BMI Canada Information Technology Report Q2 2012

www.businessmonitor.
com
Q2 2012
caNaDa
INforMatIoN techNoLogy rePort

INCLUDES BMI'S FORECASTS
ISSN 2044-5555
Published by Business Monitor International Ltd.
CANADA INFORMATION TECHNOLOGY REPORT Q2 2012

INCLUDES 5-YEAR FORECASTS TO 2016
Part of BMI's Industry Report & Forecasts Series

Published by: Business Monitor International
Copy deadline: April 2012
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Canada Information Technology Report Q2 2012
Business Monitor International Ltd
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CONTENTS
Executive Summary ......................................................................................................................................... 5 SWOT Analysis ................................................................................................................................................. 7
Canada IT Sector SWOT........................................................................................................................................................................................ 7 Canada Political SWOT......................................................................................................................................................................................... 8 Canada Economic SWOT ...................................................................................................................................................................................... 8
IT Risk/Reward Ratings ................................................................................................................................... 9

Table: Regional IT Risk/Reward Ratings Q212 ................................................................................................................................................... 12
IT Markets Overview....................................................................................................................................... 13
IT Penetration ...................................................................................................................................................................................................... 13 Sectors And Verticals ........................................................................................................................................................................................... 17
Canada Market Overview ............................................................................................................................... 21

Hardware............................................................................................................................................................................................................. 22 Software ............................................................................................................................................................................................................... 25 Services................................................................................................................................................................................................................ 28 Industry Developments ........................................................................................................................................................................................ 30
Industry Forecast ........................................................................................................................................... 31

Table: Canada IT Sector Historical Data & Forecasts , 2008-2016................................................................................................................. 34
Industry Forecast Internet ............................................................................................................................. 35

Telecoms Sector Internet Historical Data & Forecasts , 2009-2016.............................................................................................................. 35
Macroeconomic Forecast .............................................................................................................................. 37

Table: Canada Economic Activity..................................................................................................................................................................... 39
Competitive Landscape ................................................................................................................................. 40

Hardware............................................................................................................................................................................................................. 40 Software ............................................................................................................................................................................................................... 42 Services................................................................................................................................................................................................................ 44
Country Snapshot: Canada Demographic Data .......................................................................................... 46

Section 1: Population........................................................................................................................................................................................... 46 Table: Demographic Indicators, 2005-2030 ........................................................................................................................................................ 46 Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 47 Section 2: Education And Healthcare .................................................................................................................................................................. 47 Table: Education, 2000-2003 .............................................................................................................................................................................. 47 Table: Vital Statistics, 2005-2030 ........................................................................................................................................................................ 47 Section 3: Labour Market And Spending Power .................................................................................................................................................. 48 Table: Employment Indicators, 2001-2006 .......................................................................................................................................................... 48 Table: Consumer Expenditure, 2000-2012 (US$) ................................................................................................................................................ 49 Table: Average Annual Manufacturing Wages, 2000-2012 ................................................................................................................................. 49
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BMI Methodology ........................................................................................................................................... 50

How We Generate Our Industry Forecasts .......................................................................................................................................................... 50 Transport Industry ............................................................................................................................................................................................... 50 Sources ..................................................................................................................................................................................................................... 51
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Executive Summary
BMI View: Canadian IT spending is expected to reach US$3.5bn in 2012, up 4%, with BMI downwardly revising its forecast due to expectations of a macroeconomic cooling in H112. Government spending will continue to be constrained by a focus on cutting costs, with cost reviews being conducted by Toronto and Ontario, but there have been a spate of large tenders, highlighting continued opportunities within the sector. BMI expects Canada's IT market to continue to report moderate overall growth in 2012, although much will depend on the overall business environment.
Headline Expenditure Projections
Computer hardware sales: US$14.9bn in 2011 to US$15.2bn in 2012, +2.5% in US dollar terms. Forecast in US dollar terms downwardly revised due to macroeconomic factors, although Canadian PC sales reported positive growth in 2011.
Software sales: US$9.3bn in 2011 to US$9.8bn in 2012, +5.3% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst modification but given the large public sector deficits,
vendors will need to provide clients with ways to reduce costs by increasing efficiency.
IT Services sales: US$2.14bn in 2011 to US$22.3bn in 2012, +4.5% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst modification with the market shaped by a continued move towards distributed computing and service-oriented architectures.
Risk/Reward Ratings: Canada's score was 70.7 out of 100.0. Canada ranks second in our latest RRR table, behind the US, but still ahead of Latin American giants such as Brazil and Mexico. The country ranked third for its Industry Rewards score, but its overall rating was boosted by a relatively high Country Rewards score of 90.
Key Trends & Developments.
New outsourcing and IT services contracts in both public and private sectors have pointed to the underlying demand potential, and growing interest in cloud computing services is another driver. Canadian institutions in key IT spending sectors such as financial services, distribution and transport will continue to embark on complex IT projects
Fiscal constraints faced by the Ontario government in particular represent a challenging environment for vendors. Meanwhile Toronto authorities have also launched a Core Spending Review targeted, which could have negative implications for IT spending. However a focus, by
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Ontario and other authorities, on deficit reduction through public services delivery reforms should also potentially represent an opportunity for IT vendors.
Growing interest in cloud computing is expected, with Canada currently lagging the US and some other advanced markets. The market in Canada remains fairly small. A 2011 survey commissioned by Microsoft Canada found that nearly 73% of Canadian SMEs understood that cloud-based services was a cost-effective delivery model, but that just 30% were investing in such services.
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SWOT Analysis
Canada IT Sector SWOT
Strengths
An affluent and technologically advanced IT market, worth an estimated US$44.7bn in 2011. The federal digital economy strategy and Chief Information Officer Branch help drive information society development.
Weaknesses
IT spend per capita is less than the US level. Levels of IT investment are higher in greater Montreal than in the rest of the country. The 32% pirated software rate is relatively high for a developed market. Government focus on purchasing components rather than services, due to problems in the past with large projects. Ultra-thin notebooks, or power-saving notebook computers, can bridge the divide between netbooks and fully-fledged notebooks. Demand for industry-specific solutions in verticals such as health, education, mobile telecoms and retail. E-health is a key area of opportunity, with US$500mn funding pledged in the 2009 budget. Growing internet/broadband penetration as government continues to fund its Broadband Canada programme. Move of telecoms operators such as Rogers Communications into the PC retail space. More investment expected to be in utility software and serviced-oriented architectures rather than traditionally packaged PC software. Demand for outsourcing reaching beyond traditional sectors, such as financial services, to other sectors, such as telecoms, auto and chemical.
Opportunities
Threats
Ontario government IT spending may be inhibited by fiscal restraints. Falling prices may undermine margins and profitability.
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Canada Political SWOT
Strengths
Stable long-term parliamentary democracy with vigorous political culture. High economic growth and moderate unemployment increase the potential for consensual political dialogue and reduce chances of polarisation. A tradition of Qubcois separatism has in the past divided the political culture and led to long periods of introspective constitutional negotiations between the federal centre and the provinces. Although the deadlock remains unbroken, Canada still has a chance to launch a fresh initiative to resolve bilateral disputes with the US. With the US a target for international terrorist attack, Canada is simultaneously a target by geographic and political association as well as vulnerable to the shockwaves (as it was to the fallout from the 9/11 attacks in 2001).
Weaknesses
Opportunities
Threats
Canada Economic SWOT
Strengths
Advanced high-tech industrial economy, with high living standards and abundant natural resources. Close integration with the US economy through the North American Free Trade Agreement, which has triggered a dramatic increase in trade and investment in the decade since 1994. Vulnerability to US downturns and a dependence on commodity-related industries as a major driver of growth. Assuming the global economy and emerging markets in particular sustains its recovery, over the long term, Canada is well placed to benefit from high international oil prices as a net oil exporting country. With a recent history of budget surpluses and a low debt-to-GDP ratio, the country is uniquely positioned to prepare for the longerterm fiscal challenges facing most advanced economies, such as the looming pensions crisis. High household indebtedness threatens to crimp private consumption. The federal structure, with individual provinces sometimes pulling in different directions, could create new and unexpected calls on the federal budget and risk eroding the fiscal deficit.
Weaknesses
Opportunities
Threats
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IT Risk/Reward Ratings
BMI's Americas IT Risk/Reward Ratings (RRRs) compare the potential of a selection of the region's markets over our forecast period to 2016. The ratings reflect our consideration of political and economic risks, as well as risks associated specifically with IT intellectual property rights protection and the implementation of government information and communications technology (ICT) projects.
The US retains its top position in our regional rankings as by far the largest IT market in the region and the world, accounting for about 25% of global IT spending. In the 'Limits of potential returns' arena, Industry Rewards has fallen marginally while Country Rewards has not changed. This reflects our view that the relatively strong growth witnessed in 2011 will slow slightly through 2012, while there has been little change to the demography of the country.
The US is likely to retain its position at the top of our table through 2012, given the sheer size and advanced nature of its IT market. However, in 2012, it is expected that the IT sector as a % of GDP will drop 0.1pps, but return to its current level in 2013 (0.6%). We believe this year will be a stormy one for IT firms, with economic uncertainty affecting IT investments.
However, there will be opportunities for expansion in this market, and one major possibility will be demand from private and public sector organisations aiming to use cloud computing services. In 2012 further contracts for cloud computing provision are likely to be signed, while the rate of growth in traditional big-spending IT verticals such as financial services, retail and manufacturing will depend on confidence in a sustainable economic recovery.
During the next few years, across consumer and business segments, US IT spending is expected to be driven by a number of factors including product and technology innovation, and investment in fixed and mobile broadband infrastructure as well as economic recovery. It is likely to be the second fastest growing market worldwide, second only to China.
Canada is in second place for another quarter in our IT RRRs. The country maintains this position from Q112. The country's Industry Rewards score fell this quarter, however, as we predict the IT market to deteriorate over the course of the year. The Canadian IT market revenues expanded by 6% in 2011, but we believe this number will drop to just 0.2% in 2012, as the country struggles to bolster demand.
However, there may be growth in IT expenditure driven by Canada's broadband plan. One key initiative is Broadband Canada, which has a mandate to expand broadband coverage to underserved areas. Further, despite Canada being relatively mature, BMI believes software vendors across industries such as consumer products, telecommunications, energy, engineering, construction, transport and food and
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beverage still have plenty of potential for growth. Growing interest in cloud computing is expected, with Canada currently lagging the US and some other advanced markets.
Out of the Latin American countries, Brazil is the highest ranked IT market. We expect Brazil's growth trajectory to stay strong throughout 2012 and beyond as the government continues to support the widespread development of IT infrastructure, particularly in the telecoms sector. The Brazilian Development Bank (BNDES) has made available a number of loans to telecoms firms looking to expand into less developed regions of the country and as a result equipment vendors have capitalised on this. Further, the country will continue to invest in the modernisation of services ahead of the World Cup in 2014 and Olympics in 2016. This will buoy up expenditure on IT services.
Mexico follows Brazil, and has enjoyed minor rises in Industry Rewards this quarter. This is the result of strong H211 sales, although these remain less than half the size of Brazil's. However, we believe that Mexican expenditure on IT is to grow at a double-digit compound annual growth rate (CAGR) in our forecast period to 2016.
Brazil and Mexico together account for around 75% of PC sales in Latin America. Brazil's much bigger market is already estimated to be the fifth largest PC market in the world. Despite this, Brazil's company spending on IT, measured as a percentage of revenues, is understood to lag behind global peers. Growing broadband penetration, including 3G mobile, will drive the PC markets of both countries.
Expenditure on IT projects in Brazil is likely to be very high over the coming years, as the country promotes its national broadband plan, the PNBL, and also develops mobile network in more remote areas. Further, the promotion of e-government services is likely to drive growth in business for technology firms in the years to come.
Another driver of growth in the Latin American IT market is outsourcing. Given strong trade links between Mexico and the US, Mexico stands to benefit from this growth, as seen in cities such as Monterrey. However, due to the escalating drug-related violence in the city, many companies are increasingly less willing to operate there. While we continue to believe it will remain a hub for outsourcing, we believe these problems may impact on the potential for stronger growth in the market. However, Brazil is also not without problems, with issues such as inequality and unnecessary bureaucracy hindering rapid development of services.
Chile takes fifth place once again in our rankings. Chile experienced gains in its Country Risk and Country Rewards scores, while there was no change in industry outlook. The country has an excellent track record of fiscal discipline, although it may return to fiscal deficit in 2012 on the back of falls in copper prices and an increase in public spending. Despite this, we do not see this as much of a threat and
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believe the counter-cyclical policies to stimulate private consumption in the country will continue to have positive benefits to the IT industry.
President Sebastin Piera highlighted the importance of the information society in Chile in November 2012, when he underlined his 'Estrategia Digital' for the years ahead. Chile's fifth place in our table reflects its status as one of the most developed markets in the region. Chilean IT spending is projected to grow at a CAGR of 11% until 2014. A wide-ranging government plan to increase ICT utilisation in government and other sectors such as healthcare and education will encourage IT investment. The 2010 earthquake diverted consumer funds from technology to other priorities, but reconstruction offers opportunities for government agencies to advance IT modernisation.
However, PC penetration is still relatively low below 20%. Chile is propelled to a relatively high position in our RRRs due to the fact that it has the highest Country Risk rating of any of the Latin American states. Despite this, there is notable room for expansion.
Peru is next in our rankings, but has suffered falls to its Country Rewards score. The market has a free trade agreement with the US, which is likely to lead to an increase in demand for IT in the country. The IT market represents approximately 0.8% of GDP, with the market worth US$1.4bn in 2011. CAGR is high 11% and there is huge potential for growth in the market.
Argentina is seventh in our rankings, but like Peru, suffered falls in our Q212 rankings. This was due to a reduction in Industry Rewards scores, the result of a decrease in projected CAGR from 15% last quarter to 11% from 2011-2015. There are strong doubts that the expansionary fiscal policy eagerly pursued by the government is sustainable. This may pose a serious threat to public expenditure on IT over the coming years, despite government tenders appearing to dominate the market in 2012.
Most IT expenditure in Argentina happens in Buenos Aires, where approximately one quarter of computer sales take place. IT spending is driven by the expanding availability of credit, increasing broadband penetration and social policies to promote the information society. However, escalating inflation is causing costs to rise, deterring investors and raising doubt over the sustainability of the government's profligate spending habits.
In eighth place is Colombia, which experienced a marginal rise in Industry Rewards, but a larger fall in Country Rewards, which overall brings its scores down. The country had been enjoying strong growth in consumer electronics sales, but this is beginning to slow down. While we expect the Colombian IT market to be worth US$3bn in 2012, lower levels of investment in the sector when compared to its peers puts Colombia nearer the bottom of our RRRs.
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However, we believe the market has great growth potential, and the economy continues to grow strongly. With PC penetration only at 10% of the population, there exist great opportunities to expand on this.
There are also growth opportunities through government programmes, and it is clear that these are a priority for the Santos administration. The president has outlined objectives to expand infrastructure in the country, promoting the network rollout while increasing access to the internet. The government aims to triple the number of municipalities from 200 to 700 by 2014, and increase internet connections from 2.2mn to 8.8mn by the same year. This growth will have future benefits for the Colombian IT market and we would expect to see the country climb in our table over the coming years.
At the bottom of the ratings is Venezuela, and unfortunately we do not expect the Venezuelan market to enjoy anywhere near the same growth as we predict for Colombia. The country suffers severe balance of payments problems, with rising concern over government appropriation and potential devaluation of the fixed exchange rate a mounting possibility. While the government is doing its best to avoid capital flight in attempts to avoid this devaluation, the financial account deficit continues to grow and poses an ever greater threat to the stability of the bolvar. This serves to deter investors from Venezuela, and the IT market will be reliant on public programmes to sustain it. We believe there will be flat or negative growth over our forecast period, despite improvements in PC penetration, which will arise from programmes to promote low-cost PCs for low income households.
Table: Regional IT Risk/Reward Ratings Q212
Limits of potential returns Industry Rewards United States Canada Brazil Mexico Chile Peru Argentina Colombia Venezuela 82.5 65.8 73.3 65.8 55.8 55.0 46.7 53.3 38.3 Country Rewards 90.0 90.0 70.0 60.0 70.0 50.0 70.0 50 70.0 Limits 85.1 74.3 72.2 63.8 60.8 53.3 54.8 52.1 49.4 Industry Risks 50.0 50.0 45.0 52.5 50.0 45.0 45.0 47.5 40.0
Risks to realisation of returns Country Risk 59.2 70.3 43.7 60.5 73.5 67.9 53.4 56.3 47.6 Risks 55.5 62.2 44.2 57.3 64.1 58.7 50.0 52.75 44.5 IT RRR 76.25 70.66 63.78 61.84 61.78 54.89 53.39 52.34 47.95 Regional Ranking 1 2 3 4 5 6 7 8 9
Scores are weighted as follows: 'Rewards': 70%, of which Industry Rewards 65% and Country Rewards 35%; 'Risks': 30%, of which Industry Risks 40% and Country Risks 60%. The 'Rewards' rating evaluates the size and growth potential of a telecoms market in any given state, and country's broader economic/socio-demographic characteristics that impact the industry's development; the 'Risks' rating evaluates industry-specific dangers and those emanating from the state's political/economic profile, based on BMI's proprietary Country Risk Ratings that could affect the realisation of anticipated returns. Source: BMI
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IT Markets Overview
IT Penetration
A mixed regional picture is found with relation to internet penetration. In the US and Canada, internet penetration in 2011 was estimated at 83.4% and 85.5% respectively. In Latin America, the highest rate in 2011 was in Colombia (53.2%), having experienced solid recent progress on this indicator. One feature of Latin America is that a large amount of internet access occurs outside the home. For example, data suggest 68% of Mexican internet users go online from places such as schools, workplaces and internet cafs. Recent data from Peru suggest nearly 75% of internet users use a public access point.
The fastest growth in internet penetration is expected in Peru, while Brazil and Colombia will also see a solid advance. Dial-up technology is still the dominant access method. However, the number of broadband subscribers continues to increase, with progress expected in all markets. Brazil's National Broadband Plan announced in May 2010 should help to drive future growth in demand for IT products and services.
Canada was estimated to have the region's highest broadband penetration in 2011, of 42.8%, which should rise to 58.5% by 2015. Broadband penetration in the USwas estimated at 28.1% in 2010, and is forecast to reach 32.5% by 2015.
Broadband Penetration Per 100 Population
Meanwhile, in Latin American markets, broadband penetration is on course to reach as high as 23.1% in Argentina and 18.7% in Mexico, and to pass 10% in Brazil, Chile, Colombia and Venezuela within our forecast period. However, much broadband penetration growth is now
e/f = estimate/forecast. Source: BMI
being driven by mobile broadband users, thanks to the continued expansion of 3G mobile services across the region.
Across Latin America, low average incomes and low PC penetration rates restrain information society development, and thousands of towns and villages still lack access to information communication technology (ICT). While some cities and regions stand out, there is a general pattern of underdeveloped potential, with IT spending as a percentage of GDP well below 2% in countries covered by BMI.
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However, government initiatives and growing PC affordability are now driving improvements on many ICT indicators. In Brazil, a National Broadband Plan announced in May 2010, and modernisation ahead of Brazil's hosting of the 2014 FIFA World Cup and 2016 Summer Olympics, should help to drive ICT utilisation.
Growing affluence has brought computers within the reach of a greater proportion of the population. PC penetration is around 30% in Brazil, but is set to rise to above 40% by 2015, while Argentina is forecast to progress from a current rate of 25% to at least 32% in 2015. A similar situation prevails in Chile and Mexico, where PC penetration is estimated to be below 25%. Colombia's PC penetration reached 12.8% as of mid-2009, surpassing the government's previous 2010 target of 10.8%. BMI estimates PC penetration in Peru could reach 25% within the forecast period, from less than 20% currently.
ICT initiatives are central to the development plans of many regional governments. In 2010, the Argentine government launched a tender to provide 3mn PCs to public schools nationwide. In Brazil, thousands of rural schools have received computers and in December 2010, Brazilian states and municipalities began to receive funds awarded under the 'computer for every student' programme. In Chile in 2010, the government launched a programme called 'Yo Eiljo mi PC' ('I choose my PC'). Meanwhile, Colombia's Zona Clic programme is expected to involve the requisition of as many as 90,000 computers over the next few years.
Most governments also have a particular focus on promoting IT use by small and medium-sized enterprises (SMEs), as Latin American SMEs typically invest less in IT than comparable companies elsewhere. A recent study by the Getulio Vargas Foundation found that Brazilian companies on average spent around 5.5% of revenues on IT investments, compared with 7% globally. Studies in Chile have shown that around a quarter of companies have no computers.
Chile's state development agency, the Corporacin de Fomento de la Produccin de Chile (CORFO), has launched a programme to provide funding for projects that implement ICT for local SMEs, and similar initiatives have been seen in Mexico and elsewhere.
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Market Growth And Drivers Across the Americas, in 2011, a greater range of financing options for consumers and more flexible terms from retailers will be the main drivers of consumer IT spending growth. Key IT market drivers will include growing mobile and fixed broadband penetration, product innovation such as feature-rich netbooks, technology innovation such as 3G technology and services, and economic recovery. However, in Canada and the United States consumers remain in a phase of retrenchment thanks to the often stretched state of household balance sheets.
IT Market Sizes 2011e (US$mn)
e = forecast. Source: BMI
Businesses are expected to increase their IT investments in 2011 thanks to a general economic recovery and improved credit availability. There will be a boost from tenders previously delayed as a result of the economic situation. Meanwhile, improved bank profitability should support more demand from this key IT-spending vertical. Migrations to Microsoft's Windows 7 operating system, and new Intel core technology, should help to trigger new cycles of hardware upgrades, but in the US and Canada, some of this pent-up demand may not be realised in
IT Market Sizes As % Of National GDPs
2011 due to doubts about the strength of the economic recovery. Across the region, small and mediumsized enterprises (SMEs) have great potential to drive enterprise application spending over the next few years. Brazil still has an estimated 400,000 small businesses that do not have more than a very basic IT system. In the US market, too, in early 2011, there were indications of improved SME confidence.
In some countries such as Colombia, government programmes and growing computer affordability will support more spending on IT products and services. In Argentina in 2011, a number of IT tenders at federal and provincial levels were expected to be bid on ahead of October's presidential elections. The
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Brazilian government's US$344mn modernisation strategy should mean enhanced IT spending in 2011 and over the next few years.
Some structural risks pertain to our forecast scenario. Many Latin American markets, from Argentina to Mexico, are characterised by significant income and geographical disparities. Mexico's underpenetrated south east and Pacific regions are expected to offer growth opportunities over BMI's five-year forecast period, particularly in the south east. The Argentine market is dominated by the capital Buenos Aires, which has higher per capita income and education levels compared with the rest of the country.
IT Markets Compound Growth 2011e-2015f (%)
Brazil's IT market also has a distinct regional structure, with most spending accounted for by the south east region, which includes So Paulo as well as Rio de Janeiro. So Paulo alone accounts for around 35% of spending and Rio de Janeiro, Esprito Santo and Minas Gerais for 25%. Brazil remains on course to become one of the top four computer markets as an expanding economy lifts millions into a middle class. The fundamentals of rising computer
penetration and growing affordability should keep the market on an upward path.
Colombia's IT market continued to grow during the global economic slowdown as government programmes and growing computer affordability help to sustain spending on IT products and services. Meanwhile, Chile retains some strong IT market fundamentals including consumer affluence and a relatively favourable business environment. Mexico's close economic ties to the US represent vulnerability as well as opportunity. There are opportunities in key IT verticals such as financial services, telecoms and government, with other growth sectors including healthcare, utilities and SMEs.
Aside from regional trends, particular factors are forecast to market demand in individual markets. Infrastructure investments following 2009's award of the 2016 Olympic Games to Rio de Janeiro is expected to drive new Brazilian market spending on IT systems and solutions, as happened in South Africa when it hosted the 2010 FIFA World Cup. In Venezuela, the steep devaluation of the bolvar for non-essential imports such as computers will depress spending as consumers grapple with runaway inflation and the attendant erosion of real wages. Meanwhile, following the Chilean earthquake, rebuilding began apace in H210.
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The largest IT market in the region is, vastly, the US, with spending estimated at US$529.3bn in 2011, while Canada is a distant second with US$44.7bn. Brazil is estimated at US$27.8bn in 2011, making it the largest IT market in the Latin American region, and a major global market in its own right. Mexico is the second largest Latin American market with an estimated value in 2011 of US$14.4bn. Argentina and Brazil are set to be the fastest-growing markets with projected 2011-2015 compound growth of 78% and 66% respectively. This compares with a compound growth rate for the United States over the same period of 22%. The slowest growing market is forecast to be Venezuela, with a -3% growth rate in US dollar terms.
Sectors And Verticals

Hardware accounts for less than one-third of IT spending in the United States (27%). In contrast, Latin American IT markets remain hardware centric, with hardware accounting for between 43% (in Brazil) and 67% (in Venezuela) of the total spending in these markets.
Sales of computer hardware are projected to report solid growth in 2011, consolidating a strong PC market rebound in 2010.However, in all markets spending on software and services is projected to increase its share of the IT spend by 2015.
Notebook sales are growing much faster than the PC market as a whole, but there will be intensifying competition for PCs from tablets and smartphones, and a fall-off in netbook demand. The PC market 2011 growth rate will suffer from base effects compared with 2010, when the market bounced back thanks to pent-up demand in the wake of the global economic crisis. However, commercial updates, expected to gather pace in the second half of the year, should help to keep overall growth on track.
Tablets will be a growth area across the region in 2011, with robust sales of the first generation iPad in 2010 followed by strong early interest in the iPad2 ahead of its April 2011 launch. In the US market, a Morgan Stanley report in H111 found that some 51% of CIOs expected to buy tablets for their employees in 2011. However, tablets, at prices of US$400-800, are expensive relative to average salaries in most Latin Americas countries. The Latin American tablet market should receive a boost in 2011 from expanding locally based production of tablets, in Argentina, Brazil and elsewhere. In Brazil, the Communications Ministry has suggested the inclusion of tablets in digital inclusion programmes.
With the rise of tablets, the netbook surge may have reached a plateau in most markets, with some vendors reporting a sharp drop in 2010. In 2010, Canadian netbook sales were down by around 25% compared with the previous year. One additional pan-regional driver both of increased notebook sales and of lower prices is the move of telecoms operators into the PC retail space.
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Software is estimated to account for 12-19% of IT spending in Latin American markets covered by BMI, compared with 29% in the United States. Despite the economic downturn, there are expected to be opportunities for software vendors in most markets. Across the region, companies are investing to improve decision making and optimise performance. Mobility, smart devices, broadband and cloud services are among the trends encouraging more software spending by Mexican SMEs, which have to deal with increasing data flow. Migrations to Microsoft's Windows 7 operating system will continue to drive revenues in 2011. As of July 2010, around 500,000 Windows 7 licences were estimated to have sold in the Argentine market.
Some markets, particularly Venezuela, will be influenced by their governments' drives to promote open source software. Following criticism of the initial programme, the second phase of Argentina's Mi PC was widened to offer consumers the option of purchasing PCs with Linux operating systems. In the US the key issue and precondition for the more widespread adoption of open source will be the development of a support infrastructure. Customers are increasingly looking to vendors to offer support for opensource software. BMI expects this trend to continue with the development of more support infrastructure for the most important open source applications.
In general, enterprise resource planning (ERP) and other e-business products still dominate the Latin American enterprise software market, but vendors are also looking to other areas where faster growth is possible. In Argentina, ERP solutions are estimated to represent more than 80% of the enterprise software total. Customer relationship management (CRM), the next largest category, is still less than 10% of the total. Demand for ERP solutions will remain robust in the near term due to the large potential market represented by SMEs in many parts of the country.
Vendors will increasingly look, however, to applications such as CRM and business intelligence, where faster growth is projected. The business intelligence segment is another strong performer, with sales of databases growing steadily. High single-digit growth is forecast in 2011, as data proliferation continues to be a priority issue for chief technology officers, fuelled by an uptick in merger and acquisition (M&A) activity and new regulations. Looking ahead, security software also should provide opportunities, with some demand for more sophisticated security solutions.
Software-as-a-service (SaaS) has enjoyed steady growth in most markets, and improved broadband infrastructure will assist the popularisation of the rented software model. Brazil is thought to be one of the most promising regional markets for the SaaS model, with growing demand in sectors such as retail, finance and healthcare. There are estimates that around 50% of Mexico's large companies have conducted cloud pilots. In Chile, too, vendors have reported that large companies have been the most enthusiastic early adopters of cloud solutions.
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Usage of the cloud for information storage appears relatively low in the US and Canada compared with some other mature markets. However, 2010 saw a number of US government agencies at federal and local level launch cloud strategies and pilot programs. A combination of enterprise objectives such as cost reduction and greater efficiency should combine to drive more adoption of cloud services in 2011.
Verticals such as financial services, government, and telecoms are emerging as strong adopters of hosted software. However, SaaS has also won more acceptance from smaller businesses as they have increasingly had to meet performance, visibility and compliance standards previously expected more of larger companies.
The IT services segment accounts for 15% to 40% of spending in the Latin American markets covered by BMI, compared with above 40% in both the United States and Canada. The global economic crisis had an impact on projects in some verticals and led to negative spending growth in some markets such as Mexico. Much will depend on the speed of the US and global recovery, with the likelihood of budget cuts increasing the longer the slowdown lasts.
The IT services has become one of the most dynamic drivers of IT sector spending in the region, and this has attracted greater investment from international vendors. The increasing number of multinational corporations operating in markets such as Mexico, Chile and Brazil is in itself an important driver for spending, while local companies are trying to use computing resources more effectively and integrate investments made in hardware and software.
In more developed markets such as the US and Canada, a major demand driver going forward will be organisations looking for help to utilise efficiencies from cloud computing models such as SaaS and infrastructure-as-a-service. In the US in 2011 there are expected to be many more contracts for provision of cloud services, following on contracts awarded in 2011 by the cities of New York and Los Angeles
Outsourcing is also becoming an important spur to growth for the IT services sector, as several Latin American markets try to consolidate their reputations as regional offshoring hubs. By some estimates, outsourcing may be equivalent to as much as 30% of IT spending in Brazil, with demand growing around 10% each year. One driver for many markets will be ambitions to develop capabilities in the business process outsourcing (BPO) area and capture a larger global market share. Chile's development as an offshoring location will attract more investment in IT services, with sectors such as retail, distribution, financial services, telecoms and healthcare all offering opportunities.
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Market Structure (% Of Total IT Market) 2011e 2015f
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Canada Market Overview

Government Authority Chief Information Officer Chief Information Officer Branch Corinne Charette
Canada's Chief Information Officer Branch (CIOB) has a brief to provide strategic direction and leadership for information management and IT in the government of Canada. The institution of the CIOB has been credited with helping Canada to regularly achieve a leading position in global surveys of egovernment development.
The CIOB works collaboratively with other federal government departments and agencies. Specific tasks with which the CIOB is charged include policy development and monitoring and management oversight, as well as community development and capacity building initiatives in information management, IT, identity management and security.
Background Canada's IT market including computer hardware, packaged software and IT services was valued at US$45.6bn in 2011, compared with an estimated value of US$529.3bn for the US market that year.
IT services is the largest IT market segment in Canada, accounting for around 46% of spending in 2011. Software was valued at US$9.3bn that year, equivalent to around 20% of spending. Computer hardware, including PC hardware and accessories, comprised 34% of spending.
Canadian IT spend per capita was estimated at around US$1,336 in 2011. However, this still trailed that of the world's largest IT market, the US, where the equivalent figure in 2011 was US$1,706. According to data from the Information Technology Association of Canada (ITAC), Canadian SMEs still lag behind their US counterparts in terms of ICT investment, with half of Canadian SMEs having two or fewer ICT staff on their payroll.
Canada is an affluent and technologically advanced country, where many businesses have a history of multiple generations of IT investments. The market benefits from sophisticated IT and telecommunications infrastructure, as well as a relatively affluent population that can afford the latest IT products.
The Greater Montreal region accounts for a high proportion of IT investment, due to its concentration of large foreign and domestic companies. The provinces of Ontario and Alberta are the leaders in climate-
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friendly technology investments, according to the Conference Board of Canada, with such spending projected to reach US$2bn in Ontario between 2010 and 2014.
The two largest IT verticals in Canada are financial services and government, with telecommunications being another high-spending sector. Canada's regulation of its financial sector has helped to attract ICT investments.
ICT Sector The ICT sector is one of the largest economic sectors in Canada and accounts for around 5% of GDP, according to ITAC. Around 572,500 people are employed in the sector, with the Greater Montreal area having the largest amount of people employed by the sector. Canada's largest ICT companies account for around 70% of the sector's jobs. Industry revenues were estimated at around US$155bn, with US$30bn in exports and US11bn in capital expenditure annually.
Major domestic ICT industry segments include telecommunications and internet service, represented by Canadian multinationals such as Nortel. Other segments include ICT consulting, hardware, microelectronics, software and electronic content. Canadian ICT exports contribute around US$30bn annually to the Canadian economy, while annual research and development spending by the industry is around US$11.8bn.
Hardware
BMI forecasts that Canada's addressable computer hardware market will be worth around US$15.2bn in 2012, up from an estimated US$14.9bn in 2011. Total PC revenues including notebooks and desktops and accessories are estimated at US$6.9bn for 2011 and are expected to rise to US$7.2bn by 2016, at a dollar CAGR of around 1%.
Market Trends Canadian PC sales are forecast to grow by around 2.5% in 2012. BMI expects restraint in the consumer segment, due to intensifying competition for PCs from tablets and smartphones, the slackening of the netbook trend and price erosion. Consumers also remain in a phase of retrenchment thanks to the increasingly stretched state of household balance sheets.
BMI forecasts 2012 PC sales to come in at around 7.3mn units. The 2011 growth rate of about 1% suffered from base effects compared with 2010, when the market bounced back strongly thanks to pentup demand in the wake of the global economic crisis. However, Canada still managed to defy the negative PC sales trend in other mature markets to remain in positive growth territory. In Q411, strong growth in mobile computer sales pushed Canada PC sales into a net gain for the year, despite further weakness in desktop sales.
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In H111, around 3.7mn PCs had been sold in the Canadian market, as retail demand continued to be fairly strong. However, sales were flat or slightly negative compared with the record sales recorded in 2010. Notebooks were the main driver in the first half of 2011, and notebook shipments recorded year-on-year growth, fuelled by a growing commercial segment preference for notebooks. Commercial updates helped keep overall growth on track.
Canadian PC sales had grown particularly strongly in 2010, with unit sales in H110 estimated by BMI at more than 3mn units, representing at least 15% growth on the same period of 2009. In the first half of the year, sales were boosted by a revival of the business PC, with both desktops and notebooks posted double-digit shipments growth in Canada. Shipments growth was in high single digits H210, consolidating gains in the first half of the year, as the market posted record shipments. The strongest growth was in the desktop segment, as corporate procurements rebounded following the global economic crisis of 2008-2009.
In 2012, the SMB segment is expected to be one of the fastest-growing areas of the market, after reporting double-digit growth in H211. The business PC market received a boost from computer hardware tenders previously delayed due to the economic situation. Migrations to Microsoft's Windows 7 operating system have the potential to continue to sustain the current cycle of hardware upgrades.
The federal government's stimulus measures allowing business tax payers to expense all of the value of their investment in computers and systems in one year is expected to have a major impact on the IT market over the next two years. Much, though, will depend on business confidence in the economic recovery.
The economic situation had a particular impact in 2009 on PC demand in the business segment. The replacement rate for desktop PCs stretched from four years to five years, and for notebooks to around three years, due to the economic uncertainty. Lower business demand was to some extent compensated for by continued strong performance in the consumer PC segment, although, due to price erosion, value performance was far more modest.
Segments Notebooks accounted for a record high of more than 70% of PC shipments in H211, up from around 60% in 2010. The increased share was largely due to a growing preference for notebooks in the business segment a traditional stronghold of the desktop. Notebooks had comprised around 60% of PC sales in the first half of 2010. In Q110, notebooks were the main PC market growth driver. Notebooks had already surpassed 50% of PC unit sales in 2008, comprising around 52% of shipments. Lower prices in the notebook segment, driven by the popularity of cheap netbooks, also led to an expanded price differential with desktops.
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Meanwhile, desktop sales were down by around 10% in some quarters of 2011, due to the growing demand for portable computers. Desktops units shipments had rebounded in the second half of 2010, after suffering a further shipments decline in H110 of around 3%. This followed a steep decline in desktop sales in 2009, particularly in H109, due to sluggish demand from the business sector and an increased demand for mobility. Average desktop prices reached about US$200 more than an average notebook. This was partly driven by vendors that saw the desktop market as becoming more of a premium market for users who wanted to do more things with their computers. However, the market rebounded in 2010, with double-digit shipment growth, thanks to increased business demand.
In 2010, market research firm IDC reported that Canadian netbook sales were down by around 25% compared with the previous year. In the first half of the year, sales fell by around 250,000 units, in a growing PC market, compared with the same period of 2009. Netbooks were a key driver of PC sales in 2009, but the netbook growth trajectory stalled in 2010 as the price differential with fully featured notebooks becomes less significant. Meanwhile, netbooks and notebooks face competition from other form factors. 2010 saw the emergence of tablet notebooks, spearheaded by Apple's iPad.
Tablets After going on sale in Canada in May 2010, initial consignments of the iPad quickly sold out at leading electronics retail outlets. Dual-capability Wi-Fi and 3G-compatible iPads were reported to be more popular with Canadian consumers than Wi-Fi only models. Demand for tablets should continue to grow as consumers shift their social networking habits from smartphones and PCs to tablets.
The much-hyped iPad2 was due to be launched at Canadian stores in March 2011. Other vendors have followed Apple in releasing net tablet devices, which have a form factor between the size of a smartphone and a netbook. The arrival of Android-based tablets such as the Samsung Galaxy Tab should find a market among those who wish to share their Wi-Fi connection with other devices, something not permitted by the iPad.
Whereas it was once thought that notebook growth would be sustained by consumers purchasing second or third computers as personal mobile devices, it now appears likely that they will purchase tablets and other mobile devices as alternatives. Tablets, originally seen as being primarily for consumers, are also forecast to experience increasing take-up in the business segment. Some analysts forecast that tablet sales could overtake sales of netbooks within the next two to three years and overtake desktops.
As of end-2010, there was no clear evidence that tablets had significantly impacted on the Canadian PC market. However, it is estimated that tablet sales could have been equivalent to around 20% of the PC market in 2011. Moreover, PCs face a growing challenge not only from tablets but also other devices such as smartphones, which are being offered by vendors as alternative connectivity solutions and often include a Wi-Fi option.
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Drivers The consumer segment now accounts for almost 60% of PC sales, up from 40% a few years ago. A future industry trend is likely to be vendor concentration on ultra-thin notebooks, or power-saving notebook computers, which can potentially bridge the divide between netbooks and fully fledged notebooks. Netbooks are also likely to be enhanced, with larger screens and hard-drive sizes.
Canadian businesses remained cost-sensitive in 2011. A survey conducted in H110 by IDC found that 45% of PC purchases from Canadian SMEs were made through retail outlets rather than specialised IT firms with customisation capabilities.
Telecommunications Companies One additional driver of both increased notebook sales and lower prices is the move of telecoms operators such as Rogers Communications into the PC retail space. With increasing mobile and fixed broadband penetration, notebooks and netbooks have become popular wireless connectivity options for consumers.
In 2010, telecoms operators moved into the emerging tablet notebook market to attract new customers and drive data usage. Canadian telecoms companies competed to offer bundling deals involving Apple's iPad. Rogers and Bell were both offering plans that gave users 250MB of data for CAD15 per month, as well as a high-end plan that offered 5GB of data for CAD35 per month. In Q410, Rogers announced that it would offer Samsung's Android-operating system-based Galaxy Tab and there was speculation that it would also offer Dell's rival Streak tablet device.
Telecoms operators have also helped to fuel the popularity of netbooks. In 2009, Rogers launched a 30% discount offer on the price of HP mini-netbook models to customers who signed a two-year data agreement. Rogers targeted consumers and small business, and cooperated with leading electronics retailers Best Buy and Future Shop to sell the computers and the data plans.
Software
In 2012, Canadian market software sales are projected by BMI at US$9.8bn and revenues are expected to rise to US$15.5bn in 2016. Software CAGR for 2012-2016 should be in the region of 4.0%. Given the uncertain economic climate and large deficits faced by the Ontario government, vendors will need to provide clients with ways to reduce costs by driving efficiencies.
Overall moderate growth in budgets was expected in 2011, with the market stabilising following the economic slowdown and rebound in 2010. At the same time, the software market will be influenced by a continued move towards distributed computing, SaaS and service-oriented architectures. However, Canada lags behind the US and some other markets in its adoption of cloud computing.
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Piracy Despite Canada being an advanced market, it was estimated by the Business Software Alliance (BSA) that in 2009, around 29% of software used in Canada was illegal or pirated. This represented a 3% fall from a rate of 32% in 2008. However, 29% is still high for a developed country, with the US having just a 20% rate. According to the BSA, total losses from illegal software in the Canadian market were around US$2.2bn in 2008. The industry continues to call for Canada to make more progress in establishing an environment of stronger copyright protection.
Market Trends In 2011, economic recovery and migrations to Windows 7 provided a continued boost to the operating system market. There was also a boost from systems upgrades deferred from 2009. The global recession may also have given additional momentum to alternative software delivery models such as SaaS and cloud computing, with a number of companies and public sector organisations announcing cloud computing strategies and pilots in 2010.
With the economic and political crisis having an impact in both public and private sectors in 2009, some vendors and their local partners reported a slowdown in business. More than 75% of Canadian market PC software deployed in 2009 was estimated to have gone to consumers, as business procurements fell.
Spending opportunities in the finance segment will be driven by regulatory compliance, due to regulations such as Basel II, HIPPA and the Sarbanes-Oxley Act, despite the global financial crisis. Mobile operators are investing in new operating support systems to reduce costs and support delivery of new services.
Operating Systems Microsoft has reported strong uptake of its Windows 7 operating system in the Canadian market with adopters including Ricoh Canada, Bombardier Aerospace, MMM Group and the government of London, Ontario. By all accounts, the Windows 7 launch went much more smoothly than that of its predecessor, Windows Vista, thanks to closer cooperation in the pre-launch period between Microsoft and other players in the software value chain, including PC vendors and end-users.
The economic downturn added to the trends that are driving adoption of open source software. The desire to make savings has led some businesses and customers to look more closely at open source software. However, many customers have now made a realistic assessment of the advantages and disadvantages of open source and have adopted a practical approach.
A key issue and precondition for the more widespread adoption of open source will be the development of a support infrastructure. Customers are increasingly looking to vendors to offer support for open source software. BMI expects this trend to continue with the development of more support infrastructure for the most important open source applications.
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Most netbook computers originally came with open source Linux operating systems due to the heavy systems requirement of Windows Vista. Netbooks were therefore seen as a threat to Microsoft's revenues. However, Microsoft has fought back, by allowing netbooks to ship Windows XP, bringing its market share back up.
Business Software Spending on applications such as ERP, CRM, financial management systems and information software is perhaps around 60% of the sub-category total. Middleware, such as database management systems and systems management tools, accounts for around 40%.
The majority of enterprise software demand, in functional terms, is currently for ERP, CRM and supply chain management (SCM). ERP demand drivers include increasing operational efficiency, coordinating global supply chains and modernising logistics and warehouse functions. Despite being a relatively mature market, there still remains plenty of potential for ERP implementations in industries such as consumer products, telecommunications, energy, engineering, construction, transport, food and beverage, retail and metal working. Meanwhile, CRM is estimated to have an addressable market of around U$400mn in Canada.
Meanwhile, data integration, business intelligence and other information-enabling software will continue to be one of the fastest-growing product areas. The explosive proliferation of data has fuelled demand for lifecycle data management solutions. Export-focused Canadian companies are looking for integrated tools that enable them to share critical sales and operations data and reduce costs.
Security also continues to be a leading priority for Canadian software users, with growing awareness of the need for sophisticated solutions. The growth of mobile e-commerce, social networking media and cloud computing models can be expected to fuel this trend.
Software is often seen as an investment that helps to save costs and that will make an impact on the bottom line. 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. Flexibility, cost and durability are priorities for Canadian SMEs. Major application areas such as ERP, CRM and business intelligence, security and supply chain management are increasingly being delivered by this method.
Cloud Computing The economic crisis may have given lasting additional momentum to cloud computing, with sales in this segment less affected by the downturn. The Canadian market remains relatively small, however, with the addressable market estimated at around US$400mn in 2011, after a 2008 survey found that only 20% of firms were considering this business model. Part of the problem appears to be apprehension about change,
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rather than lack of information about the potential benefits of the cloud model. A 2011 survey commissioned by Microsoft Canada found that nearly 73% of Canadian SMEs understood that cloudbased services was a cost-effective delivery model, but that just 30% were currently investing in such services. 83% of SMEs surveyed said that they found it hard to keep pace with new technologies, suggesting that simpler services may be required.
A more recent 2010 survey by consultancy KPMG seemed to indicate that Canadian cloud adoption was relatively low, with usage of the cloud for business information storage at only 13% in Canada, compared with 24% globally. This was, however, higher than the equivalent figure for the US, which was only 8%.
Demand for SaaS should grow, however, as smaller companies increasingly have to meet performance, visibility and compliance standards previously expected of larger companies. In 2010-2011, notebooks with embedded SaaS are expected to be of increasing interest to SMEs. SaaS potentially enables these smaller companies to meet these needs cost-effectively, enabling them to compete and offer better services. Canada's telecoms providers such as Rogers, Bell and Telus will partner with vendors to roll out new cloud computing offerings. Meanwhile, governments at all levels are also expected to be a growing market for cloud computing services as small towns and cities strive to cut costs and raise efficiency.
Meanwhile, Canadian consumers are also users of cloud computing services, although surveys suggest that currently few use such services for business information. The report by consultancy KPMG found that 72% of Canadian consumers use some sort of cloud computing services such as Hotmail and Google Docs, compared to just 51% of Americans. Relatively low rates of adoption by Canadian businesses may point to insufficient awareness about cloud services or security concerns.
Services
Canadian IT services spending is forecast to reach around US$22.3bn in 2012, up from US$21.4bn in 2011. The market continued to generate opportunities in 2011, after the economic crisis and political uncertainty had an impact on services spending in 2009, with projects being put on hold. The market is projected to approach US$25.4bn by 2016.
Market Trends In 2011, vendors reported a pick-up in IT project flow in key spending verticals. Given the fiscal constraints faced by the public sector, private sector demand for IT services should be relatively stronger. One significant demand driver will be organisations looking for help to utilise efficiencies from cloud computing, such as SaaS and infrastructure-as-a-service. Particular areas of opportunity for cloud computing include banking and retailing as organisations in these fields look to save money on hardware investments. BMI forecasts strong growth in hosting services and cloud computing spending in 2012.
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Overall, BMI projects that the Canadian addressable IT services market will grow by around 6% in 2012. The most severely hit area during the global economic slowdown were softer project-type spending such as consulting and software development, and these have the most potential for growth. Contractors were cut and hiring frozen as customers postponed projects and cut back on short-term spending. Meanwhile, maintenance spending held up relatively well, as companies increased spending on this area rather than purchasing new systems.
Drivers and Segments With growing pressure on prices and margins, Canadian companies are continuing to examine outsourcing as a tool for reducing costs and boosting efficiency, with Ontario's largest beer distributor, The Beer Store, among those initiating a new IT outsourcing arrangement. Meanwhile, hosting services are expected to be one of the fastest-growing segments of the IT services market.
Federal and local governments are one vertical where strong interest in cloud services is being expressed. Despite the long border with the US, the development cross-border cloud services may be restrained by uncertainties about differential regulations on the two sides of the border concerning security and data privacy. A major driver of demand for private cloud services is forecast to be the device proliferation, which sees growing numbers of employees deploying their own personal devices, such as tablets and smartphones, and using public cloud applications. This makes it harder for organisations to keep track of documents and related revisions.
IT services account for at least 46% of total Canadian IT spending. Application services are the biggest part of this, reflecting the maturity of the market. An evolution in Canadian government IT procurement is likely over the next few years, with the emphasis shifting back towards procurement of services. It is estimated that 40% of the public sector is due to retire over the next five years, creating a shortfall of skills, resources and experience.
Meanwhile, the fiscal pressures faced by Ontario and other governments, with stimulus spending having added to huge deficits by Canadian standards, should drive a focus on being more cost-effective through the use of outsourced services. However, the Ontario healthcare tender indicated that major projects will continue to be commissioned.
Despite the financial crisis, some elements of bank spending were relatively immune, particularly those driven by regulatory compliance. The need to cut costs may also encourage banks looking to streamline and consolidate datacentres, and vendors have reported little decline in demand in this area. In 2010, financial services giant Manulife Financial awarded a new multimillion-dollar IT services contract. Telecoms is another big spending IT vertical, with mobile operators investing to expand capacity and roll out new services.
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Outsourcing, which is to some extent countercyclical, was generally less affected, even if the view that recession actually acts as a driver for outsourcing spending does not necessarily hold up. As companies have come under cost pressures, they may be more tempted to use outsourcing as a way to reduce costs.
Industry Developments
Core Spending Review In 2011, the Toronto government launched a controversial Core Service Review to determine areas for cost savings. The government faces a challenging fiscal environment and this will continue to act as a restraint on IT spending. The review was a consultant-led process, which involved public consultations in May and June 2011.
Meanwhile, Canada's biggest province, Ontario, also faces severe budget challenges. In February 2012, the province's Finance Minister unveiled severe austerity proposals centred on eliminating Ontario's deficit, in part through the reform of public services delivery.
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Industry Forecast
The Canadian addressable domestic market for IT products and services is projected by BMI to reach US$47.4bn in 2012 and US$52.8bn by 2016. Canadian PC sales are expected to report single-digit growth in 2012, with unit sales projected by BMI at around 7.3mn units.
Government spending will continue to be constrained by a focus on cutting costs, with cost reviews being conducted by Toronto and Ontario, but there have been a spate of large tenders, highlighting continued opportunities within the sector.
Market Trends BMI expects Canada's IT market to continue to report moderate overall growth in 2012, although much will depend on the overall business environment. The IT market is forecast to grow around 4% in US dollar terms in 2012, with the private sector stronger than the public sector, due to the latter's fiscal constraints.
The 2011 growth rate suffered from base effects compared to that of the previous year's growth rate, when the market bounced back strongly thanks to pent-up demand in the wake of the global economic crisis. However, in contrast to many other mature markets, the Canadian PC market did at least remain in positive growth territory. BMI expects continued consumer restraint, due to intensifying competition for PCs from tablets and smartphones, the slackening of the netbook trend and price erosion.
Commercial segment IT spending should be driven by hardware refreshes, datacentre consolidation and a growing interest in cloud computing. Migrations to Microsoft's Windows 7 operating system, new form factors such as tablets notebooks and new Intel Core technology, have the potential to help sustain the current cycle of business hardware upgrades. Microsoft has reported strong demand for Windows 7 in the Canadian market.
Fiscal constraints faced by the Ontario government in particular represent a challenging environment for vendors. Meanwhile Toronto authorities have also launched a Core Spending Review targeted, which could have negative implications for IT spending. However a focus, by Ontario and other authorities, on deficit reduction through public services delivery reforms should also potentially represent an opportunity for IT vendors.
New outsourcing and IT services contracts in both public and private sectors have pointed to the underlying demand potential, and growing interest in cloud computing services is another driver. Canadian institutions in key IT spending sectors such as financial services, distribution and transport will continue to embark on complex IT projects.
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Growing interest in cloud computing is expected, with Canada currently lagging the US and some other advanced markets. Double-digit growth in hosting services is expected, as more service providers enter the market.
Drivers Key IT market drivers will include government ICT initiatives and stimulus measures, growing mobile and fixed broadband penetration, product and technology innovation, as well as economic recovery. The introduction of a 100% capital cost allowance rate for computer hardware and systems software acquired between January 27 2009 and February 1 2011 was estimated to represent a potential US$$700mn boost to the IT market in 2010.
The government's digital economic strategy provides a framework for IT market growth, with a number of two-year programmes having been confirmed in the federal 2010 budget. One key programme is Broadband Canada, which has received US$225mn of funding over three years to expand broadband coverage to under-served areas. The growing popularity of fixed and mobile broadband networks and applications has emerged as a significant IT market driver.
The popularity of consumer and business broadband applications, ranging from GPS to social networking to cloud computing, has boosted demand for netbooks and notebooks, which are being increasingly favoured for connectivity. In the consumer segment, due to consumers' preference to mobility, combined with lower prices, notebooks will continue to be the driver of the consumer PC market. Telecoms carriers such as Rogers have played a part in this by bundling subsidised netbooks with service contracts.
The government's stimulus package should drive spending by smaller businesses as they look to take advantage of this funding. Total government stimulus packages measures introduced in 2009 to support the ICT sector were estimated to have a total value of US$1.5mn. The government is also pressing ahead with e-government initiatives.
The economic downturn may also have accelerated the growth of outsourcing of non-core processes. Already, more and more software developments have been outsourced to India and other locations, and vendors will be able to make the case that external spending on IT solutions can help the bottom line and aid efficiency.
Segments The enterprise sector represents an evolving opportunity in BMI's 2012-2016 forecast period. Despite Canada being a relatively mature market, there still remains plenty of potential for ERP implementations in industries such as consumer products, telecommunications, energy, engineering, construction, transport, food and drink and retail.
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ERP demand drivers include increasing efficiency of global supply chains and logistics functions. Business intelligence and other information-enabling software will continue to be one of the fastestgrowing enterprise product areas. Companies in sectors such as logistics and retail are looking to realise efficiencies through sharing operations and sales data across divisions.
Cloud computing has made relatively slow initial headway in Canada compared with the US. The market in Canada remains relatively small, with a 2011 survey finding that only around 30% of SMEs were using this business model. However, more investment can be expected in the form of utility software and serviced-oriented architectures, rather than traditionally packaged PC software. Demand will be spurred as telecoms companies such as Rogers and Bell partner with vendors to launch cloud computing offerings.
As a result, data storage and security solutions will be a growth area. Smaller businesses are likely to prioritise security solutions and increasing data storage capacity. Many smaller businesses are still in the early stages of adopting more sophisticated high-volume data storage solutions, such as storage-area network and network-attached storage.
The consumer segment is thought to have remained the main IT market growth driver in 2011, however, with estimated private consumption growth of 2.3% in 2010 and similar in 2011, pointing to the relative health of Canadian household balance sheets. Strong consumer sales have become the main driver of the Canadian PC market, and now account for nearly 60% of sales, up from 40% a few years earlier.
Despite its fiscal constraints, the public sector is expected to be an important source of IT tenders over the next five years as the government moves ahead with its e-society and e-government agendas. A greater focus on buying modules and components rather than services has been reported by some vendors, but a shortage of IT skills and experience in the public sector may promote a reversal of this trend.
A major area of opportunity will be e-health, after US$500mn was assigned in the 2009 budget for this topic. The government had set a target for 50% of Canadians to have electronic health records by 2010.
Summary Overall, the hardware market is predicted to grow from US$15.2bn in 2012 to US$15.9bn in 2016, with PC sales rising from US$6.9bn to US$7.2bn over the same period. Software spending should rise from US$9.8bn to US$11.5bn and IT services from US$22.3bn to US$25.4bn over the forecast period.
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Table: Canada IT Sector Historical Data & Forecasts , 2008-2016
2008 IT Market (US$mn) IT Market (% Of GDP) Hardware sales (US$mn) Services (US$mn) Software (US$mn) PCs including notebooks (US$mn) ICT market, nominal value (% chg y-o-y) 42,800 2.86 15,408 19,260 8,132 6,934 7.00
2009 37,664 2.69 12,806 17,325 7,533 5,763 -12.00
2010 4,1807 2.65 14,632 19,022 8,152 6,585 11.00
2011e 44,734 2.65 15,341 20,557 8,835 6,904 7.00
2012f 47,418 2.66 16,034 21,900 9,484 7,215 6.00
2013f 47,513 2.70 15,838 22,053 9,621 7,127 0.20
2014f 48,225 2.72 15,843 22,499 9,886 7,129 1.50
2015f 49,672 2.73 16,078 23,287 10,307 7,235 3.00
2016f 52,404 2.75 16,709 24,690 11,005 7,519 5.50
e/f = BMI estimate/forecast. Source: BMI
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Industry Forecast Internet

Telecoms Sector Internet Historical Data & Forecasts , 2009-2016
2009 No. of Internet Users ('000) No. of Internet Users/100 Inhabitants No. of Broadband Internet Subscribers ('000) No. of Broadband Internet Subscribers/ 100 Inhabitants 37.42 26,225 77.88 12,600
2010 27,831 81.82 20,100
2011 29,451 85.74 24,321
2012f 30,555 88.12 27,483
2013f 31,676 90.52 30,002
2014f 33,238 94.13 31,802
2015f 34,354 96.44 33,074
2016f 35,121 97.73 34,728
59.09
70.80
79.26
85.74
90.07
92.84
96.63
f = BMI forecast. Source: BMI, International Telecommunications Union (ITU), CRTC, operators
In 2009 we added mobile broadband subscribers to our analysis and forecast for the Canadian broadband market. There were 10.0mn fixed broadband connections at the end of 2009, which bolstered our figures by an estimated 2.6mn active mobile broadband subscribers. This yielded a total of 12.6mn subscribers. New data from the CRTC suggest that the number of mobile broadband subscribers grew rapidly in 2010, reaching 10mn. Adding to the 10.1mn fixed broadband subscribers in service at that time, this took the total to
f = BMI forecast. Source: BMI
Industry Trends Internet Sector 2009-2016
20.1mn and made for a penetration rate of 59.1%. This will continue to grow and should approach 100% during our forecast period.
This does not mean that the entire population will have a broadband subscription, but many will have more than one form of subscription, a wireless broadband-enabled smartphone and a fixed -line connection at home, for example. Therefore, we believe that broadband penetration will reach 96.6% by 2016.
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Most fixed broadband service providers reported solid, admittedly low single-digit, growth y-o-y to Q411 and the market expanded 4.3% y-o-y. To an extent, this was helped by the fact that a considerable number of fixed lines remain in service as well as mobile network operators' reticence about extending coverage into under-populated and less economically vibrant areas of the country. The vastness of the country and the small population mean that bringing services to remote regions is expensive. However, operators are showing signs of willingness to expand, particularly wireless services, to these areas. Fixed-line operators are deploying fibre and WiMAX platforms, and expanding networks through acquisition, in order to gain from economies of scale. BMI expects to see further consolidation in the market place currently there are many smaller companies that look like ripe acquisition targets for the larger operators.
In November, the regulator CRTC released a report claiming there were 10mn mobile broadband subscriptions in the country at the end of 2010. We believe there were 11mn fixed broadband subscribers in the market in Q411, and that fixed and wireless broadband subscribers have been growing according to our Q4 estimates. As a result we have not adjusted our figures on last quarter. We believe that that the number of internet users will approach 97.7% by 2016, with around 35.1mn Canadians using the internet.
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Macroeconomic Forecast
Economy Should Weather The External Storm BMI View: The Canadian growth outlook remains relatively positive, though we expect a significant deceleration in activity in the first half of 2012 as the global economy cools. We maintain our overall view that private consumption is set to slow as business investment picks up as a driver of growth, but much will depend on the external picture and its impact on private sector confidence.
We estimate that Canada's economy grew by 2.4% in real terms in 2011, which was a challenging and volatile year by any measure. We expect to see growth of around 1.6% in H112, followed by a steady reacceleration over the course of H212, leading to a full-year average growth figure of 2.0% for 2012. This trend should continue into 2013, when we expect GDP growth of 2.5%. Our growth forecasts assume external headwinds from Europe and Asia, contrasted with an improving US economy. We also believe that the Bank of Canada is nowhere near tightening monetary policy, and is only likely to resume raising interest rates in 2013.
The second half of 2011 saw significant volatility in the Canadian economy, with sequential quarter-onquarter (q-o-q) seasonally adjusted annualised growth of 3.5% in Q1, -0.5% in Q2, 3.5% in Q3 and around 2.0% in Q4 by our estimates. The labour market lost 55,000 jobs in Q411, which pushed the unemployment rate up to 7.5% from a three-year low of 7.1% in Q311. This came despite a 2.7% y-o-y gain in real GDP growth in October, and other data that generally showed an improvement in activity in key areas such as auto production and housing starts. Furthermore, Q311 data indicated that exports bounced back strongly from a contraction of 6.4% q-o-q annualised in Q211, with a massive 14.4% increase, even as imports dropped by 3.2%. We interpret this as a one-off rebound following the disruption to global supply chains due to the Japanese earthquake and tsunami in Q111, rather than a major resurgence in the Canadian export sector. We expect export growth to tail off, with foreign demand waning amid economic difficulties in Europe and China, combined with a better, but still weak growth story in the US.
Domestic demand was weakening by the end of 2011, with business investment contracting outright in Q311 by 3.6% following three consecutive quarters of double-digit growth. Canadian consumers are still buying, but their purchasing power is waning, with even the 1.2% increase in private consumption in Q311 overshadowed by the drop in the savings rate to 3.5% compared with 4.1% in the previous quarter (and 4.8% in 2010). Propping up consumption via lower savings is not a sustainable trend. Overall, final domestic demand growth has weakened considerably since 2010, from around 6.0% to 0.9% in Q311. However, we believe that this softness is only temporary, and activity should pick up over the course of 2012.
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GDP By Expenditure Breakdown Private Consumption Households May Be Wary: We have slightly raised our forecast for real private consumption growth in 2012, to 1.9% (from 1.8% previously), while bringing it down for 2013 to 2.0% (from 2.2%). This owes in large part to the weakness in the consumer sector in late 2011. It is also because of some lingering concerns we have about the health of household income and balance sheets. The household debt-to-income ratio has hit 151%, which is not only a record, but also above that of US households. This is the result of the 2008-2009 period, when households borrowed to maintain consumption levels in the midst of the biggest global recession since the 1930s. This factor also helped Canada avoid a more prolonged recession.
Consumers are helped by low interest rates on those loans. Again, we do not expect interest rate hikes until 2013, but we believe that some household deleveraging is likely in the coming quarters, which will restrain spending. The big fear is a housing market will collapse, in a manner similar to that in the US since 2006. While we do not share this fear, we believe that house price growth (which is highly correlated with private consumption) is set to cool in 2012. Real disposable income growth in 2011 has been essentially flat, up only 1.1% y-o-y in Q311. This is due in part to stubborn inflation (though this is coming down), as well as mediocre wage increases in the face of labour market slack. We expect the unemployment rate to hover in the mid-7.0% range through 2012, coming down only in 2013 when economic activity picks up again. Until then, Canadian households may be wary, particularly given mounting global economic concerns affecting confidence. If another global financial crisis emerges, hitting Canadians' net wealth, it could curtail consumption even more.
Fixed investment Temporary Softness: Our real fixed investment growth forecasts have taken a hit across the board, owing to weakness in the latter half of 2011. We now estimate overall fixed investment growth of 7.4% in 2011 (from 8.0% previously), and are forecasting 3.3% growth in 2012 (was 4.5%) and 3.6% in 2013 (from 4.0%). Despite these revisions, our overall thesis that fixed investment will continue to act as a major driver of growth, taking the reins somewhat from the consumer, remains intact. However, it is clear that the global crisis is hurting confidence, and it may take some time to regain. Residential construction has been very strong, with a rise of 11.0% q-o-q in Q311, but this was more than offset by a 11.0% q-o-q drop in private business investment, leaving overall private investment contracting by 3.6% over the period. Inventories, too, subtracted 2.5 percentage points (pp) from headline growth in the quarter, and we expect this category to have a minimal contribution to growth in 2012 and be a slight drag in 2013. We expect the drop in private business investment to prove an anomaly, however. While it may not return to the heights of 2010 (10%-plus growth), we anticipate that owing to the strong Canadian dollar, low interest rates and an improving US economy, business confidence should return as 2012 unfolds. Given fears over a potential housing market crash (which we believe are slightly overblown), the residential segment is harder to predict, but we believe that it will contribute little to growth in 2012 and 2013 as existing housing inventories are unwound and, eventually, interest rates begin to rise.
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Net Exports Uncertain External Climate: Given fairly weak data up to November 2011, it looks as though net exports were a net drag to growth in Q411. This was despite fairly strong consumption data in Canada's biggest trading partner by far, the US. Nonetheless, our outlook for the Canadian export sector is not greatly different than it was three months ago. While it is true that we have increasing concerns over European demand, and a potential for a decline in commodity shipments on the back of a Chinese slowdown, the US looks to have grown briskly in Q411, and that momentum should carry on into 2012. Our 2012 forecast for real export growth remains at 4.0%, and we have in fact raised our 2013 forecast to 5.7% (from 5.5%) due in part to our downgraded forecast for the Canadian dollar. Imports, however, are set to slow even more, from 6.7% in 2011 to 3.6% in 2012 (previously 4.0%), rebounding in 2013 to 4.1% (previously 3.3%).
Government Spending Standing By: We have not drastically altered our forecasts for government consumption in 2012 or 2013, as we assume that the government will continue down its path of slowly reducing the federal deficit via slower spending growth. As such, we see real government consumption growth at 0.3% in 2012 (from 0.2% previously) and 1.1% in 2013 (from 1.5%). At these rates of expansion, the government is only set to contribute 0.1-0.2pp to headline GDP growth. In the event of a severe global downturn, we would expect the government to abandon austerity and use some of its ammunition to shore up domestic demand, thus pushing up government's contributions to growth. This would imply a step-up in its contribution to around 0.7-0.8pp (similar to its role in 2008-2009). That would equate to real government consumption growth of 3.5-4.0%.
Risks To Outlook Most of the main risks are mentioned above in the individual categories of expenditure sections. The biggest risk by far is the potential for a eurozone breakup, which would threaten the Canadian economy across the board, from business confidence, to trade, to financial markets.
Table: Canada Economic Activity
2011e Nominal GDP, CADbn Nominal GDP, US$bn

1 1 1
2012f 1,796.8 1,744.4 2.0 50,308 34.7 3.0 7.4

3
2013f 1,876.5 1,753.7 2.5 50,116 35.0 4.7 7.1
2014f 1,973.6 1,762.1 2.7 49,906 35.3 4.5 6.8
2015f 2,079.0 1,807.8 2.3 50,747 35.6 3.5 6.5
2016f 2,184.6 1,899.7 2.3 52,861 35.9 3.0 6.5
1,719.6 1,738.5 2.4 50,613 34.3

3
Real GDP, % change y-o-y GDP per capita, US$ Population, mn

2 1
Industrial production index, % y-o-y, ave Unemployment, % of labour force, eop

1 3
3.0 7.5
2
e/f = BMI estimate/forecast. Source: CanStat/BMI. World Bank/UN/BMI; Bank of Canada/BMI.
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Competitive Landscape
Hardware
HP leads Canadian PC market in 2011
Canadian telecoms companies launch iPad packages
International vendors dominate in the Canadian PC market. The top five vendors in Q411, according to estimates by market research firm IDC, were HP, Acer, Dell, Apple and Lenovo. a roster unchanged from the previous quarter. HP, Acer and Dell were the leading PC vendors ahead of rivals such as Toshiba and Lenovo.
HP's overall PC market share was estimated at around 24.1%, down from 24.9% in Q311. The company's shipments were also down 13% year-on-year. Acer's share was put at 20.6%, marking a recovery from a share of just 16.8% in Q311. The company's sales were also up a healthy 9.4% y-o-y. Dell's overall PC market share was estimated at 13.9%, up from 13.% in Q311%, although sales had slipped by 0.2% compared with the same period of the previous year. Apple's 12.1% share was down slightly from 12.3% in Q311, which remains the the best so far reported for the consumer electronics giant.
Acer's strong performance in Q411, earned the company its highest share of the market since the heyday of netbooks in 2009, and capped a strong 2011. The company's strong performance in the Canadian market in 2011 contrasted with its travails in the UK and other European markets. In Q111, secondplaced Acer had reported its highest ever share of the Canadian PC market, based on a strong performance in the consumer notebook segment. The company has ridden a surge in consumer demand to make steady progress in the Canadian market. In the notebook segment, Acer claimed the number one position in Q411, with a 24.3% share based on an estimate by IDC. Acer's nearest rival was HP, which had 22.7% of the notebook market.
The top five vendors in 2010, again according to IDC, were HP, Acer, Dell, Apple and Toshiba. 2010 saw the emergence of tablets, with Apple's iPad accounting for above 85% of sales in this category. BMI is among analysts to argue that tablet sales should be taken into account when compiling PC sales rankings, which would give Apple a top-five place. After going on sale in Canada in May 2010, initial consignments of the iPad quickly sold out at leading electronics retail outlets. Dual-capability Wi-Fi and 3G-compatible iPads were reported to be more popular with Canadian consumers than Wi-Fi only models.
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The much-hyped iPad2 was launched at Canadian stores in March 2011. Other vendors have followed Apple in releasing net tablet devices, which have a form factor between the size of a smartphone and a netbook. The arrival of Android-based tablets such as the Samsung Galaxy Tab should find a market among those who wish to share their Wi-Fi connection with other devices, something not permitted by the iPad. Meanwhile, in 2011, PC leader HP launched its new HP TouchPad tablet at Best Buy stores across Canada.
2010 saw a stalling of the previous upward trajectory of netbook sales. The stagnation of netbook sales affected vendors such as Acer, which had leveraged demand for netbooks into continued growth, despite a fall in overall PC shipments. The success of the three big vendors had extended to the netbooks segment, where HP, Acer and Dell were also the most popular brands on the Canadian market in 2010. US giant HP was the Canadian PC market leader as of Q310, with a 27.6% share, according to an estimate by market research firm IDC. Taiwanese leader Acer was second with 18.7% of shipments, ahead of Dell, Apple and Lenovo. HP also led in the desktop segment for the third quarter of the year.
However, Asian vendors such as Lenovo could receive a boost as a result of HP's recently announced plans to sell all or part of its PC division. Following the path of IBM, HP apparently plans to reduce its exposure to the increasingly competitive PC business, to focus more on higher-value services. Lenovo was the purchaser of IBM's PC division, with brands such as ThinkPad bolstering its credibility at that time, and the company has since built on that with series such as the IdeaPad, aimed at consumers. Lenovo is not likely to be interested in HP's Chinese business, but its operations in markets such as Canada and the US could be more attractive to it.
US PC giant Dell was optimistic about its prospects in 2011, with an expected pick-up in the commercial sector. Dell had mounted a strong global comeback from declining unit sales by moving aggressively into the retail segment. The company has thus moved away from its 'direct Dell' strategy of selling directly to customers.
Meanwhile, telecoms operators have emerged as another significant channel for PC sales, encouraging vendors to look for tie-ups with local telecoms companies. In 2009, HP reached an agreement with Canadian telecoms operator Rogers Communications, which will offer a 30% discount on HP netbooks to customers who sign a two-year data agreement. The deal was HP's second in North America, following a similar tie-up with Verizon Wireless in the US.
In 2010, telecoms companies competed to offer bundling deals involving Apple's iPad. Rogers and Bell were both offering plans that gave users 250MB of data for CAD15 per month, as well as a high-end plan that offered 5GB of data for CAD35 per month. In Q410, Rogers announced that it would offer Samsung's Android-based Galaxy Tab and there was speculation that it would also offer Dell's rival Streak tablet device.
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Meanwhile, another product segment to which tablet netbooks represent a potential threat is specialised ereaders such as Amazon's Kindle.There are currently around 700,000 book titles in Amazon's Kindle store, significantly more than the iBookstore. The Kindle is also significantly cheaper than the iPad, at around US$109 (and this price is likely to drop further), and has battery life of around two weeks compared with roughly 10 hours for the iPad. However, layouts and user-friendliness are both areas where the iPad outscores its rivals.
In May 2010, Indigo Books & Music, Canada's biggest bookseller, launched the Kobo e-reader device. The device comes loaded with 100 free e-books, as well as the iKobo desktop software used for e-book shipping.
Software
Microsoft launches cloud ERP solution
SAP, Nexus IT and other vendors compete for SME segment with hosted solutions
Operating Systems Microsoft has reported strong uptake of its Windows 7 operating system in the Canadian market with adopters including Ricoh Canada, Bombardier Aerospace, MMM Group and the government of London, Ontario. Windows 7 will likely continue to attract more support from businesses than Windows Vista, largely because Windows XP is now getting old. Many businesses that declined to upgrade from XP to Vista, due to reported problems with the latter, may now go straight to Windows 7. Microsoft will offer reduced support for XP until 2015, but hardware manufacturers will start to wind down their support from about 2012. This will be a key factor that should drive business upgrades to Windows 7.
Microsoft will also argue that Windows 7 can help businesses to save costs, enabling IT departments to run more efficiently. In particular, Windows 7 is better suited to virtualisation than either Windows XP or Windows Vista. Virtualisation looks set to become an important trend in IT spending in the next few years, as it allows businesses to simplify the management of desktop PCs by running desktop applications and storing user data within the datacentre. Given the current economic climate, however, IT directors will need to justify any upgrade in terms of cost savings.
The economic downturn added to trends that were driving adoption of open source software. The desire to make savings has led business and customers to look more closely at open source software in some cases. However, many customers now have a more realistic assessment of the advantages and disadvantages of open source and are adopting a practical approach.
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A key issue and precondition for the more widespread adoption of open source will be the development of a support infrastructure. Customers are increasingly looking for vendors to offer support for open source software. BMI expects this trend to continue with the development of more support infrastructure for the most important open source applications.
Business Software The main Canadian market enterprise software vendors are increasingly focused on the SME segment, rolling out a succession of product lines and software packages previously only available to larger companies. New SaaS releases have been tailored to SMEs' smaller budgets and particular organisational needs. Key application areas include security, enterprise communications, network and server virtualisation, as well as business intelligence.
Meanwhile, business software vendors have increasingly looked to expand through strategic acquisitions. This process is driven largely by demand for more targeted applications. In 2009, Oracle purchased Sun Microsystems for US$7.4bn. Oracle's acquisition came after IBM dropped its own bid to buy one of the most famous names in IT. Although not Oracle's largest ever acquisition, it was certainly one of the most significant in strategic terms, as it was Oracle's first hardware acquisition.
By adding hardware to the mix, the deal fits into Oracle's strategic plan to become a technology 'one stop shop' for its global customer base. However, Oracle can also get leverage from synchronicities with Sun software. Sun's Java platform, used to write platforms for websites and mobile phones, will be a major asset for Oracle. Sun's Solaris is a major platform for Oracle's database software.
The deal was just the latest in a string of acquisitions for Oracle that are estimated to have cost more than US$40bn. The acquisition will have an impact on the business software competitive landscape as rival vendors work out how they are affected. IBM, in particular, which many thought a natural fit for a Sun acquisition, will have to redefine its relationship with Oracle.
Meanwhile, Microsoft, used to leveraging its market leader status in the operating system segment, must play challenger to Oracle and SAP for business software clients. In July 2011, the company rolled out a special deal for its cloud-based CRM service, in an attempt to win business from cloud specialist Salesforce.com, as well as Oracle and SAP. The company was offering US$150 in cash per user seat (with a minimum of 50 seats per company and a maximum of 500) for customers that switched. The deal was open only to businesses located in Canada or the US and customers had to sign a two-year licensing subscription for the service.
Software-As-A-Service SaaS has emerged as one of the key growth areas of the worldwide software sector. Leading segment player Salesforce.com has now exceeded a US$700mn annual run rate and claims a strong fiscal position,
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with more than 35,000 paying customers. Major Salesforce.com accounts include Dell, the Japan Post, Cisco and Spring. These are all large customers that use multiple applications on the on-demand platform, instead of buying products from Microsoft, Oracle and other traditional vendors.
Popular SaaS applications include sales force automation, marketing automation, partner relationship management, service and support, and content management. Salesforce.com hopes to expand by providing an entire application development and deployment platform and on-demand operating platform as part of the infrastructure.
Demand for hosted software is expected to grow, as vendors and service providers team up to launch more services. In June 2011, Microsoft Canada announced that local solutions provider Waterloo Managed Software Services (WatServ) would provide cloud computing services based on Microsoft's new ERP in the cloud initiative. Microsoft will promote the solution, with partners WatServ and Tectura Corporation providing sales and implementation. Microsoft has been been working with WatServ for years and the pair have several local cloud computing customers. Tectura was one of the first Microsoft partners to embrace cloud computing. In the Canadian market, Tectura has helped to configure the Microsoft Dynamics ERP solution specifically for local manufacturers.
SAP has been perceived as being a relative laggard in the emerging hosted software trend. However, in May 2010, SAP revealed that it would bring its mid-market on-demand ERP offering Business ByDesign to the Canadian market in the first quarter of 2011. SAP is promising both multi-tenancy and singletenancy models.
Meanwhile, local vendors are also targeting a share of cloud business. In July 2011, Ottawa's Gridiron Software revealed that it had received an estimated US$5mn in new funding to help it begin marketing a cloud computing product. Gridiron is headquartered in Ottawa, but has a sales and marketing team based out of California. In the current climate of fiscal austerity, local city and small town governments are seen as a potential opportunity for hosted software service providers. Vancouver-based specialist SaaS provider BasicGov has two Canadian clients in Dryden (Ontario) and Red Deer (Alberta), and although most of the company's business is currently in the US, it plans to focus more on Canada.
Services
IT services vendors report improve project flow
Vendors focus on cloud computing opportunities
IT services vendors in the Canadian market reported a pick-up in projects in 2010-2011. In May 2010, US giant IBM announced that it had won an IT infrastructure operations and hosting contract from Canada's
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largest cooperative financial group Desjardins Group. The project followed a complete review by Desjardins of its IT services needs. Meanwhile, IBM also signed a CAD130mn five-year agreement with the Greater Toronto Airports Authority to create a smarter transportation system that will lead to greater efficiencies. In the solution, air carriers and other airport tenants will receive IT services directly from IBM to support critical operations and manage airline gates for all 60 airlines.
The pick-up in project flow also brought opportunities for leading local market service provider CGI Group, which recorded some big project wins. In August 2010, CGI announced that it had signed a sixyear US$46.2mn contract with eHealth Ontario, an Ontario government agency. CGI will design, build and manage a province-wide chronic disease management system and portal, which has been billed as the first of its kind in Canada. The system will be used initially to better manage diabetes care, a top clinical priority for the authority.
The eHealth Ontario win followed another high-profile success for CGI in July 2010, when the company announced that it had won a multimillion dollar contract renewal from financial services giant Manulife. The contract will be delivered through CGI's global delivery centre in Halifax, Nova Scotia, and CGI will continue to provide Manulife with systems development, maintenance and integration services. The initial agreement with Manulife was signed in 2004.
In the past few years, there have been a number of acquisitions and merger and acquisition deals. According to IDC, there were about 230 such deals globally in 2007 in the software and IT services space. In October 2009, computer hardware giant Dell made a US$3.9bn purchase of Perot Systems, while Xerox followed later in the month with its US$6.4bn acquisition of Affiliated Computer Services. Meanwhile, HP said that its integration of EDS was ahead of schedule, and in September 2009 HP changed the name of the EDS unit to HP Enterprise Services. Following the integration of the companies, HP had sought to leverage efficiencies by eliminating 19,000 jobs.
Another factor set to shape the IT services market over BMI's five-year forecast period is the trend for leading niche IT market players to seek to evolve into full IT service companies such as HP and IBM. Business software major Oracle and networking equipment leader Cisco are both moving on separate but parallel tracks to achieve this goal.
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Country Snapshot: Canada Demographic Data

Section 1: Population
Population By Age, 2005 (mn)
Population By Age, 2005:2030 (mn, total)
70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 -1.5 -1.0 -0.5 Male 0.0 0.5 Female 1.0 1.5
70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 -4.0 -2.0 0.0 2030 2.0 2005 4.0 6.0
Source: UN Population Division
Table: Demographic Indicators, 2005-2030
2005 Dependent population, % of total Dependent population, total, 000 Active population, % of total Active population, total, 000 Youth population*, % of total Youth population*, total, 000 Pensionable population, % of total Pensionable population, total, 000 30.5 9,818 69.4 22,312 17.5 5,646 12.9 4,172
2010 30.1 9,953 69.8 23,029 16.0 5,302 14.1 4,651
2020f 33.8 12,380 66.1 24,208 15.4 5,657 18.3 6,723
2030f 38.5 15,091 61.4 24,016 15.3 6,000 23.2 9,091
f = forecast. * Youth = under 15. Source: UN Population Division
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Table: Rural/Urban Breakdown, 2005-2030
2005 Urban population, % of total Rural population, % of total Urban population, total, 000 Rural population, total, 000 Total population, '000 81.1 18.9 26,170 6,098 32,268
2010 82.6 17.4 27,829 5,852 33,681
2020f 82.0 18.0 30,005 6,583 36,588
2030f 84.0 16.0 32,848 6,257 39,105
f = forecast. Source: UN Population Division
Section 2: Education And Healthcare

Table: Education, 2000-2003
2000/01 Gross enrolment, primary Gross enrolment, secondary Gross enrolment, tertiary 98 105 59
2002/03 100 109 60
Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. na = not available. Source: UNESCO
Table: Vital Statistics, 2005-2030
2005 Life expectancy at birth, males (years) Life expectancy at birth, females (years) 77.3 82.4
2010 78.2 83.1
2020f 79.9 84.1
2030f 81.0 85.3
Life expectancy estimated at 2005; f = forecast. Source: UNESCO
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Section 3: Labour Market And Spending Power

Table: Employment Indicators, 2001-2006
2001 Economically active population, '000 % change y-o-y % of total population Employment, '000 % change y-o-y male female female, % of total Total employment, % of labour force Unemployment, '000 male female unemployment rate, % 16,111 1.7 1.5 14,947 1.2 8,035 6,912 46.2 92.7 1,164 655 509 7.2
2002 16,580 2.9 1.5 15,308 2.4 8,182 7,126 46.5 92.3 1,272 726 547 7.7
2003 16,954 2.2 1.4 15,665 2.3 8,344 7,324 46.7 92.4 1,289 722 567 7.6
2004 17,183 1.3 1.3 15,950 1.8 8,480 7,466 46.8 92.8 1,234 685 549 7.2
2005 17,343 0.9 1.3 16,170 1.3 8,595 7,575 46.8 93.2 1,173 649 524 6.8
2006 17,593 1.4 1.2 16,484 1.9 8,727 7,757 47.0 93.7 1,108 608 500 6.3
Source: ILO
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Table: Consumer Expenditure, 2000-2012 (US$)
2000 Consumer expenditure per capita Poorest 20%, expenditure per capita Richest 20%, expenditure per capita Richest 10%, expenditure per capita Middle 60%, expenditure per capita Purchasing power parity Consumer expenditure per capita Poorest 20%, expenditure per capita Richest 20%, expenditure per capita Richest 10%, expenditure per capita Middle 60%, expenditure per capita 465 167 928 1,153 410 395 142 787 978 348
2007 527 190 1,051 1,307 465
2008 549 198 1,096 1,363 484
2009 497 179 991 1,232 438
2010 477 172 952 1,184 421
2012f 423 152 845 1,050 373
452 163 901 1,120 398
453 163 903 1,123 399
na na na na na
na na na na na
na na na na na
f = BMI forecast. na = not available. Source: World Bank, Country data; BMI calculation
Table: Average Annual Manufacturing Wages, 2000-2012
2000 CAD Wage growth, % y-o-y US$ 37,960 2.5 25,477
2006 43,118 0.4 38,012
2007 44,748 3.7 41,434
2008 46,468 3.8 44,681
2009 48,256 3.8 42,330
2010 50,016 3.6 42,748
2012f 53,917 3.8 41,475
f = BMI forecast. Source: ILO, BMI
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BMI Methodology
How We Generate Our Industry Forecasts
BMIs industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms.
Our approach varies from industry to industry. Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variables own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity.
When forecasting for some of our industry sub-component variables, however, using a variables own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA).
In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting.
It must be remembered that human intervention plays a necessary and desirable part of all our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not.
Transport Industry
There are a number of principal criteria that drive our forecasts for each transport variable:
GDP Growth As transport activity is heavily influenced by real GDP growth, this factor is examined to ascertain its relationship with overall trade volumes. Projected GDP growth is calculated using BMIs own macroeconomic and demographic forecasts.
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Real Trade Volumes The sum of imports and exports plays a particularly important role in developing countries with a small domestic industrial sector. In particular, the focus is on goods, as services do not employ transport. The volumes are forecast based on the following criteria: Trends manifested through historical data;
The impact of future step changes to the economy (such as future membership of the EU or some other regional body).
Port Traffic Port traffic levels act as a second opinion on trade volumes. However, this check needs to be used with caution as trade values and volumes do not always move over time in the same way.
Market Share The market share of each mode (road, rail, inland waterway, coastal shipping) for future years is based upon:
Trends in historical modal split data;
Evidence of government policy favouring one or more modes over others;
Government and or private sector investment plans in specific modes.
Sources
Sources used in transport reports include local transport ministries, officially released company results and figures, established think tanks and institutes and donor agencies such as the World Bank and the Asian Development Bank.
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INforMatIoN techNoLogy rePort

CANADA INFORMATION TECHNOLOGY REPORT Q2 2012

Part of BMI's Industry Report & Forecasts Series

Copy deadline: April 2012

Canada Information Technology Report Q2 2012

Business Monitor International Ltd

Canada Information Technology Report Q2 2012

IT Risk/Reward Ratings ................................................................................................................................... 9

Canada Market Overview ............................................................................................................................... 21

Industry Forecast ........................................................................................................................................... 31

Industry Forecast Internet ............................................................................................................................. 35

Macroeconomic Forecast .............................................................................................................................. 37

Competitive Landscape ................................................................................................................................. 40

Country Snapshot: Canada Demographic Data .......................................................................................... 46

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Canada Information Technology Report Q2 2012

BMI Methodology ........................................................................................................................................... 50

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Canada Information Technology Report Q2 2012

Headline Expenditure Projections

Key Trends & Developments.

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Canada Information Technology Report Q2 2012

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Canada Information Technology Report Q2 2012

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Canada Information Technology Report Q2 2012

Canada Political SWOT

Canada Economic SWOT

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Canada Information Technology Report Q2 2012

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Canada Information Technology Report Q2 2012

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Canada Information Technology Report Q2 2012

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Canada Information Technology Report Q2 2012

Table: Regional IT Risk/Reward Ratings Q212

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Canada Information Technology Report Q2 2012

Broadband Penetration Per 100 Population

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Canada Information Technology Report Q2 2012

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Canada Information Technology Report Q2 2012

IT Market Sizes 2011e (US$mn)

e = forecast. Source: BMI

IT Market Sizes As % Of National GDPs

e/f = estimate/forecast. Source: BMI

Business Monitor International Ltd

Canada Information Technology Report Q2 2012

IT Markets Compound Growth 2011e-2015f (%)

Business Monitor International Ltd

Canada Information Technology Report Q2 2012

Sectors And Verticals

Business Monitor International Ltd

Canada Information Technology Report Q2 2012

Business Monitor International Ltd

Canada Information Technology Report Q2 2012

Business Monitor International Ltd

Canada Information Technology Report Q2 2012

Market Structure (% Of Total IT Market) 2011e 2015f