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KPMG INTERNATIONAL

Issues MonitorSharing knowledge on topical issues in the

Electronics, Software & Services industry

January 2011, Volume Six

kpmg.com

KPMG INTERNATIONAL

Issues MonitorSharing knowledge on topical issues

in the Technology Industry

June 2012, Volume 10

kpmg.com

KPMG INTERNATIONAL

Issues MonitorSharing knowledge on topical issues

in the Technology Industry

July 2012, Volume 10

kpmg.com


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b | Issues Monitor: July 2012, Volume 10

Gary MatuszakGlobal Chair, Technology

Keeping up to date with the very latest and most pressingissues facing your organization can be a challenge, andwhile there is no shortage of information in the publicdomain, filtering and prioritizing the knowledge you needcan be time consuming and unrewarding. Issues Monitor Technology is published to help you navigate the multitudeof information out in the market. I hope that you find ituseful and I welcome the opportunity to further discuss theissues presented and their impact on your business.

Welcome to the July edition of Issues Monitor

Technology. Each edition pulls together and shares

industry knowledge to help you quickly and easily get

briefed on the issues that affect your sector.

2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with

KPMG International. KPMG International provides no client services. All rights reserved.

ISSUE 1: Software as a Service market growing rapidly

The growth in the global Software as a Service (SaaS) marketis largely driven by the increasing need of organizations,across industries, to cut costs, and by the relative speed andease with which SaaS solutions can be deployed. Further,an increasing number of small and medium-size firms areadopting SaaS, prompting service providers to introduce awider range of SaaS solutions. Many vendors are also looking

at potential acquisitions to strengthen their market position.At the same time, major concerns remain regarding security,network instability and integration. This has caused customersto focus more on stringent service level agreements, contractterms and governance structures.

ISSUE 2: Enterprise IT spend takes a cut

The global economic challenge is forcing CIOs to look at theirIT budgets very carefully. The return on each IT investment iscritically evaluated and CIOs are finding various ways to derivethe maximum value out of the IT investments made. Cloudcomputing, business analytics, virtualization, social mediaand mobility are few of the initiatives that enterprises areconsidering to be on high priority in order to meet their client

needs, increase profitability and gain competitive advantage.It is evident that despite the global economic challenges,enterprises continue to invest in IT (especially in varioustechnologies such as cloud, analytics, mobility etc). Manyresearch firms suggest that there might be a slowdown in thegrowth of enterprise IT spend because of the postponementof IT spending decisions and delay in decision making process;however organizations are expected to continue spending incritical IT areas which are expected to add value to the businesswith an assured return on investment (RoI).


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Issues Monitor: July 2012, Volume 10 | 1

1 Software as a Servicemarket growing rapidly The growth in the global Software as a Service (SaaS) market is largely driven by the

increasing need of organizations, across industries, to cut costs, and by the relative

speed and ease with which SaaS solutions can be deployed. Further, an increasingnumber of small and medium-size firms are adopting SaaS, prompting service

providers to introduce a wider range of SaaS solutions. Many vendors are also

looking at potential acquisitions to strengthen their market position. At the same

time, major concerns remain regarding security, network instability and integration.

This has caused customers to focus more on stringent service level agreements,

contract terms and governance structures.




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2 | Issues Monitor: July 2012, Volume 10

Global SaaS market being drivenby cost cutting and ease and speedof deploymentThe global cloud computing market networks of virtual servers thatallow individuals and businesses toaccess information from any internet-connected device is experiencingrobust growth. This growth is drivenprimarily by the need of companies to

reduce costs. Another factor drivinggrowth is the need for easy access totechnology, as cloud computing canprovide such access.1, 2

The Software as a Service (SaaS) modelhas experienced the most rapid growth

in the global cloud computing market.According to Embracing the Cloud KPMGs 2011 Global Cloud Surveyreport (based on a global survey ofover 900 executives in 15 countries) nearly half of the end-users surveyed(46 percent) stated that their most

likely investments are expected to bein cloud-delivered SaaS, as shown inFigure 1.3As SaaS also referred toas on-demand software providesapplications through the internet, iteliminates the need to install, run ormaintain programs in internal systems.4

Figure 1: KPMG study showing likely investments in different cloud computing service models, 2011(percent of respondents)

Users (Business n=568)Users (IT n = 237)Total users (n = 805)

0

10

20

30

40

50

Don't knowMy organization does nothave plans to invest in

cloud environment

Platform as aService (PaaS)

Infrastructure asa Service (IaaS)

Software as aService (SaaS)

46% 48% 45%

35%41%

32% 34% 35% 33%

9% 9% 10% 10%14% 16%

Source: Embracing the cloud, KPMG, November 2011

According to KPMGs

Embracing the

Cloud, nearly half

of the end-users

surveyed (46 percent)

stated that their mostlikely investments

are expected to be

in cloud-delivered

SaaS.




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In 2011, the worldwide SaaS marketrevenue reached US$12.3 billion, upfrom US$10 billion in 2010. In 2012,the worldwide SaaS market revenueis expected to reach US$14.5 billion.Companies across industries are

increasing their investments, shiftingtheir projects from on-premise to SaaS.The following factors are contributing tothe robust growth seen in global SaaSmarket, as shown in Figure 2:

Amid the current uncertain economic conditions, tight IT budgets are pushing demand forcloud computing services. Post 2009-2010 recession the opportunity to save costs isattracting companies to implement SaaS-based applications, as these do not require upfront

investments for physical infrastructure, deployment and training.

The speed and ease of deployment have contributed to the increasing popularity of theSaaS model. The faster implementation of SaaS and the immediate access it offers reduce

the time taken by customers to realize value from software purchases. Growth is also beingdriven by consumers increasing familiarity with the SaaS model

Increasing adoption of SaaS by small and medium-size businesses (SMBs) is another major

factor driving growth. As SMBs find the pay-as-you-use SaaS model in line with theirbusiness objectives, the demand from these SMBs is increasing. Another factor behindSMB adoption of SaaS solutions is the need to reduce overall investment by eliminating

added costs associated with on-premise solutions such as software licenses, dedicatedservers, maintenance fees and upgrades, and IT personnel support.

The global SaaSmarket is

expected toreach US$21.3billion by 2015,

growing at aCAGR of 14.7during 2011-1512

Increasing

demand

fromSMBs

Easeand

speedof

deployment

Costcutting

Figure 2: Factors driving growth in the global SaaS market5, 6, 7, 8, 9, 10, 11

Further, with the increased workforcemobility in both large corporates andSMBs, there is greater need to accessdata from smartphones and tablets.As SaaS facilitates the integrationof powerful business applicationson smartphones, tablets and other

wireless devices, it is likely to beincreasingly adopted by the corporatebusiness environment. This model willhelp boost companies productivityand efficiency by providing employeesaccess to data while they are onthe move.13, 14




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Worldwide SaaS market GeographicoutlookAcross markets and regions, SaaSis being adopted at different rates,depending on the various factors drivingthe growth in any particular market.15, 16

In 2011, North America accountedfor 63.4 percent of the global SaaSmarket. In 2011, SaaS revenue inthe region reached US$7.8 billion, a20 percent increase over the revenuegenerated in 2010. In Latin America,SaaS revenue is forecast to totalUS$419.7 million in 2012, up fromUS$331.1 million last year.

In Western Europe, SaaSrevenue grew 23.3 percent,from US$2.2 billion in 2010 toUS$2.7 billion in 2011. In the EasternEuropean region, it is projected toreach US$169.4 million in 2012,up from $135.5 million last year.Apart from these regions, NorthernEurope, which comprises the UK,

Ireland, the Netherlands and Nordiccountries, is also experiencing robustSaaS adoption.

In the Asia Pacific region, SaaSmarket revenue grew 21.5 percent,

from US$601.8 million in 2010 toUS$730.9 million in 2011. Australia,New Zealand, Hong Kong, Singaporeand South Korea are some ofthe key SaaS markets that offergrowth opportunities for serviceproviders. In Japan, SaaS revenuereached US$427 million in 2011, up35.4 percent from US$315.3 million

in 2010.

Figure 3 provides SaaS revenue indifferent regions and the factorspushing growth, along with forecastsfor 2015.

Figure3: SaaS revenue in different regions and high-growth markets

Source: North America to account for 64 percent of SaaS revenue in 2011, Gartner, September 14, 2011; Gartner says worldwideSoftware-as-a-Service revenue to reach US$14.5 billion in 2012, March 27, 2012

EMEA The Western European SaaS market revenue is expected to grow from

US$2.7 billion in 2011 to US$4.8 billion in 2015.

Eastern Europe SaaS market revenue is expected to reach US$270.1 million in2015, up from US$135.5 million in 2011.

Major factors contributing to the robust growth in the Northern Europe SaaSmarket include culturally open outlook toward technology adoption,

well-established internet infrastructure and English as the primary language.

Low TCO is the key driver of growth in the EMEA region.

ASIA PACIFIC The Asia Pacific SaaS market revenue is

expected to reach US$1.7 billion in 2015, up fromUS$730.9 million in 2011.

Major factors spurring growth in Australia,

New Zealand, Hong Kong, Singapore and SouthKorea, include established infrastructure,more-stable networks and availability of vendor

sales, marketing and support service structures.

Japan SaaS market is expected to grow fromUS$427 million in 2011 to US$629.1 million in 2015.

AMERICAS North Americas SaaS revenue is expected

to reach US$12.9 billion in 2015, up fromUS$7.8 billion in 2011.

Ease and speed of deployment and lower

total cost of ownership (TCO) are drivinggrowth.

Latin Americas SaaS market is at anembryonic stage. It is expected to

grow from US$331.1 million in 2011 toUS$694.2 million in 2015.




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Worldwide SaaS market Segmentoutlook Within the global SaaS market,customer relationship management(CRM) accounts for the largest share,as shown in Figure 4. In 2011, thesegment revenue is expected to reachUS$3.8 billion, up 18.7 percent fromUS$3.2 billion in 2010. This growth inthe SaaS CRM market is being drivenlargely by the need to improve customer

Others

31.4%

26.4%14.1%

28.1%

Enterprise Resource Planning

Content Communicationand Collaboration

Customer RelationshipManagement

Others

loyalty management, promote customerretention and enhance the customerexperience. The market landscape foron-demand CRM continues to evolveand mature as the availability anduse of SaaS solutions become morepervasive, said Tom Eid, Vice Presidentof Technology and Service ProviderResearch at Gartner.17

Figure 4: Worldwide SaaS market segments, 2011 (%)

Source: Gartner says worldwide Software-as-a-Service revenue is forecast to grow 21 percent in 2011,Gartner, July 7, 2011

The other key SaaS segmentsare content, communication andcollaboration (CCC) and enterprise

resource planning (ERP). In 2011, SaaS revenue within the

CCC market is expected to reachUS$3.3 billion, up 17.8 percentfrom US$2.8 billion in 2010.Businesses are increasingly movingto CCC solutions, as they not onlyfacilitate content sharing but alsoenable employees to connectand collaborate more effectively.Employees can work on the same

documents in real-time from anylocation and any internet-connecteddevice.18, 19In fact, CCC solutions

have made instant messaging, webconferencing and document sharingboth internally and externally easier.20

The SaaS ERP segment revenueis expected to grow 13.3 percent,from US$1.5 billion in 2010 toUS$1.7 billion in 2011. As SaaSERP solutions eliminate the needto install hardware and ensureeasier and faster implementation,executives involved in technologydecision-making across businesses

are increasingly turning to thesesolutions. However, the penetrationof SaaS within ERP varies greatly

between subsegments, withhuman capital management (HCM)having the most penetration.The availability of HR systems asSaaS which can be paid for ona monthly subscription basis helps companies manage HR datain real time. Some of the core HRareas for SaaS that are gainingimportance are labor management,HR administration, payroll andrecruitment.21, 22, 23, 24

Within the

global SaaS

market, customer

relationship

management (CRM)

accounts for the

largest share.




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Strategic initiatives taken by variousSaaS providers

Players such as Microsoft, IBM, HP,Dell, Salesforce.com and Amazon areall developing new SaaS solutionsand adding capabilities to the existingones to strengthen their positions in

the market. Also, they are looking atpotential acquisitions to expand theirofferings. Table 1 outlines variousinitiatives taken by service providers inthe global SaaS market.

Table 1: Strategies followed by companies in the SaaS market to increase market share

Strategy Description ExampleIntroductionof new SaaSsolutions

As the demand for SaaSgrows, service providers arelaunching new offerings,

adding new capabilities tothe existing services andintroducing industry-specific

SaaS solutions.

BMC Software In January 2012, BMC Software, a US-based provider of IT servicemanagement (ITSM) solutions, announced the availability of its Remedy OnDemandsolution, the ITSM SaaS solution optimized for local, state, federal and public higher-

education markets, for the government sector. 25

Fujitsu In January 2012, Fujitsu announced the release of Ticket Management SaaS,a solution that enables event promoters throughout Japan to manage ticket sales

for entertainment events including movies, theater performances, concerts andsporting events in addition to managing events and purchases. In contrast to theconventional method of selling tickets through Playguide, a popular ticket purchasing

system in Japan, the new solution allows users to handle ticket reservations, sales andmanagement on their own in real time. As a result, promoters can sell tickets efficientlyand at lower cost.26

Also, in October 2011, Fujitsu announced the launch of Ufinity for Public, a SaaS offeringfor public libraries throughout Japan. This next-generation library service is expected tobring greater convenience to both library customers and staff, through portal sites. The

services include features that make it easy to create and update a library portal site andcommunicate with staff over the web.27

CSC In September 2011, US-based CSC announced the launch of a SaaS model forits insurance billing application, Exceed Billing. This application is expected to help

insurance companies cut costs, expand billing channels, increase payment options andconsolidate multiple market segments. The software offers unlimited payment options

and processing for all bill types. Built-in automated processes and integrated workflowhelp boost productivity. Further, Exceed Billing helps insurers enhance customer andagent satisfaction, improve retention rates and accelerate speed to market.28




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Strategy Description Example

Technologycompaniesfocusing

on M&A toenhance SaaScapabilities

Various technologycompanies such as Oracle,Microsoft and HP are

looking at potential mergerand acquisition (M&A)opportunities to extend their

SaaS offerings. They are also

entering into partnershipswith other players to offer newSaaS services.

In the US, 48 SaaS companieswere acquired in the third

quarter of 2011, up from 45 inthe second quarter and 39 in

the first quarter.

This rise in M&A activity inthe SaaS market reflects thefact that chief information

officers (CIOs) are gainingconfidence in SaaS-deployed

applications.29, 30

Oracle In February 2012, Oracle completed the acquisition of Taleo, an on-demandtalent management software company, for US$1.9 billion. With the Taleo acquisition,Oracle plans to bolster its cloud HR applications.31

Also, in October 2011, Oracle announced its plans to acquire RightNow, a US-basedcloud-based customer service application company, for US$1.5 billion. As RightNowsCustomer Service Cloud helps companies deliver customer experiences across call

centers, the Web and social networks, the acquisition is expected to boost Oracles

CRM initiatives and counter the stiff competition from Salesforce.com.32, 33SAP and NEC In February 2012, IT and network technologies firm NEC and enterpriseapplication software firm SAP Japan entered into a partnership to provide billing

services through SaaS that operate on NECs cloud computing systems. Under the newbusiness partnership agreement, NEC and SAP Japan are expected to provide the

billing services as cloud-based SaaS that enable a reduction in initial investments, andare easy to expand.34

In February 2012, SAP acquired SuccessFactors, a leading provider of cloud-basedbusiness execution software, for US$3.4 billion. The acquisition combined with

Oracles acquisition of RightNow highlights how legacy enterprise software vendorsare building their capabilities in the cloud based HR solutions.35

Wipro and Oracle In January 2012, India-based Wipro Technologies announced the

launch of Wipro SprintHR, a cloud-based technology offering, used to deploy OracleFusion Human Capital Management. It is available as a SaaS model and is designed tohelp enable enterprise customers to transform their HR processes.36

Salesforce.com In September 2011, Salesforce.com completed the acquisition ofAssistly, an instant customer-service helpdesk built for the cloud, for US$50 million.The acquisition is expected to help Salesforce.com extend its Service Cloud customer

service offering to small businesses.37, 38

Serviceproviders focuson pricing

strategy tofoster SaaSadoption

To bolster SaaS adoption,SaaS providers are alsofocusing on their pricing

strategies. Increased activityin this area by leadingtechnology players such as

Microsoft, HP and Google isadding to the competition,

thereby resulting in anintense price war in the globalSaaS market.39

Microsoft In August 2011, Microsoft introduced its Cloud CRM for less offer. Underthis offer, which was available through March 2012, companies did not need to pay anypremium for CRM solutions. During this time, Microsoft was expected to grant US$150 in

cash per user seat to any customer that switched to its application. A minimum of50 seats were required under the offer, for a maximum of 500 user seats. This made iteasier for Salesforce.com, SAP and Oracle customers to switch to Microsoft Dynamics

CRM Online.40, 41




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Challenges yet to be addressed

Although SaaS is becoming increasinglypopular, certain issues around security,network instability and implementation

Security continues to be a major issue.

In August 2011, Salesforces Sandbox* outage raisedconcerns over the security and reliability of SaaS. The

Sandbox environment went down for six days, compelling

customers to focus on SLAs and SaaS testing.

Also, in August 2011, the five-houroutage of Microsofts Office 365 drew

attention to the issue of security.

Network instability is another issue that is hamperinggrowth of the SaaS market. Well-established infrastructureand stable networks that can handle huge traffic are

important to ensure consistent services.

While SaaS deployment is usuallyquick, customized SaaS installations

can take considerable time, due totechnical challenges.

These challenges call for stricter governance policies thatcan ensure data security and efficient running of SaaSapplications.

Lack of integration between SaaS andon-premise systems creates challenges

around monitoring or controlling useridentity access.

As access is a centralized and automated function, access-control systems that are well-established in enterpriseapplications, but are rarely extended to SaaS providernetworks, can cause problems while performing several

functions such as disabling access to any employee.

The issues around integration are expected to cause furtherchallenges, as organizations look to better leverage internal

and external data and information.

Security

Longer-than-anticipated

implementationcycles

Limitedintegration withexisting systems

Networkinstability

cycles remain. Figure 5 shows themajor challenges that are hinderinggrowth in the SaaS market.

Figure 5: Challenges that are hindering SaaS market growth42, 43, 44, 45, 46, 47, 48, 49, 50

These challenges have promptedservice providers to increase their

focus on ensuring uninterrupted serviceand effective security of their SaaSsolutions. In August 2011, Salesforce.com acquired Navajo Systems, anIsrael-based cloud security encryptionvendor to encrypt customer data andensure data security.

This acquisition has the promiseof providing greater customer

assurance that the data in Salesforceis effectively guaranteed safe, said

Jeff Hudson, Chief Executive Officerof Venafi, a US-based company thatprovides an automated way to manageencryption keys.

In October 2011, NetSuite, acloud-based SaaS integrated businessmanagement software provider,announced plans to boost its SaaScapabilities and enhance security in

* Sandbox is a hosted testing and training application, which helps customers conduct training on hosted applications from AppExchange. AppExchange wasdesigned to extend Salesforce.coms presence in the enterprise beyond hosted sales and service applications. It provides new applications, such as humanresources, data cleansing or vertical editions of Salesforce.com.




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its solutions. The company formed apartnership with CA Technologies, aUS-based IT management softwareand solutions company, whose two-factor authentication technology(two-factor authentication is a securityprocess in which the user providestwo means of identification, one ofwhich is typically a physical tokensuch as a card, and the other of whichis typically something memorized,

such as a security code) is expectedto be applied on NetSuites back-end

systems and sold as an option tocustomers.51, 52

The need for security governance isalso pushing for stricter governancepolicies around cloud computing andSaaS. The importance of governancemechanisms will continue to increaseas SaaS becomes a larger element ofa companys overall sourcing strategy,said Sharon Mertz, Research Director

at Gartner.53

Further, buyer behavior has also

been changing. Customers are nowmaking more informed choices. Theyare seeking guidance regarding SaaSprices and discounts, service-levelagreements (SLAs) and contract terms.They are also emphasizing uptimeand performance in the negotiationprocess. In addition, they are focusingon understanding the exit clausesand strategies that should be set inplace before entering into a SaaS

agreement, so as to protect them fromfailed solutions.54




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Outlook

Given the increasing popularity of SaaSand the various initiatives taken byservice providers to overcome SaaS-related challenges, the global SaaSmarket is expected to show robustgrowth.55This growth is expected tobe driven by the increasing demandfor SaaS solutions from sectorssuch as government, manufacturing,natural resources, wholesale tradeand retail.56Also, increasing demand

from the SMB sector is likely to bolsterthe growth. The following examplessuggest the future growth in the globalSaaS market:

In November 2011, the US federalgovernment released a draftversion that discusses its plansto accelerate the adoption ofcloud computing. The Obamaadministration is pushing its federalagencies to adopt SaaS solutions, toreduce spending and increase theefficiency of federal IT.57

Between 2010 and 2014, the SaaS-based ERP software market in theAsia-Pacific region is expected

to grow at a compounded annualgrowth rate (CAGR) of 45.2 percent,according to a November 2011Research and Marketsreport. InNorth America, it is expected togrow at a CAGR of 24.8 percentover the same period.

The US SMB SaaS CRM market isexpected to triple by 2015, accordingto AMI Partners* US SMB Cloud

Servicesstudy. The increasedavailability of broadband internetconnectivity, the proliferation ofwireless-enabled mobile devices andthe need to cut costs amid uncertaineconomic conditions are the majorfactors driving SMBs towardcloud services.58

In order to explore this growthopportunity, service providers needto form partnerships and collaboratewith multiple vendors to introduce

new solutions. Cloud alliancesand partnerships are expected tosupport future growth, especiallywhen the market is becomingincreasingly competitive.59

* AMI-Partners specializes in IT, Internet, telecommunications and business services strategy, venture capital, and actionable market intelligence with astrong focus on global small and medium businesses (SMBs), and extending into large enterprises and home-based businesses.




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Further Information

Visit kpmg.com for the following

related publications

Embracing the Cloud - Global forces

shaping the service provider market

Semiconductor Executives TemperGrowth Expectations

Seizing the moment - 2011 shareforum for financial planning,

budgeting, and forecasting

How KPMG firms can help

IT Advisory Services (IT Strategy

and Performance)

KPMG member firms work withclients to analyze business technologyissues within their businesses. A clientmight approach us for assistance withdeveloping an appropriate IT strategy,sourcing, cost optimization, logisticsand supply chain issues and regulatoryand compliance. KPMG memberfirms focus on the business impactof technology rather than systemsimplementation. As a result, theiradvice is geared to the specific needsof each client.

Transaction Services

KPMGs Transaction Services teamsare trusted advisors to many of theworlds leading corporations andfinancial investors. KPMGs globalnetwork comprises of 3,500 transactionprofessionals with M&A advisoryskills and experience working withfirms clients to preserve and createvalue in major business transactions.KPMGs Transaction Services practicehelps clients plan and complete majorbusiness transactions.

Internal Audit, Risk Consulting

Services

KPMG member firms Internal Audit,Risk Consulting Services (IARCS)deploys multidisciplinary teams of

professionals experienced in financialand operational internal auditing, IT,fraud analytics and risk assessment,shared services, finance management,treasury and financial instruments,and the supply chain to augment andenhance an organizations existing

internal audit capabilities.

Key contacts

Gary Matuszak

Global ChairTechnology, Media &TelecommunicationsTel.+1 408 367 [email protected]

David McAllisterGlobal Sector ExecutiveTechnology, Media &TelecommunicationsTel.+61 2 9335 [email protected]


http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/embracing-cloud.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/embracing-cloud.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/semiconductor-executives-temper-growth-expectations.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/semiconductor-executives-temper-growth-expectations.pdfhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/management-consulting/IT-Advisory-Services/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/management-consulting/IT-Advisory-Services/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/Transactions-Restructuring/Transaction-Services/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/risk-consulting/Internal-Audit/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/risk-consulting/Internal-Audit/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/risk-consulting/Internal-Audit/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/risk-consulting/Internal-Audit/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/Transactions-Restructuring/Transaction-Services/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/management-consulting/IT-Advisory-Services/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/management-consulting/IT-Advisory-Services/Pages/default.aspxhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/semiconductor-executives-temper-growth-expectations.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/semiconductor-executives-temper-growth-expectations.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/embracing-cloud.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/embracing-cloud.pdf


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2 Enterprise IT spendtakes a cutThe global economic challenge is forcing CIOs to look at their IT budgets very

carefully. The return on each IT investment is critically evaluated and CIOs are

finding various ways to derive the maximum value out of the IT investments made.

Cloud computing, business analytics, virtualization, social media and mobility

are few of the initiatives that enterprises are considering to be on high priority

in order to meet their client needs, increase profitability and gain competitive

advantage. It is evident that despite the global economic challenges, enterprises

continue to invest in IT (especially in various technologies such as cloud, analytics,

mobility etc). Many research firms suggest that there might be a slowdown in

the growth of enterprise IT spend because of the postponement of IT spending

decisions and delay in decision making process; however organizations are

expected to continue spending in critical IT areas which are expected to add value

to the business with an assured return on investment (RoI).




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Introduction

In 2012, worldwide enterprise IT spendis expected to increase 3.9 percent y-o-yto US$2.7 trillion, falling much short ofthe early 2011 estimate of 5.9 percent.These weak forecasts indicate thatIT departments across industriesworldwide are cutting their IT budgets.

According to Stephen Minton, VicePresident of Worldwide IT Markets atIDC, 2012 IT spending forecasts are

based on the assumption of a weakEuropean economy between zero

and one percent growth and in theUS between one and two percentgrowth. This is pretty weak by historicalstandards.60, 61This reduction inenterprise IT spend is impacting theoverall IT spend globally (enterprise ITspending constituted around 70 percentof overall IT spending in 2011).

After experiencing a lull in 2009, thetechnology industry experienced a

recovery in IT spend in 2010. Further,2011 marked a year of growth for IT

budgets, even though they remainedfar below pre-2008 levels. In 2012, theglobal IT spend is expected to growonly 3.7 percent year-on-year (y-o-y),to reach US$3.8 trillion, lower thanthe earlier estimate of 4.6 percentaccording to Gartner.62, 63

Figures 6 and 7 show the global ITspend over 201112, and the globalenterprise IT spend (201112) with

projected vs. actual growth rates.

Figure 6: Global and enterprise IT spend, 2011,2012(US$ trillion) projected vs. revised

0

1

Global IT spend Enterprise IT spend

2

3

4

2012-Revised2012-Pro ected2011

3.7 3.8 3.8

2.6 2.8 2.7

Note: The figures are rounded off;

The growth rates were projected during 3Q,2011; and the revisions weremade during 4Q,2011 (as per update published on Jan 5,2012)

Source: Gartner, January 2012

Figure 7: Percentage change in global and enterpriseIT spend, 2012- projected vs. revised growth rate

2012-Revisedgrowth rate

2012-Projectedgrowth rate

Global IT spending Enterprise IT spending

5.9%3.9%

3.7%4.6%

0%

2%

4%

6%

Note: The percentage change is based on the absolute numbers;

The growth rates were projected during 3Q,2011; and the revisions weremade during 4Q,2011 (as per update published on Jan 5,2012)


The global IT spend, which wasprojected during 3Q 2011 to grow4.6 percent in 2012, is now expectedto grow 3.7 percent. On the samelines, global enterprise IT spendingis expected to grow 3.9 percentagainst a projected growth rate of5.9 percent.64



According to Gartner, the reductionof its forecast for worldwide IT spendfor 2012 is not only for the anticipatedslower growth rate of the globaleconomy, but also Thailand floodsimpacting general IT spending in thefirst two quarters. There seems to begreater concern from Thailand supply

chain than previously expected. Thisapart, the European credit crisis alsoseemed to have cast its shadow onGartner to reduce its outlook for ITspending in 2012.65

Figures 8 and 9 show global IT spendby key sub-sectors in 2011 and 2012and their growth rates.


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The reduced IT

spending affectsalmost all the

verticals, including

Government which

is a focus vertical for

the IT companies

because of various

e-governance

initiatives across

regions.

Figure 8: Global IT spend by key sub-sectors,2011 (US$ trillion)

Telecomservices

Telecomequipment

ITservices

Enterprisesoftware

Computinghardware

IT Spend 2011 (US$, trillion) Growth (%)

7.7%9.6%

7.6%6.9%

6.1%

0.0

1.5

3.0

0%

5%

10%

0.4 0.3 0.8

0.4

1.7

Note: The figures are rounded off; IT spend 2011 figures are actual


Figure 9: Global IT spend by key sub-sectors,2012 (US$ trillion)

Telecomservices

Telecomequipment

ITservices

Enterprisesoftware

Computinghardware

IT Spend 2012 (US$, trillion) Growth (%)

0.0

1.5

3.0

0%

4%

8%

0.4 0.30.9

0.5

2.3%

1.7

3.1%

6.4% 6.9%

5.1%

Note: The figures are rounded off; IT spend 2012 figures are projected




The reduction in growth of worldwideIT spend for 2012 is expected to impactfour major technology sub-sectors,

namely computing hardware,enterprise software, IT services,and telecommunications equipmentand services.

It has been predicted that all the foursub-sectors will grow at a slower ratein 2012 than in 2011.

The computing hardware sector,which grew 7.6 percent y-o-yin 2011, is expected to grow at5.1 percent in 2012;

The IT services segment isexpected to grow at 3.1 percent in2012, while it grew 6.9 percent y-o-yin 2011;

Enterprise software is expected togrow at 6.4 percent y-o-y in 2012,compared to 9.6 percent in 2011.

The floods in Thailand (that occurredin October, 2011) is having seriousimplications for businesses globally,especially with regard to computer

and storage purchases. In fact, manyprominent companies, such as Intel,

had to reduce their revenue forecasts(Intel reduced its Q4,2011 revenueforecast to US$13.7 billion, from the

earlier projection of US$14.7 billion)following the supply constraints of harddisc drive (HDD) from Thailand. Theshipment of PCs too was reduced inthe wake of floods.66

Thailand enjoys a 40 to 45 percentmarket share in the HDD market globallyand the supply constraints from thecountry, as a result of the closure ofsome of the manufacturing units afterthe floods, have increased the pricesof HDD. The increase in HDD priceshave resulted in postponement of newIT projects and reduced IT spendingacross corporate and governmentorganizations. Supply of HDD fromThailand is expected to increase duringthe latter part of the second quarter of2012, followed by stabilization in prices.67

The reduced IT spending affectsalmost all the verticals, includingGovernment which is a focusvertical for IT companies becauseof various e-governance initiativesacross regions.


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Eurozone y-o-y GDP growth rate, Q1 2010Q1 2012 (%)

EurozoneGDPy-o-yg

rowthrate(%)

0.6

2.0 2.0 1.9

2.4

1.61.4

0.7-0.1

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012

Uncertain economic conditions in

the eurozone are weighing downon IT budgets of both corporationsand governments.

In the first quarter of 2012, GDP in

Greece contracted by 6.2 percenty-o-y, while Italys GDP declined by

0.8 percent. Among the other majorcountries, both UKs and Spains GDPcontracted by 0.3 percent, during the

same period.

According to an IDC survey conductedin November 2011, Western European

companies are planning cautious ITspend in 2012. Approximately 40 percentof the companies are expected to raise

external IT spend, with only a quarter ofthese planning to increase by 5 percent.About 17 percent of the companies

expect external IT spend in 2012 todecline, while the remaining plan to

make no changes to their IT budgets.780

790

800

20112010

EMEA Enterprise IT spend,201011 (US$ billion)

798.6

787.5

The second recession is about to hit andCIOs must decide which way to turn. Thecontinued global economic uncertainty

and the eurozone crisis will impact your ITbudget in 2012, and your business will facedifficult budgetary questions, said

Peter Sondergaard, Senior Vice President

and Global Head of Research, Gartner

Tumultuous economic conditionsin eurozone and US taking toll onenterprise IT spend

Is your

With factory output falling andeconomic sentiment weakening,the eurozone economy continues tofalter.68In the first quarter of 2012, theregions y-o-y gross domestic product(GDP) contracted 0.1 percent, lowerthan the average quarterly GDP growth

of 1.8 percent over 19952011.69, 70

According to Gartner, in 2011, enterprise

IT spend in Europe, Middle East andAfrica (EMEA) of which WesternEurope accounts for an 80 percentshare is estimated at EUR604 billion(US$787.5 billion), representing ay-o-y decline of 1.4 percent, as shownin Figure 10. Enterprise IT spend in

Western Europe is estimated to havedeclined 1.8 percent annually in 2011.71, 72

company

well focused on

the emerging

economies

that are driving

the growth of

enterprise ITspend?



Figure 10: Eurozone GDP growth and its impact on enterprise IT spend

Source: Trading Economics, Gartner, CIOs Face Tough Year With Demands Up, Budgets Down, WSJ, January 12, 2012; Western EU organizations prepare tougherIT budgets for 2012, Factiva, January 23, 2012


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Also, austerity measures bygovernments in the eurozone suggestthat further IT budget cuts areexpected across the region. In February2011, the UK government extendedits IT spending controls programintroduced in 2010. According to thenew budget guidelines, all centralgovernment IT contracts worth more

than GBP5 million (US$8.1 million) aresubject to approval by the Treasuryand the Cabinet Office. The CabinetOffice is reviewing all large existing IT

contracts with other departments. Ithas already reviewed over 300 projectsand aims to stop contracts worthGBP1 billion (US$1.5).73Such movesare targeted at checking the viabilityof various IT projects and curtailingthose that are not sustainable, andsubsequently saving costs.

Similarly, government departments andenterprises in the US have also beencompelled to implement IT budgetcuts. In the first quarter of 2012, the

y-o-y GDP growth rate in the US stoodat 1.9 percent, a modest increasefrom the 1.6 percent y-o-y growthin the previous quarter, as shown inFigure 11.74, 75, 76This slow economicgrowth has led to shrinking corporateprofits and a widening trade deficit.In North America, in 2012, investmentin IT by enterprises and the public

sector is expected to fall 0.6 percent,according to a global Gartner survey of2,335 chief investment officers (CIOs)published in January 2012.77

Figure 11: US GDP growth and its impact on enterprise IT spend

US y-o-y GDP growth rate, Q1 2010Q1 2012 (%)

USGDPy-o-ygrowthrate(%)

2.2

3.33.5

3.1

2.2

1.6 1.5 1.61.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012

Federal agencies anddepartments are focusing on

cost-cutting initiatives.

During 201217, IT spendfor civilian agencies and

departments are expected tobe around US$43 billion.

IT spending by defenseagencies and departments

2012-17 (US$, billion)

20

30

40

20172012

38 35

Source: Trading Economics, Gartner, Federal IT Budgets Flat Through 2017, InformationWeek, October 19, 2011; Feds Expand Data Center Consolidation Plans,InformationWeek, October 7, 2011

These conditions are prompting USfederal agencies and departments tocancel or defer planned IT projects.Federal IT budgets are expected toremain flat through 2017, according to

TechAmerica, a US-based technologytrade association.78Moreover, inOctober 2011, the federal governmentannounced its plan to close asubstantial number of data centers

to increase savings. By 2015, it isplanning to close 962 data centers, andestimates that these closures wouldhelp it save more than US$5 billion overthe long term.79, 80, 81, 82

It (IT budgets) looks pretty much

correlated to the macro economy.Large companies, the multinationals,

are much more hostage to the macroeconomy. For them, there is almost noway to avoid these pressures, said

Dave Aron, analyst at Gartner




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Reduction in enterprise IT budgetsaffects technology companies The increased risk of another economicmeltdown has compelled companiesand governments in both the eurozoneand the US to contract their IT budgets.This has affected the technologycompanies that rely primarily on thesetwo regions.

In the third quarter of fiscal year2012 (ended February 8, 2012), CSCreported a loss of US$1.39 billion, or a5.8 percent y-o-y decline in revenue, toUS$3.7 billion. This dip in performancewas due to a US$1.49 billion chargerelated to the UK governmentscancellation of a health IT contract.83

In the first quarter of 2012, HP reporteda 7 percent y-o-y fall in its revenue, toUS$30 billion. The company furtherissued cautious outlook for thesecond quarter of 2012, highlighting

cautiousness around both consumer

and commercial spending, and harddisc drive shortage.84

In addition, other companies suchas Microsoft, Sony, Toshiba and IBMreported softening in demand fromcompanies across industries. Thistrend is expected to continue in thesecond half of 2012. For example,in November 2011, life insurancecompany Western & Southern FinancialGroup announced plans to cut orleave IT spend unchanged in 2012.However, it also announced plans toinvest in virtualization software fromVMware so it can cut purchases ofserver computers from Dell and HPQand storage products from EMCand NetApp.85

Mark Loughridge, Senior VP and CFOof IBM, highlighted how the trend is

affecting business decisions. I do think

CFOs are cautious, and they want tomake sure they have the right processesengaged. On the other hand, they arealso looking for value to apply to theirbusiness equations, he said. However,he also emphasized that amid suchchallenging conditions, the demand foropportunities that new technologiessuch as cloud computing and businessanalytics offer are also on the rise.86

Emerging economies to driveenterprise IT spend While in developed economies,technology companies are facingtough IT budgets, the emergingeconomies are likely to drive IT spend.The pace of economic growth in

emerging economies is leading toa shift in enterprise focus towardIT. Moreover, these economies areexperiencing a rapid growth in demandfor customer support services, supply

chain management, business processoptimization or innovation in business,and as a result, enterprises areincreasingly looking at IT to cater to thisdemand.87In 2012, enterprise IT spend

in Asia Pacific (including Japan andAustralia) is expected to grow 8 percenty-o-y, to US$367 billion. This growth isexpected to come mainly from Indiaand China, as shown in Figure 12.

While in developed

economies,

technology

companies are facingtough IT budgets, the

emerging economies

are likely to drive

IT spend.

Is your company

focused on new

opportunity

areas such

as cloud,

virtualization

and business

analytics?




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Figure 12: Economic growth and enterprise IT spend of emerging economies

Source: EIU accessed on March 26, 2012; Trading Economics; Chinese GDP growth beats expectations, Asia Pacific News, January 17, 2012; Chinas 2011GDP growth slows to 9.2%, ChinaDaily, January 17, 2012; Financial markets IT spend to hit US$18 billion in Asia-Pacific, The Nation, August 8, 2011; China ITspending is forecast to reach US$105.4bn in 2011, Wooeb, August 5, 2011; Public sector IT spending in China to exceed US$42.8 billion, SMBWorldAsia, March14, 2011; Indian enterprise IT spending will grow 10.3% in 2012, The Economic Times, January 24, 2012; Indian enterprise IT spending will grow 10.3% in 2012,The Economic Times, January 24, 2012; Retail, govt to drive enterprise IT spend in India, Business Line, January 24, 2012; Malaysias IT industry to grow,but challenges ahead, ZDNet, January 13, 2012; Malaysia: Look Ahead to 2012 - Part 1, MIS Asia, January 4, 2012; Chinas GDP growth slows to 8.1% in firstquarter of 2012, ICIS.com, April 13, 2012; India GDP growth rate, Trading Economics; Malaysias GDP growth in the first quarter slows to 4.7 percent,xinhuanet, May 23, 2012

In the first quarter of 2012, Chinas GDP grew

8.1 percent y-o-y.

In 2011, Chinas GDP expanded 9.2 percent y-o-y.

Over 2011-15, IT spend in china is expected to grow ata CAGR of 8.8 percent, according to Ovum.

Enterprise IT spend is expected to spur driven by the

gradual modernization of sectors such as education,

healthcare, manufacturing and government.

In the first quarter of 2012, Indias GDP grew

5.3 percent y-o-y.

In 2011, Indias GDP expanded 7.2 percent y-o-y.

In 2012, Indian enterprise IT spend is expected toreach US$39 billion, a y-o-y growth of 10.3 percent.

This is expected to be driven by the increasingdemand from the retail industry and the government.

In the first quarter of 2012, Malaysias GDP grew4.7 percent y-o-y.

In 2011, Malaysias GDP expanded 5.1 percent y-o-y.

In 2012, Malaysias enterprise IT spend is expected

to grow 6.1 percent y-o-y to US$10 billion. Increasingprivate investment and support from government arelikely to boost this spend.




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Further, technology companies areexpanding their footprint in theseemerging economies in order toleverage the growth opportunity suchregions offer.88In January 2012, HPannounced plans to expand its marketin India, particularly in the state of UttarPradesh, targeting micro, small andmedium enterprises. Meanwhile, thecompany launched its new range ofmonochrome and color laser printersfor small office home office (SOHO)and SMBs in the state.89In September

2011, IBM announced the adoptionof its smarter computing systems,software and services across Chinasprivate and public sectors, includingChina National Bureau of Statistics,Guizhou Provincial Health Departmentand Guizhou Mobile.90

IT spend in the Middle East and

Africa is expected to grow steadily

Economies in the Middle East andAfrica are also expected to observe ahigher growth rate across verticals.

Gartner predicts Middle East andAfrica enterprise IT spending across allindustry markets to reach EUR70 billion(US$53 billion) in 2012, a 6.3 percentincrease from 2011 spending ofEUR66 billion (US$49.1 billion).91

Comparing with the growth rate of

2011, Peter Sondergaard, Senior VicePresident and Global Head of Researchat Gartner, said, In 2011, the growthrates across the Middle East and Africaregion were in double-digit figures.As a consequence, 2012 will behampered more.92

Further, technology

companies are

expanding their

footprint in these

emerging economies

in order to leverage

the growth

opportunity such

regions offer.

Figure 13: Enterprise IT spending by vertical market in Middle East and Africa,(US$ billion)

0

5

10

15

20

Wholesale

trade

Utilities

Transportation

Retail

Manufactruing

andnatural

resources

Insurance

Healthcare

providers

Government

Education

Co

mmunications,

mediaand

services

Bankingand

securities

2011 2012

9.5

8.9

7.8

7.3

1.51.4

9.8

9.32.4

2.3

3.3

3.1

8.4

8.1 2.4

2.3

2.6

2.4

3.1

2.9 1.21.2

Source: Middle East and Africa Enterprise IT spending will grow 6.3% in 2012, says Gartner, February 27, 2012

2011 = US$49.1 billion 2012 = US$52.2 billion

Y-o-Y growth = 6.3 percent

Transportation, banking and securities,healthcare, communications, mediaand services are the fastest growing

segments in Middle East and Africamarkets with y-o-y growth in IT spend of7.5 percent, 7.4 percent, 7.4 percent and

7.2 percent, respectively. Governmentaccounts for the largest portion(19 percent) of overall IT spend.93




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IT spending in Asian countries is

expected to grow significantly

The enterprise IT spend in Asiancountries such as India and Chinais expected to achieve a significantgrowth rate in 2012.

According to Gartner, Indian enterprise

IT spending across all industry marketsis forecast to surpass US$39 billion in2012, a 10.3 percent increase from 2011spending of US$36 billion.94

Figure 14: Enterprise IT spending by vertical market in India, 2011-2012 (US$ billion)

Wholesale

trade

Utilities

Tra

nsportation

Retail

Ma

nufactruing

andnatural

resources

Insurance

Healthcare

providers

Government

Education

Comm

unications,

mediaand

services

B

ankingand

securities

2011 2012

0

5

10

15

20

5.6

6.2

7.5

6.8

1.11.0

6.6

7.3

1.21.1

1.6

1.5

7.3

8.1

2.1

1.9 1.8

2.01.6

1.4 1.1

1.0

Source: Gartner, January 24, 2012

2011 = US$36.0 billion

2012 = US$39.7 billion Y-o-Y growth = 10.3 percent

The Indian enterprise market is quitedistinct from other markets in Asia/Pacific, said Derry Finkeldey, PrincipalResearch Analyst at Gartner. The retailindustry is expected to achieve thestrongest growth in percentage terms

in 2012, where IT spending is forecastto grow at a CAGR of 12.8 percentduring 2010 (US$1.7 billion) -2016(US$3.1 billion). A recent decisionto allow 100 percent foreign directinvestment (FDI) in single brand retailis expected to provide the sector witha significant boost in terms of IT usage

and adoption. Selection of partnerswith deep vertical expertise will becrucial to success.95

Given the emergence of IT asan enabler in industries beyondmanufacturing, government and

financial services, currently IT providersare investing a significant amount ofmoney with their channel partners.The focus is to convert them fromgeneralists to specific industryproduct specialists to boost theirproducts/solutions sales.96




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Figure 15: Enterprise IT spending by vertical market in China, 2011-2015 (US$ billion)

China IT market size and growth (US$ billion) China IT vertical spending 2011-2015 CAGR

China IT market size by IT sub-sectors 2011 and 2015

2011 = US$ 119.3 billion 2015 = US$ 220.0 billion

2011 2015

0

50

100

150

200

250

IT spending

CAGR

=16.5

%

119.3

220.0

2011 ChinaIT market y-o-ygrowth = 20.5%

ServicesSoftwareHardware

83.0% 84.6%

5.1%

10.3%11.5%

5.5%

0% 5% 10% 15% 20% 25%

Overall ITEducation

Communications and media

Government

Banking

Services

Process manufacturing

Financial markets

Utilities

Transportation

Resource Industries

Insurance

Discrete manufacturing

Retail

Construction

Wholesale

Healthcare

Consumer/home 22.1%

19.8%

19.5%

15.8%

15.5%

15.4%

15.4%

15.3%

15.3%

14.5%

14.1%

14.1%

13.8%

13.3%

10.9%

9.6%

6.7%

16.5%

Source: IDC Worldwide Blackbook, 2Q11

Enterprise IT spending in Chinais expected to grow at a CAGR of16.5 percent between 2011 and2015. China tends to spend more

on infrastructure (83 percent of ITinvestment was in the hardwaresegment in 2011) and IDC expects thistrend is likely continue till 2015.97

By 2013, Chinas share of the software

market in Asia/Pacific is expected toreach 30 percent (27 percent sharein 2011), representing US$9.4 billionor 3.3 percent of total worldwide

software market revenue. Comparedwith mature countries in the Asia/Pacific region such as Australia (with21 percent share of regional spendingin 2010), the software market in Chinais still relatively young and evolving.




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The top four vertical industries interms of software spending aremanufacturing, financial services,communications and government.Gartner estimates that theseindustries together account for60 percent of total software spendingin China.98

The key local vendors in China thathave a significant presence in thedomestic market include AsiaInfoLinkage, Digital China, Founder,Neusoft, and Taiji. Large internationalvendors such as IBM, Oracle and SAPare also focused on the Chinese marketto tap the growing opportunity.99

Technology companies exploring key

opportunity areas to push sales

Technology companies are exploringnew opportunity areas to helpenterprises across industries improvetheir business performance. Thesenew areas include technologicaladvancements related to cloudcomputing, virtualization, social media,business analytics and mobility, asshown in Table 2. These areas provideenterprises the opportunity to cutcosts, a key driver of growth amid

the uncertain economic environment.

Further, they empower organizationsto operate more efficiently, achievelong-term savings and reduce total costof ownership.

These forces (opportunity areas) areinnovative and disruptive just takenon their own, but brought together,they are revolutionizing businessand society. This nexus definesthe next age of computing, said

Gartners Sondergaard.100




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Table 2: Technology companies focus on key opportunity areas

Opportunity

area

Market snapshot Company initiatives

Businessanalytics

The global business analytics market isexpected to grow at a compound annual

growth rate (CAGR) of 6.8 percent over201014, according to Technavio, a UK-based

independent market research company.101

In 2012, the business analytics softwaremarket is expected to reach US$33.9 billion,registering a y-o-y growth of 8.2 percent,

according to IDC.102

In March 2012, Oracle launched a new option to Oracle Database11g, called Oracle Advanced Analytics, for complex statistical

and predictive analytics. The solution is aimed at quants andstatisticians looking to do complex analysis.103

Further, Oracle revealed its business intelligence and analytics

strategy at Oracle Open World held on April 4, 2012 in Tokyo,Japan, including the announcement of:

Latest release of Oracle Hyperion Enterprise PerformanceManagement (11.1.1.2)

New analytic applications for SAP

Two new Oracle Business Intelligence Applications - OracleManufacturing Analytics and Oracle Enterprise AssetManagement (EAM) Analytics

General availability of Oracle Endeca Information Discovery.104

In May 2012, SAP announced innovation on the SAP HANA (highperformance analytic appliance) platform, including the releaseof service pack 4. The announcement was made at SAPPHIRE

NOW, an SAP event, held in Florida, US during May 14-16, 2012.With the SAP HANA platform, SAP customers can easily add new

capabilities with service packs instead of costly upgrades. 105

In January 2012, IBM introduced a new analytics appliance thatcan analyze large volumes of data, including consumer salesinformation and online shopping trends, to help retailers gain

actionable insight into buying patterns.106

Cloudcomputing

By 2016, North America is expected to bethe largest consumer of cloud computing,

representing half (US$33 billion) of the globalcloud computing market, according to Ovum.

The cloud computing industry in AsiaPacific is expected to grow at a CAGR

of 34.2 percent over 201016, accordingto Ovum.107

In 2010, US$74 billion was spent on public

cloud services representing three percent ofenterprise spend. This is expected to grow to19 percent annually through 2015, according

to Gartner.108

In 2012, in EMEA, EUR20 billion (US$26.1billion) is expected to be spent on public

cloud services, up from the estimated valueof EUR16 billion (US$20.8 billion) in 2011.

In order to explore the cloud computing opportunity, technologycompanies are launching cloud computing services, carrying out

mergers and acquisitions (M&A) and forming partnerships.

In March 2012, SAP announced its plans to introduce a cloudcomputing version of its enterprise resource planning (ERP) suite,Business One OnDemand. The product which was previously

available as a licensed on-premise or hosted solution however,is now available on demand across 18 countries. 109, 110

In January 2012, Microsoft entered a four-year partnership with

HP to deliver its communications and collaboration applicationsthrough HPs cloud services.111

In January 2012, IBM acquired Platform Computing, a Canada-based cloud management software provider. Platform Computings

customer base of over 2,000 clients, with leading ones ingovernment, media, education and oil and gas, is expected to

bolster IBMs revenue base.112, 113




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Opportunity

area

Market snapshot Company initiatives

EnterpriseMobility

Total global shipments of tablet computersto enterprises are expected to increase at aCAGR of 48 percent, from 13.6 million units in

2011 to 96.3 million units in 2016, accordingto Infinite Researchs (a UK-based market

research firm) Worldwide Enterprise TabletMarket Forecast report.114

In 2012, CIOs are expected to invest

US$19 billion in Apple products US$10 billion in iPads and US$9 billion inMacs up from the $12 billion investment in2011, according to Forrester. This represents

a dramatic rise in the number of Appleproducts used by enterprises.115

In January 2012, Asustek introduced the Asus B23E 12.5 inchlaptop for business professionals. The notebook offers featuressuch as fingerprint readers, optional TPM and anti-shock hard

drive. It also has a 2MP webcam, which enables chats andconference sessions.116

In January 2012, Lenovo introduced seven new laptops in its

Thinkpad series for small businesses.117

In October 2011, Motorola Solutions introduced the ET1 Tablet, an

Android-based device, intended for retail and factory use. It is a1 GHz dual-core tablet with an 8MP camera and a front camera.

It can operate with both Windows and Android OS, making itcompatible with other corporate entities that use Windows

enterprise for their server and point of sale (POS) needs. 118

Social

computing

The concept of social computing focuses

on mass-customer and mass-employeeinvolvement with enterprise systems. Withover 1.2 billion people, representing 20 percent

of the worlds population, on social networks,IT leaders across enterprises are looking atincorporating social software capabilities

across their systems.119 Over 201014, the global enterprise social

software market is expected to grow

at a CAGR of 17.9 percent, accordingto Technavio. Improved productivityand collaboration are the main factors

driving growth.120

In March 2012, Salesforce.com introduced two new social

applications. One of its applications, Salesforce Rypple, helpscompanies to build better employee communities.121

In March 2012, Jive Software announced the release of a newversion of its enterprise social software tailored for customer

service tasks. Called Jive Social Customer Service Solution,the product is expected to include native integration with CRM

(customer relationship management) and case managementapplications, social media monitoring capabilities, mobileaccess and elements of play intended to promote usage

through gamification.122, 123

Virtualization In a survey by IDC published in January 2012,40 percent of CIOs stated that virtualization

and server consolidation were their toppriorities in 2012. Growth of virtualization isbeing driven by factors such as cost savings

and productivity enhancement.124, 125

During 2010-14, the global cloud virtualization

software market is expected to grow at a

CAGR of 16.2 percent, according to Technavio.Increasing demand for cloud-based servicesis the primary driver of this growth. Also,

the enterprise server virtualization market isprojected to grow at a CAGR of 32 percentduring the same time.126, 127

In January 2012, IBM, in collaboration with RedHat (a US-basedsoftware company), launched an interactive virtualization facility

at the IBM Solutions Centre in Australia. The IBM facility wouldallow customers to examine virtualization as a key enabler ofcloud computing, as interactive virtualization facilitates the move

from a virtual resource pool to a private and public cloud andback. Such a facility helps customers to interact with virtualizationand cloud technologies.128

In January 2012, VMware (a US-based company providingvirtualization software) introduced its vCenter OperationsManagement Suite, designed to make cloud and virtualization

maintenance easy and automated. Some of its key featuresare tighter integration of performance, capacity andconfiguration management.129




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Outlook

The uniform and stable economicgrowth in Asia Pacific, coupled withgrowth in emerging markets suchas Brazil and Mexico, is expected toprovide a thrust to enterprise IT spend.Enterprises in these geographies arerevamping their IT infrastructure toexpand their presence both domesticallyand internationally.130Moreover, SMBspending in these regions is expectedto drive IT spend. According to IDCs

Worldwide SMB 2012 Predictionspublished in January 2012, worldwideSMB IT spend is expected to reachUS$542 billion in 2012, up from

US$508 billion in 2011. In 2012, growthin SMB spend is expected to be11 percent each in both Asia Pacific andLatin America. SMB spend in CentralEurope and the Middle East and Africa(CEMA) is expected to be 10 percentduring the same year. At the same time,SMB spend growth is expected to be6 percent in North America, around4 percent in Western Europe and around2 percent in Japan.131

Figure 16 shows forecast economicgrowth in developed and developingeconomies vis--vis enterprise IT spendin these regions.

Figure 16: GDP forecasts and enterprise IT spend outlook

US GDP growth unchanged at 1.8 percentin 2012. However, estimates for 2013 lowered,

from 2.5 percent to 2.2 percent. GDP growth in China is expected at 8.2 percent in2012 and 8.8 percent in 2013. India is expected to

grow at 7 percent in 2012.Eurozone GDP estimates revised down to -0.5

percent in 2012. For 2013, GDP growth is cut to 0.8percent, down from earlier estimate of 1.5 percent. Cloud computing, virtualization, business

analytics, mobility and social media are expectedto push enterprise IT spend

In 2012, enterprise IT spend is expected to show moderate growth over 2011.

In the EMEA region, enterprise IT spend is expected to grow 1.5 percent y-o-y in 2012, while it is expected to grow1.9 percent in Australia.

The US is expected to see modest growth in enterprise IT spend, due to non-uniform economic growth. However, both

enterprises and government are expected to invest in cloud computing, business analytics, mobility and security.

In the Asia Pacific region, enterprise IT spend is expected to grow 8 percent y-o-y in 2012.

Source: IMF Revises Down 2012, 2013 GDP Growth Estimates, WSJ, January 19, 2012; IMF cites eurozone debt budget cuts lowering 2012 growth forecastinternational monetary fund, France 24, January 1, 2012 ; APAC enterprise IT spending to reach US$367 billion in 2012, Hardware Zone, November 21, 2011




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In addition to expanding in emerging

economies and key opportunity areas,technology players can focus onthe following to grow during tougheconomic conditions:132

Building customer loyalty, with a

customer-centric approach Withchief information officers (CIOs) inbusiness and government facingincreasing pressure to deliverinnovative technology-enabledservices to meet ever-changingdemands from customers andcitizens, technology companiesare offering innovative solutions toensure customer loyalty.133, 134

In February 2012, Qualcommreleased a version of its softwaredevelopment kit (SDK) foraugmented reality apps, which isexpected to be marketed underthe Vuforia brand name. ThisSDK allows computer-generatedcontent to be superimposedover a live camera view of the

real world.135

Along with the new name,

Qualcomm also announcedversion 1.5 of its SDK for Androidand iOS. The Vuforia SDK 1.5 iscompatible with devices runningon Android 2.2 and above, aswell as the iPad 2, iPhone 4,iPhone 3GS, and the fourthgeneration of the iPod touch,running iOS 4 or newer versionsof Apples OS. This providesuser convenience across variousoperating platforms.136

Examining the role of key decisionmakers Technology companiesare closely examining the role ofCIOs and chief marketing officers(CMOs), as they are crucial to ITbudget decision-making processes.With the convergence of marketingand IT, CMOs are expected to holdmore influence in setting high-techmarketing budgets than CIOs.137Also, as both marketing and ITdepend on data, teams, processes

and software, CMOs and CIOs

are forming strategic partnerships.

This cross-functional collaborationcan help companies createefficiencies, improve workflows andreduce costs.138

By 2014, CIOs will have losteffective control of 25 percent oftheir organizations IT spending,and by 2017, chief marketingofficers may have a bigger ITbudget than CIOs do, according toGartners Sondergaard.139

Focusing on secure and reliable

solutions The new technologiesintroduced by technologycompanies are focused to ensuresecurity and reliability, as that is onemore way that they can influenceIT spend decisions. For example,in August 2011, Salesforce.comacquired Navajo Systems, an Israel-based cloud security encryptionvendor. This new encryptiontechnology at Salesforce.com mayease customer concerns about data

security in the cloud.140, 141




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Further Information

Visit kpmg.com for the following

related publications

Seizing the moment - 2011 share

forum for financial planning,

budgeting, and forecasting

Embracing the Cloud - Global forcesshaping the service provider market

Semiconductor Executives TemperGrowth Expectations

How KPMG firms can help

Business Effectiveness

Business Effectiveness teams focuson fundamental business issues managing risk, increasing revenuesand controlling costs which allorganizations, in all industries, shouldaddress in order to flourish. KPMGmember firms help companiesidentify risks and optimize operationsthat are used to support theirstrategic business objectives andfinancial goals.

IT Advisory Services

KPMG member firms work withclients to analyze business technologyissues within their businesses. A client

might approach us for assistance withdeveloping an appropriate IT strategy,sourcing, cost optimization, logisticsand supply chain issues and regulatoryand compliance. KPMG memberfirms focus on the business impact

of technology rather than systemsimplementation. As a result, theiradvice is geared to the specific needsof each client.

Internal Audit, Risk Consulting

Services

KPMG member firms Internal Audit,Risk Consulting Services (IARCS)deploys multidisciplinary teams ofprofessionals experienced in financialand operational internal auditing, IT,fraud analytics and risk assessment,shared services, finance management,treasury and financial instruments,and the supply chain to augment andenhance an organizations existinginternal audit capabilities.

Key contacts

Gary Matuszak

Global ChairTechnology, Media &TelecommunicationsTel.+1 408 367 [email protected]

David McAllisterGlobal Sector ExecutiveTechnology, Media &TelecommunicationsTel.+61 2 9335 [email protected]


http://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/embracing-cloud.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/embracing-cloud.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/semiconductor-executives-temper-growth-expectations.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/semiconductor-executives-temper-growth-expectations.pdfhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/management-consulting/Pages/Business-Effectiveness.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/management-consulting/IT-Advisory-Services/Pages/Default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/risk-consulting/Internal-Audit/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/risk-consulting/Internal-Audit/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/risk-consulting/Internal-Audit/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/risk-consulting/Internal-Audit/Pages/default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/management-consulting/IT-Advisory-Services/Pages/Default.aspxhttp://www.kpmg.com/Global/en/WhatWeDo/Advisory/management-consulting/Pages/Business-Effectiveness.aspxhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/semiconductor-executives-temper-growth-expectations.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/semiconductor-executives-temper-growth-expectations.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/embracing-cloud.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/embracing-cloud.pdfhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspxhttp://www.kpmg.com.edgekey.net/co/es/issuesandinsights/articlespublications/paginas/seizing.aspx


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Companies Mentioned in this Issue

Amazon 6

Apple 24, 26

AsiaInfo Linkage 22

Asustek 24

BMC Software 6

CA Technologies 9

China National Bureau ofStatistics

19

CSC 6, 17

Dell 6, 17

Digital China 22

EMC 17

Founder 22

Fujitsu 6

Google7

Guizhou Mobile 19

Guizhou Provincial HealthDepartment

19

HP 6, 7, 17, 19, 23

HPQ 17

IBM 6, 17, 19, 22, 23, 24

Intel 14

Jive Software 24

Lenovo 24

Microsoft 6, 7, 8, 17, 23

Motorola Solutions 24

Navajo Systems 8, 26

NEC 7

NetApp 17

NetSuite 8, 9

Neusoft 22

Oracle 7, 22, 23

Qualcomm 26

RightNow 7

Salesforce.com 6, 7, 8, 24, 26

SAP 7, 22, 23

Sony 17

SuccessFactors 7

Taiji 22

Taleo 7

Toshiba 17

VMware 17, 24

Western & Southern FinancialGroup

17

Wipro 7




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Sources

1 More Predictions on the Huge Growth of Cloud

Computing, WSJ, April 21, 2011

2 Cloud Computing Is Changing How Businesses

Work, KPMG Finds, WSJ, October 3, 2011

3 Embracing the cloud,KPMG, November 2011

4 Embracing the cloud,KPMG, November 2011

5 More Predictions on the Huge Growth of Cloud

Computing,WSJ, April 21, 2011

6 SaaS unleashes Indian SMEs'tech prowess,Business Standard Technology, June 26, 2011

7 North America to account for 64% of SaaS revenue

in 2011,MoneyControl.com, September 14, 2011





10 U.S. SMB SaaS CRM Market Set to Triple by 2015,

DestinationCRM.com, September 30, 2011

11 Partnering the clouds: An interview with Caroline

Keene,McKinsey, 2011

12 Gartner Says Worldwide Software as a Service

Revenue Is Forecast to Grow 21 Percent in 2011,July 7, 2011

13 Strategy Analytics: Mobile SMBs Are Opening Doors

to Software-as-a-Service to Increase Productivity and

Efficiency,Factiva, October 25, 2011

14 Strategy Analytics: Corporate Mobile

Software-as-a-Service Forecast 2010-2016,Factiva, November 8, 2011

15 North America to Account for 64 Percent of SaaS

Revenue in 2011,Gartner, September 14, 2011

16 Gartner Says Worldwide Software-as-a-Service

Revenue to Reach $14.5 Billion in 2012,March 27, 2012

17 Gartner Says Worldwide Software as a Service

Revenue Is Forecast to Grow 21 Percent in 2011,

Gartner, July 7, 20111 8 Box.net Integrates with Google Apps, Pairing

Robust Cloud Content Management with Google's

Communication and Collaboration Platform,PRWeb,March 9, 2010

19 Worldwide Software as a Service Revenue Is

Forecast to Grow 21 Percent in 2011,Gartner,July 7, 2011

2 0 SaaSDirectory

2 1 Trending Now,HRO Today, September 2011

2 2 Human resources turns to SaaS,CIOInsight,

April 28, 20102 3 Octo Technology selects Cezanne OnDemand SaaS

HR solution to manage their human resources,

Cezanna OnDemand, October 2011

2 4 IT Leaders Increasingly Embrace SaaS ERP Software,TMCnet.com, August 30, 2011

2 5 BMC Software announces IT service

management solution for government sector,Factiva, January 24, 2012

2 6 Fujitsu Launches New SaaS Ticket Sales

Management Solution,Factiva, January 17, 2012

2 7 Fujitsu Launches SaaS for Next-Generation LibraryServices,Fujitsu, October 27, 2011

2 8 CSC Unveils Cloud-Based and Software as a Service

Options for Billing Across All Insurance Markets,MarketWatch, September 19, 2011




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Sources

2 9 SaaS M&A Transactions,Softwareequitygroup,June 1, 2011

3 0 Quarterly Reports,Softwareequity.com

3 1 Oracle buys Taleo for $1.9 billion; SaaS cons

KPMG IT Spending

Documents

Transcript of KPMG IT Spending