jobs, according to the board of the Iowa

Economic Development Authority Microsoft will be eligible to receive up to US$20mn in tax credits forthe project, which will house servers, networking equipment and office space to operate the company'scloud services

In April 2013 it was reported that Facebook was set to construct a US$1.5bn datacentre in Iowa, but the

company has not yet made a public statement The datacentre, which is being described as 'the most

technologically advanced data centre in the world', will be reportedly built in two US$500mn phases on a1.4mn square foot site The datacentre will be Facebook's fourth as it already has datacentres in Oregon,North Carolina, US, and one under construction in Lulea, Sweden

Desktops And Notebooks

The US PC market is mature, with a household PC penetration rate of 77% in 2010, however, this is stillsome way off the levels of PC penetration in European markets with comparable income levels There islimited scope for sales to first time buyers, meaning the market is predominantly based on personal devicesand upgrades/replacement purchases As a result there is a heavy bias towards mobile PCs, which hadbenefited notebook/netbook vendors prior to the arrival of tablets which have virtually eliminated netbooks

as a device category Notebook sales have also been hit by a shift to tablets, while desktops are increasinglybeing run as utility machines and being overlooked for upgrades as households opt for mobile devices

Notebook sales were estimated at around 53mn units in 2010 and could pass 90mn by 2017 The popularity

of netbooks was a big factor keeping notebook sales in positive territory during the recession in 2008-2009and accounted for about 80% of notebook segment growth

However, the netbook growth trajectory flattened in 2010 as the price differential with fully-featurednotebooks became less significant Meanwhile, enhanced versions of netbooks with features such as largerscreens and more powerful processors should further blur the line between the two categories The

emergence of tablets has also undermined demand for netbooks At their peak, netbooks are estimated tohave accounted for about 12% of notebook sales in the US in 2009, with estimated unit sales of more than6mn

However, following the emergence of tablets, the negative netbook trend now seems irreversible In H112,former netbook leader Toshiba announced that it was following Dell and Lenovo in withdrawing from the

segment in the United States HP and Asus are still competing in the netbook segment, but Asian giants Sony and Samsung did not release new models in the US market in 2012.

Tablets

Tablets have been phenomenally successful in the

retail market in the US, first through Apple's iPad,

but by 2013 there is a deeper market with

competition from vendors producing devices running

Google's Android OS and Microsoft's Windows 8.

Research by the Pew Research Centre indicates that

the deepening of the tablet market has helped to

drive penetration rates higher It reported significant

increases in penetration of tablets among US adults,

with growth accelerating from mid-2012 as cheaper

Android devices, and Apple's own iPad Mini, hit the

market

The tablet market has been dominated by Apple;

however, its position did weaken in 2012 and it faces

much stronger competition in 2013 Data from

Statcounter show that Apple's iOS, run on its tablets,

accounted for 6% of US PC browsing traffic in June 2013 - a figure that was up by 2.1pps y-o-y This datasupports research from Magid Advisors who estimates that in total Apple's iPad was the dominant device inQ213, present in 59% of tablet owning households (of which 6% is attributable to the iPad Mini) This is farahead of Amazon's Kindle Fire, present in 31% of tablet households, and Samsung devices, present in 19%

of tablet owning households

Meanwhile Google's Android OS, which is used on Samsung, Asus and Google's own Nexus range

accounted for just 1.4% of PC browsing traffic (up 0.9pps) y-o-y This recent data reinforces Apple'sdominance; however, it is notable that Android is becoming a more significant competitor for

Apple following the release of popular tablets such as the Kindle Fire from Amazon, the Nexus 7 and 10and Samsung's Galaxy Tab range

Tablet Penetration* (%)

2009-2013

*Age 18+ Source: Pew Research Centre

The success of Android vendors came only after the release of lower cost tablets and were predominantlythe smaller 7" form factor This contrasted with Apple's larger and more expensive iPad - and the popularity

of the smaller, cheaper devices, catalysed the development of Apple's own iPad Mini Apple is set to facecompetition throughout 2013 from rival Android vendors that will offer consumers a greater choice in terms

of price and size, as well as specifications and features

It is also important to note the gap between the strategies of some of the leading players On the one handApple and Samsung are hardware vendors and look to profit from the sale of devices, while on the otherside Google and Amazon are services firms and offer tablets almost at cost The strategies of services firms(combined with low cost OEM tablets from China) will likely put pressure on the margins of hardwarecentric vendors in the medium term

Another development that will affect both the tablet market and the notebook market is the arrival ofWindows 8 In October 2012, with the launch of the new OS, Windows vendors were able to introducetouch devices - with a number of tablets released The addition of more vendors and another touch OS willadd to competition in the market - putting further pressure on prices

Hybrids/Convertibles

The more significant trend arising from the release of Windows 8 is the medium-term impact on innovationand form factors Windows has a traditional strength in productivity use cases and software, with the OSbeing central to the enterprise market and Microsoft's Office Suite ubiquitous There is therefore an

opportunity for vendors to leverage this strength over rival iOS and Android devices by designing tabletswith strong productivity functionality alongside the passive media consumption features

Early examples have been hybrid devices such as Microsoft's own Surface (RT & Pro), Hewlett-Packard's

Envy and Lenovo's Yoga and Helix Although design innovation has some way to go, and prices of hybridswill need to decline, the multi-use device has scope to capture a share of the tablet market by offering astronger value proposition to consumers while not compromising on user experience

There is already evidence in H113 of the hybrid/convertible form factor gaining traction in early adoptermarkets including South Korea, which may gain momentum as vendors capitalise on the potential of Intel's

new Haswell chipsets released in June 2013 Meanwhile, according to a recent research report, 10% of alllaptops shipped worldwide in Q113 were touchscreen-enabled This figure is expected to grow as more andmore manufacturers develop laptops and touchscreen notebooks

Ultrabooks, higher-performance notebooks designed as a response to Apple's increasingly popular

MacBooks, are an emerging product category that Intel and certain vendors backed heavily However, inH112, sales of the devices fell far short of Intel's predictions due to high prices and these devices thereforeseem unlikely to enjoy the hoped-for success, at least initially In the United States, in H112 the averagemarket price for an ultrabook was upwards of US$900, compared with an average of around US$500 for aWindows notebook In contrast to netbooks, which prospered against the backdrop of the global financialcrisis in 2008/2009, the relatively higher-priced category of ultrabooks appears ill-timed given the currentglobal economic malaise Vendors appear to have realised this and are moving ahead with plans to supplylow-end ultrabooks Intel reportedly has resisted lowering Ivy Bridge CPU prices, but manufacturers areattempting to reduce costs by using cheaper Sandy Bridge CPUs and cheap batteries The final products arelikely to reduce the price gap between netbooks and currently available ultrabooks but it may still bequestioned whether this will be enough to ensure the take-off of this category Average ultrabook prices hadalready dropped to around US$850 by mid-2012, and were expected to dip further to around US$750 for theback-to-school season Meanwhile, the release of Windows 8 in October 2012 was expected to provide aboost to sales of ultrabooks as consumers and businesses upgraded to the new operating system, but ashortage in touchscreen components led to a thus far sluggish adoption of the new OS and correspondinglyslow sales of ultrabooks

E-Readers

One product segment challenged by tablets is the e-reader market, currently dominated by Amazon's

Kindle There are around 450,000 book titles on the Kindle store, compared with around 60,000 on theiBookstore The Kindle is also cheaper than the iPad, with prices as of H113 ranging from US$69 at the lowend, to US$399 for the Kindle Fire HD 8.9" 4G Tablet However, the layout and user-friendliness are bothareas where the iPad outscores rival products

Vendor Performance

The latest estimates from IDC and Gartner are for sales of desktops and notebooks to be in decline in early

2013 IDC estimates that total sales declined 12.3% y-o-y to 14.3mn in Q113, a slightly more pessimisticoutlook than Gartner's estimate of a 9.6% decline to 14.2mn The data show that Hewlett Packard leads themarket, although its position is under threat as its sales declined by around 23% y-o-y to Q113 Dell was thesecond largest vendor, but it also saw a significant decline in sales above the rate of decline for the market

as a whole The only vendor to achieve an increase in shipments was Lenovo, although Gartner also

estimates Apple recorded higher shipments y-o-y to Q113

As vendors are facing the reality of declining desktop and notebook sales there is a renewed focus on theecosystem and retail In June 2013 Microsoft announced that it was partnering with Best Buy to set up a

store-within-a-store in 500 locations in the US and 100 in Canada Microsoft will work with Best Buy totrain an additional 1,200 sales associates, as well as supplying dedicated Microsoft specialists to the stores.The Microsoft stores will be in direct competition with Apple, which also has stores within some branches

of Best Buy Microsoft's strategy is for the stores to be a location for consumers to try, compare and

purchases tablets, PCs, Windows Phones, Office Software and Xbox The stores will also feature an

ecosystem section to market Xbox SmartGlass, SkyDrive and other services

Meanwhile, also in June 2013, Google confirmed its Chromebook laptops would be stocked at US retailchains Walmart and Staples Walmart will stock Chromebooks across 2,800 retail locations in the US,

priced at US$199, while Staples will sell Chromebooks across its 1,500 US stores Google unveiled theChromebook platform in the US in 2011 and also confirmed plans to expand overseas, including the UKand Sweden

Lenovo, the outperformer in terms of shipment growth, has targeted domestic manufacture as a strategy toimprove product quality, while also potentially useful marketing In June 2013 Lenovo opened its first USmanufacturing plant in Whitsett, North Carolina The plant initially employed 115 works to assemblenotebooks and desktops, using components from overseas Lenovo admits it would be cheaper to

manufacture outside the US but said 'speed of execution is key' The computers produced from this plantwill have an American flag on the palm rest Lenovo also confirmed plans to increase the scope and scale ofits first US manufacturing site in Whitsett, North Carolina, according to WXII12 The company aims to add

155 new jobs to its Greensboro production line by the end of July 2013

Dell announced plans to bundle an improved security suite with its hardware in June 2013, in an effort todifferentiate is products to protect market share and insulate downward pressure on prices - particularly inthe enterprise segment The new suite provides anti-malware defence and encryption services and is

available via Dell's Protected Workspace program The technology emerges from Dell's acquisition of based data protection business Credant Technologies in December 2012 Dell can provide a pre-installed

US-file protection capability on desktops, laptops and Android devices

Dell's SecureWorks division also launched a new threat-hunting service which will be targeted at enterprisecustomers The Targeted Threat Hunting service has been integrated with SecureWorks' Counter ThreatUnit, and is designed to 'detect the presence of complex cyber attacks inside organisations' The company'schief technology officer, Jon Ramsey, commented that the new service used 'instrumentation, advancedanalytics and visualisation tools', alongside years of collected security threat data and experience to identifyand eliminate targeted threats.

The tablet market is another area of intense competition, with vendors moving to release models to capture

a share of the spoils which still predominantly accrue to Apple In June 2013 Toshiba confirmed plans toexpand its tablet offerings in the US towards late-2013 The company, as it explores more screen sizes andprice points, is set to introduce new Windows 8 and Android tablets in various price ranges in the US.Toshiba is reportedly willing to compete at prices as low as US$199, and will also look into higher pricepoints for better-performing tablets

Meanwhile in May 2013 Amazon leaked details of a planned Windows 8 tablet release Details of theproduct, to be sold by Taiwanese technology firm Acer, were reportedly listed on the site for a short time onMay 6 2013 The listing indicated that the device would utilise a 8.1-inch screen, which if true would make

it the smallest Windows 8 tablet on the market

Software

Software CAGR for 2013-2017 is forecast at 5.9%, as the addressable market approaches US$214bn in

2017 In a climate of economic uncertainty business software vendors will aim to pitch efficiency gains, ascompanies focus on reducing costs At the same time, the software market is being influenced by thecontinued move towards distributed computing, SaaS and service-oriented architectures Moreover, asinternet use and e-commerce continues to boom and data flow increases, US enterprises appear to be willing

to spend on technology, even in the uncertain economic climate

Market Trends

BMI forecasts that the US software market will be

worth US$173bn in 2013, a 7.6% increase over

2012 Economic headwinds have led to clients

focusing on a clear RoI from software investments

and has also given additional momentum to the

adoption of cloud computing In H112, the market

outlook for software and IT services appeared to be

brighter than that for computer hardware Many US

software companies reported positive revenue

growth as US companies invested more in utility

software and service-orientated architectures, rather

than traditionally packaged software

Over BMI's five-year forecast period, the number of

cloud computing contracts open to vendors is likely

to dramatically increase, presenting a challenge to

traditional desktop-centric software models A wide

range of US private and public sector organisations announced cloud computing strategies and launchedpilot projects US organisations migrating to new cloud solutions have included government departmentsand companies such as office supply retail group Staples

Despite being an advanced market, it is still estimated that around 20% of software used in the US is illegal

or pirated According to the lobbying group the Business Software Association, total losses from illegalsoftware in the US market totalled about US$9bn in 2008 The industry continues to push for stiffer

penalties Legal history was made in 2009 when a 39-year-old woman received a six-month jail sentence infederal prison for selling illegal software

Business Software

Business software is estimated to account for around 50% of total US software revenue Spending onapplications such as enterprise resource planning (ERP), customer relationship management (CRM),financial management systems and information software accounts for around 60% of the sub-category total

Software Market (US$mn)

2010-2017

e/f - BMI estimate/forecast Source: BMI

Middleware, such as database management systems and systems management tools, accounts for theremaining 40%.

The majority of enterprise software demand, in functional terms, is currently for ERP and supply chainmanagement Despite a relatively mature market, there still remains plenty of potential for ERP

implementations in industries such as consumer products, telecommunications, energy, engineering,construction, transportation, food & beverage, retail and metal working

ERP demand drivers include increasing operational efficiency, coordinating global supply chains andmodernising logistics and warehouse functions Meanwhile, business intelligence and other information-enabling software will continue to be one of the fastest-growing product areas

Software is often seen as an investment that helps to save costs and that will make an impact on the bottomline However, over BMI's five-year forecast period, more investment can be expected in utility software

and serviced-oriented architectures rather than traditionally packaged PC software Major application areassuch as ERP, CRM and business intelligence, security and supply chain management are increasingly beingdelivered this way

Surveys indicate that an average ERP implementation for manufacturing and distribution companies takesaround 19-20 months, with an average sales cycle of around four months A survey by Panorama

Consulting Group found that average total cost of ownership was in the region of US$8.6mn Companies

spent around 23% of the total implementation budget on business implementation costs, including party consulting

third-A key area in the business software market is SMEs, where penetration is generally lower In June 2013 itwas announced that Oracle was creating an all-in-one solution for small and medium businesses (SMBs).The company will combine software, server, storage and networking into an all-encompassing packagecalled Oracle Database Appliance (ODA) It is designed to be a cost-effective product that brings enterpriseclass performance to smaller businesses We expect other leading vendors to provide strong competition inthe SME market

Cloud Computing And SaaS

The US is a key hub of the emerging market for cloud solutions, which is set to transform the way ITproducts and services and sold and procured Research indicates that the US will account for around half of

global public cloud spending over BMI's forecast period, with around two-thirds of public cloud computing

spending being software-oriented The economic crisis may have given lasting additional momentum tocloud computing business models where applications are hosted on a centralised server and accessedremotely Research firm IDC forecast that, by the end of 2012, 80% of new commercial enterprise

applications would have been deployed on cloud platforms Meanwhile, a survey in 2012 by North Bridge Venture Partners of 785 IT decisionmakers reported that 50% of users expressed complete confidence in

However, a combination of enterprise objectives such as cost reduction and greater efficiency shouldcombine to drive adoption of cloud services in 2013 The biggest software opportunities will be in non-critical file storage, or customer-facing applications such as CRM Opportunities should occur acrosseconomic sectors as awareness of cloud computing grows

Sales in the business SaaS segment by vendors such as Google and Salesforce.com continued to grow

during the economic downturn SaaS has become more accepted as smaller businesses have increasinglyhad to meet performance, visibility and compliance standards previously expected more of larger

companies SaaS potentially enables these smaller companies to meet these needs cost-effectively, enablingthem to compete and offer better service BMI estimates that spending on SaaS applications by smaller

companies could make up around 2% of US software spending by 2014