global tech sector overview &...

GlobalTech Sector Overview& Trends 2nd October 2018

2

Global Tech Market

Overview

3Industry overview—Market overview

Spending (Billions of Dollars) 2016 2017 2018 2019 2020 2021 2022 CAGR

2017-22

Data Center Systems 170 181 188 190 189 187 184 0.3%

Enterprise Software 324 352 391 424 458 495 530 8.5%

Devices 631 663 706 715 720 725 732 2.0%

IT Services 894 933 1,003 1,048 1,098 1,151 1,209 5.3%

Communication Services 1,374 1,392 1,452 1,468 1,489 1,515 1,538 2.0%

Overall IT 3,394 3,521 3,740 3,846 3,954 4,072 4,192 3.5%

Global IT spending is forecast to grow at a CAGR of 3.5% over the period 2017-22

IT Spending by Sector, Worldwide, 2016-2022 (Current US Dollars)

• According to Gartner, global IT spending is expected to grow at a CAGR of 3.5% over the period 2017-22

• Declining US dollar is likely to cause currency tailwinds of ~3.2%

• Spending on IT around the world is growing at expected levels, and 3.0% is in line with the expected global economic growth of 3.3% in 2018

• Through 2018 and 2019, the US dollar is expected to trend stronger, while enduring tremendous volatility due to the uncertain political environment, North American Free Trade Agreement (NAFTA) renegotiation, the potential for trade wars and 140-character policy announcements

Key findings

Source: Gartner, Industry reporting


Data Center Systems are expected to register slow growth, whereas enterprise software is expected to grow at a CAGR of 8.5% over 2017-2022

• The worldwide enterprise software market will grow at a CAGR of 8.5% to reach USD530 billion by 2022

• In 2018, the enterprise application software market is likely to grow by 11.7% to reach USD205 billion in constant dollars

• Discontinuing coverage of consumer office suites spending caused the removal of between USD2.5 billion and USD2.6 billion from the global application software forecast from 2016 through 2022

• The infrastructure software market reflects changes in the operating systems (OSs), IT operations management (ITOM) and virtualization infrastructure software segments

• Growth expectations increased for the ITOM market as a result of faster-than-expected adoption of hybrid cloud-deployed ITOM products

• The constant-currency growth rate for data center systems for 2018 is expected to be 0.5%, with servers and enterprise network equipment (ENE) in particular causing the uplift

• The longer-term outlook continues to have challenges, particularly for the storage segment

• The server market saw a stronger ending than anticipated for 2017, and that strength is now expected to continue into 2018

• The strength was driven primarily by the component shortage for memory components, which have seen prices increase at a greater rate

• Component shortages are expected to continue throughout 2018, with the supply now not expected to ease until the end of the year

• Buying is expected to continue and increase throughout 2018. Prices are now expected to start to revert to the norm from 2017, so average selling prices (ASPs) are expected to decline in 2019 and 2020

• Growth in the ENE segment is expected to be Increase significantly in 2018 and 2019 in particular and, to a lesser extent, in 2020 and 2021. Increased levels of demand, both for replacements and new demand, are expected to have a positive effect on spending levels throughout the forecast period

Data Center Systems Enterprise Software

Source: Gartner, Forrester Industry reporting


The device market continues to see dual dynamics with some users holding back

• The worldwide IT services market is forecast to grow at a five-year CAGR of 5.3% in US dollars (4.7% in constant currency) through 2022, at which stage, the market size will be USD1.2 trillion in US dollars

• Segment growth will be varied. Infrastructure as a service (IaaS) will add the greatest amount of net-new spending, while more traditional infrastructure outsourcing (service desk outsourcing, end-user device outsourcing, and data center outsourcing) service delivery will contract

• Intelligent automation and hyperscale cloud are key forces shaping future spending

• Certain finance and accounting (F&A) business process outsourcing (BPO) providers are growing between 10% and 15%, while others are deliberately shrinking and realigning portfolios and, hence, revenue growth

• Gartner expects artificial intelligence (AI), robotic process automation (RPA) and more classic automation tools to dominate the next decade of F&A delivery

• The F&A BPO market is expected to register a CAGR of 3.4% (in constant currency)

• Total end-user spend for all devices is expected to show growth, reaching USD880 billion by 2022 in constant currency

• The device market continues to see dual dynamics, with some users holding back

• Those users who are buying are doing so at higher price points. As a result, end-user spending is expected to increase faster than units through 2022

• However, total end-user spending and unit shipments have been reduced compared with the previous forecast because demand is expected to slow for ultramobile premium and ultramobile utility devices, as well as for basic phones

• Smartphone unit shipments recorded the first-ever decline in 4Q17, as users saw falling incremental value from new technology in new phones, and smartphone buyers are deferring their buying decisions and marginally lengthening replacement cycles

• Total units are expected to reach 2,358 million units by 2022, with a flat CAGR between 2017 and 2022

• However, end-user spend is increasing, with overall device ASPs increasing slightly over the forecast

Devices IT Services


6

US and Asia-Pacific both have a share of around one-third of global tech spending

7%

• According to IDC, the global information technology industry surpassed USD4.5 trillion in 2017. If growth expectations materialize in the year ahead, spending is expected to reach around USD4.8 trillion mark

• The US is the largest tech market in the world, representing 31% of the total, or approximately USD1.5 trillion for 2018

• In the US, as well as in many other countries, the tech sector is one of the most significant contributors to GDP

• In the aggregate, the Asia-Pacific region, which encompasses Japan, China, Australia, India, and surrounding countries, accounts for one-third of the total tech spending. Asia-Pacific has increased its share of the global IT pie, driven by the rise of countries such as China and India, and the slower growth rates experienced in parts of Europe and other markets

• The vast majority of technology spending stems from purchases made by corporate or government entities. A smaller portion comes from household spending, including home-based businesses

Key findings

Industry overview—Market overview

Source: CompTIA, Industry reporting

33%24%

5%

33%

7

IBM is among the leaders in magic quadrant for digital experience platforms • Organizations are looking to use Digital Experience Platforms (DXPs) as they

move from web-centric to more pervasive, multi-channel digital experiences

• Many DXP offerings derive from portal platforms, web content management (WCM) systems, or enterprise content and collaboration systems as they evolve and converge to support individualized digital experience

• IBM is the leader in magic quadrant for DXPs

Key findings

Industry overview—Market overview


Key strengths• Market understanding: IBM anticipated DXP demands better than most

competitors, having espoused the virtues of the platform over five years ago. IBM's vision remains strong, with logical product packages and a keen eye for technological innovation

• AI: IBM was an early and aggressive adopter of AI to improve user engagement and the user experience. Increasingly, customers will be able to invoke IBM Watson services to support automation and improve relevance, guidance and the overall experience

• Functional breadth: Few DXP vendors can match IBM's list of capabilities, features and functions. These have been generated over a long (and continuing) history of supporting large enterprises with complex digital experience needs

Magic Quadrant for Digital Experience Platforms, December 2017

8Industry overview—Market overview (digital experience platforms)

Adobe provides best-of-breed functionality for digital experiences focused on digital marketing, Salesforce Community Cloud embraces advantages of a cloud architecture, and SAP looks to incorporate and scale user-centric design practices

Key players in digital experience platforms

Name Overview Strengths

Adobe Adobe delivers DXP functionality through a combination of the Adobe Experience Cloud, Adobe Creative Cloud, Adobe Document Cloud, and Adobe Cloud Platform, each of which encompasses many products and services. More specifically, Adobe Experience Manager (AEM), part of Adobe Experience Cloud, acts as the "center of gravity" for Adobe's DXP efforts

Digital marketing focus: Adobe provides best-of-breed functionality for digital experiences focused on digital marketing. When paired with Adobe Marketing Cloud and Adobe Advertising Cloud, Adobe's DXP offering serves as a premium offering for B2C and, increasingly B2B digital marketing

Packaging: Adobe Experience Cloud is a comprehensive set of well-regarded and logically rationalized DXP components. All Adobe Experience Cloud products share a set of core services geared toward assessing and optimizing digital experiences with a common framework for content and audiences

Usability: Adobe's focus on usability by business roles improves its customers' agility and responsiveness. Reference customers report that their marketing groups are empowered to create, manage and optimize brand sites and campaigns responsibly and without the intervention of IT staff

Salesforce Salesforce makes the Community Cloud offering the centerpiece of its DXP strategy. Community Cloud inherits core CRM features such as Sales Cloud, Service Cloud, Chatter (social collaboration) and Force.comcustom applications, as well as core capabilities from the Salesforce Customer Success Platform (such as search, identity, workflow, Lightning and APIs)

Cloud enablement: Salesforce Community Cloud fully embraces the advantages of a cloud architecture, such as reduced time to market, continuous innovation, improved security, high scalability, built-in mobile support and Big Data analytics

B2B and B2C use cases: Salesforce has significant strengths in, and adoption for, partner and customer-facing use cases. It offers rich, responsive, personalized experiences for business and partner communities and individual customers

Customer satisfaction: Salesforce Community Cloud customers report overall high levels of satisfaction. Those with experience of using traditional on-premises portal platforms and WCM systems as the basis of their DXPs often indicate that Community Cloud "just works"

SAP SAP identifies its DXP as SAP Cloud Platform Experience Maker User-centric design: SAP has gone further than most vendors to incorporate and scale user-centric design practices in its products and services. SAP Fiori supports simplification of business processes by role, as well as a general shift from monolithic solutions to activity-based apps. In addition, SAP's DXP offering adds integrated prototyping and end-user feedback tools

SAP family integration: Customers heavily invested in SAP business applications value SAP Cloud Platform Experience Maker's ability to simplify businessprocesses while working as an extension of SAP's many business applications

Industry expertise: SAP's deep vertical-market strategy, strong geographical presence, and stable and expanding role as a foundation for vital enterprise business processes make it a safe choice for SAP customers in a relatively volatile market


9

Global retail e-commerce sales are expected to reach USD4.1 trillion in 2020 at a CAGR of 21.3% since 2015 • Global retail e-commerce industry is expected to grow rapidly, with overall

sales increasing at a CAGR of 21.3% to reach USD4.1 trillion in 2020 from USD1.5 trillion in 2015

• Share of e-commerce sales in total retail sales is also expected to nearly double to 14.6% of total retail spending in 2020, from 7.4% in 2015

• Asia-Pacific is expected to be the largest retail e-commerce market, with sales expected to double by 2020 (USD2.7 trillion)

• The bulk of retail e-commerce is expected to come from the Chinese market, which is expected to reach USD899 billion in 2016, representing 47.0% of all such sales worldwide

• Expanding middle-class, greater mobile and Internet penetration, growing competition between e-commerce players, and improvement in logistics and infrastructure will propel e-commerce growth in the region

• Retail e-commerce sales in North America (second largest market) is expected to witness double-digit growth through 2020, fueled by increased spending from existing digital buyers, expansion into new categories such as grocery, and growing m-commerce sales

Key insights

Industry overview—Market size (online retail)

Source: Industry reporting

Global Retail e-Commerce Sales, 2015-2020F(USD billion)

2015 2016F 2017F 2018F 2019F 2020F

1,548

1,915

2,352

2,860

3,418

4,058

10

Trends

11Industry overview – Key Trends

• The growth of IoT aspirations and technologies has led to a host of technology innovations in edge devices, such as gateway servers, microdata centers, cloudlets, fog fabric nodes, intelligent routers, and device firmware

• Firms in the vanguard of this trend will engage customers more quickly and squeeze new efficiencies out of processes. Exploiting computing power on the edge will give them an actual edge

• Today, product designers develop most IoT solutions. In some cases, operational technology engineers build them to optimize processes that involve physical assets, such as managing devices in a factory or a fleet of cars. They employ IoT software platforms and use hardware such as gateway servers that are often not enterprise grade. Furthermore, a new class of IoT users is emerging that wants to consume IoT data: American Family Insurance and Liberty Mutual have partnered with Nest, for example

• As firms mature, two things are likely to happen. First, latency is becoming an issue as firms try to push more data to software that runs in the cloud or in the data center. Second, it is becoming increasingly uneconomical to do all processing centrally. Service providers like Atos are developing solutions that can extend central software platforms with distributed data processing and analytics across devices, the edge, and data centers. They are also partnering to take advantage of converged IoT hardware like HPE Edgeline

• According to Forrester, by 2020, a few leaders will have dramatically expanded their IoT capabilities to leverage improvements in edge computing. For example, Nutanix’ Intelligence Edge servers will include CPUs, GPUs, and storage and support running more general (and thus more useful) machine learning algorithms. General Electric is scaling up Predix on Amazon Web Services (AWS) and using it to anchor its own digital business transformation

IoT shifts computing toward the edgeGrowth in IoT has led to innovation in edge devices such as gateway servers, microdata centers, cloudlets, fog fabric nodes, intelligent routers, and device firmware


12Industry overview—Key trends

While blockchain spreads to many markets, employee experience is redefining apps

• Firms that focus on improving employee experience (EX) yield better customer experience (CX) outcomes and outperform their competition over time

• Effective EX delivers a personalized set of interactions, processes, and content that enables employees to succeed while enjoying their work experience. In the digital age, the workforce expects a technology-driven employee experience that reflects the level of innovation found in their consumer experiences

• Currently, however, few firms focus on EX, and global employee engagement levels have not improved in Gallup’s 17 years of keeping track. This trend is changing things, however, as firms discover that employees and firms benefit from enriched, seamless, contextual CX

• Good EX serves as a platform for employees to deliver customer value through their engagement, service delivery, communication, learning, collaboration, and talent development. Companies with great EX excel at effectiveness, ease, and emotion — and their customers have effective interactions with them, achieving what they expected during the process

• A 2016 IBM study showed that 95% of employees reporting a positive experience with their company say that they engage in activities that are beneficial to their organization but not necessarily part of their job; that drops to 55% for employees reporting a poor employee experience

• EX needs to provide dynamic, content-rich, and useful employee engagement every day, based on the employees’ context. Mobile, social collaboration, AI, machine learning, and other technologies will transform the employee experience to consumer-grade standards

• In another manifestation of power moving to the periphery, distributed trust systems—systems of methods, technologies, and tools that support a distributed, tamper-evident, and reliable way to ensure transaction integrity, irrefutability, and nonrepudiation—challenge centralized authorities

• Applications of blockchain go beyond cryptocurrencies to attack any market in which assets have to be tracked across owners. Maersk, for example, plans to use blockchain to build a distributed trust system to track shipments for customers and regulators

• Forrester does not believe secure blockchain and other distributed trust systems will eliminate the need for brokers and intermediaries. But they will change the function of those coordinating companies away from transaction brokering and toward services that use the technology to solve new transaction problems — such as managing on boarding, identity tracking, compliance reporting, and relationship management

Blockchain spreads to many markets

Employee experience redefines apps


13Industry overview – Key Trends

• The era of manual risk and security management is ending

• Security teams are struggling with investigating incidents and responding to threats quickly. Security automation and orchestration (SAO) promises to transform the S&R role

• The costs of security breaches, in terms of expense, customer impact, and reputational damage, are skyrocketing, so security leaders are looking to find ways to prevent the exfiltration of proprietary data

• Going forward (by 2020), SAO is expected to address escalating breaches and automate security

• Firms will move beyond manual procedures to defend against data breaches. Security leaders will look to create and communicate a strategic vision that helps their firm achieve its business goals

• They are expected to focus on identifying and stopping data exfiltration, without focusing only on attackers

• Technology leaders are expected to empower their security teams with a set of rules to drive automated detection and response

• As confidence levels increase, security pros will remove the analyst as a step in decision making and automate the entire process with SAO tools

Security automation and orchestration expected to gain tractionGoing forward (by 2020), security automationand orchestration is expected to address escalating breachesand automate security



Amid the wave of emerging technologies, artificial intelligence stands out as the one most likely to drive changes to the IT ecosystem

• Amid the wave of emerging technologies, artificial intelligence stands out as the one most likely to drive changes to the IT ecosystem

• Technology solutions are growing more complex and technology demands are growing more specific

• The answer to these issues is not found in constantly adding resources but in leveraging benefits of modern technology

• AI requires significant compute resources (which can be procured in the cloud), various algorithms that allow learning (which can be baked into products or provided as a service), and contextual awareness (which can come from IoT devices or massive collections of data)

• By adding a layer of intelligence to the technical solutions they are building, companies can both manage a more extensive IT architecture and solve a broader range of problems

• Not every company will necessarily need the skills to build new AI functions, but they will at least need the skills to manage AI components so that they are not just dealing with mysterious black boxes producing unexplained output

• Conversational platforms are expected to drive a paradigm shift in which the burden of translating intent shifts from user to computer

• These systems are capable of simple answers or more complicated interactions (book a reservation at the Italian restaurant on Parker Ave)

• These platforms are expected to continue to evolve to even more complex actions, such as collecting oral testimony from crime witnesses and acting on that information by creating a sketch of the suspect’s face based on the testimony

• The challenge that conversational platforms face is that users must communicate in a very structured way, and this is often a frustrating experience

• A primary differentiator among conversational platforms will be the robustness of their conversational models and the API and event models used to access, invoke and orchestrate third-party services to deliver complex outcomes

Conversational platforms expected to drive shift

Artificial intelligence adds a new layer to solution stack



Businesses look to upgrade their digital expertise at the board level, and digital employees are expected to enter white-collar workforce

• Aligning technology to optimally meet business objectives continues to challenge many organizations

• This starts with shortcomings in developing a strategy and vision that covers not only technology, but also the people and process elements

• Because most technology initiatives today span multiple functional areas and entail many moving parts – infrastructure, mobile environments, data, and integrations, projects can quickly derail without the necessary levels of commitment and resources

• Increasingly, organizations are recognizing the importance of having a tech-savvy C-suite and boardroom. This does not necessarily mean having deep technical knowledge, but rather having a feel for the tech landscape, knowing the types of questions to ask, and being able to push back on pursuits that may be a poor fit for the organization

• Additionally, with the consequences of a single digital misstep becoming more severe, board-level engagement with cyber security and data governance is no longer optional

Businesses seek to upgrade digital expertise in boardroom Digital employees enter the white-collar workforce

• Automation is expected to transform the workforce as technology advances result in humans increasingly working side by side with software robots

• Automation will replace some jobs and create others, with a net loss of 9.8 million US jobs by 2027 — while transforming at least 25% of the remaining jobs

• Many enterprises, however, lack an integrated approach to mining the value of white-collar automation

• Repeatable tasks that search, collate, update, access multiple systems, and make simple decisions provide today’s best targets for automation

• According to Forrester, by 2020, software robots will replace many routine tasks that humans do poorly

o Robots will engage in increasingly impressive work that drives customer outcomes. They will reshape CX by predicting customer needs, providing customer service, empowering online self-provisioning, allowing in-person self-service, and ceding full responsibility to self-service



SMBs have started increasingly embracing technology; however, most of the companies feel that their IT spending is about right

• Top SMB priorities for 2018 include customer retention, expansion into new markets, business process improvements, innovation, and workforce development – which will require the right mix of people, process, and technology to ensure optimal results

• According to CompTIA, SMB opinions of the perceived ROI they get from technology vary

• Perceptions of ROI roughly follow a bell-shaped curve. In the aggregate, 6 in 10 SMBs rate the ROI of the technology in use at their firm as good or excellent

• IT executives tend to give higher ratings than owners and business executives, while medium-size SMBs gave higher ratings than micro SMBs

Small business embrace technology, but gaps remain

IT spend to low IT spend aboutright

IT spend too high

SMB Perceptions of Spending Level

Much too low

Somewhat too low


17Industry overview—Key trends (Online Retail)

• Mobile commerce is driving the online retail business, and is expected to take over the e-commerce business in terms of share in the future

• While e-commerce is expected to grow by 15% in 2017, the mobile commerce segment is expected to grow at a rate of 31% over the same period

• The global m-commerce market is estimated to grow at 33.1% CAGR over 2016-22 (source: Research and Markets)

• Growing proliferation of smart devices, and increasing conjunction between offline and online activities is driving the growth in the global m-commerce market

• Leading players such as Amazon, eBay have launched their mobile applications for online shopping

m-Commerce driving growth

Increasing use of gamification

• Online retailers are increasingly using gamification to add a human element to online sales and enhance customer engagement, thereby driving up conversion rates and number of transactions

• Multiple vendors have emerged in the market recently with innovative platforms. These include:

o Start-ups, such as Shopcade, Covet Fashion, and Build-a-Bear, which have launched mobile platforms that offer a range of game mechanics such as points, badges and other virtual rewards for online shopping

o Established players such as Samsung, Best Buy, and eBay have integrated gamification elements within their retail strategy

• eBay has been gamifying shopping on its website for the last few years by integrating a bidding system, feedback application structure, and star awards for sellers, aiming to instil a competitive spirit among buyers and sellers

Mobile commerce is driving online retail sales, with major players such as eBay and Amazon launching their mobile apps


18Industry overview—Key trends (online retail)

• Driven by growing demand for personalized experience and with an increasingly tech-savvy customer base, retailers are deploying Augmented Reality (AR) and Virtual Reality (VR) in their online operations

• The number of users utilizing AR apps on smartphones, tablets, and smart glasses, is predicted to grow at a CAGR of 35.1% over 2014-18 to more than 200 million unique users (source: Juniper Research)

• Retailers are starting to use VR to improve store layouts and allow customers to try on clothes virtually; and create AR applications for in-store navigation. Applications include:

o Virtual shopping/ stores: Customers can search for and order products online or through a mobile device, using a picture, barcodes or QR codes of an item

o Magic Mirrors: Virtual dressing rooms, where consumers can create online avatars to try on clothes and other accessories

o Virtual Testing and Research: Retailers are embracing virtual testing to quantify how new packaging, graphics, structure, signage, secondary displays, price and size combinations impact shopper behaviour and sales

Increasing use of augmented and virtual reality

Increasing digital video advertisement

• Digital videos are being increasingly used in advertisements, and are expected to be a key sales driver going forward

• Mobile video ads are expected to grow 47% in 2017, faster than ads on social platforms (36%) or search tools (29%)

• Players including Google, Facebook, Snapchat, Yahoo, and Twitter are all aiming to compete for new video advertisement revenues

• Amazon launched its video advertisement business with Geico in 2014, in competition with YouTube

Players are adopting technologies such as augmented reality and virtual reality to deliver personalized experience, and are using digital video for advertising


19Industry overview—Key trends (smartphone industry)

As the market matures, several smartphone vendors are looking at new sources of growth to differentiate and add value:

Smart wearables

• Apple (Apple Watch), Samsung (Gear smartwatch), and Xiaomi now rank among the top-five global wearables vendors, according to IDC. Others include Huawei and Lenovo's Motorola

• However, the smartwatch market remains nascent

Services & Content

• Apple, Samsung, Xiaomi and others are tapping their installed base to offer new devices, services and content

• Apple has introduced services such as Apple Pay, CarPlay and Apple Music; and Apple Watch and an updated Apple TV device. Samsung offers Samsung Pay and Milk Music, while Xiaomi has invested in TV content, apps, games and mobile finance

Internet of Things (IoT)

• HomeKit, Apple's connected-home software, seeks to capture share in the IoT market, vying with similar offerings from Alphabet's Google, Samsung and others

• Large smartphone vendors such as Apple, Google, and Samsung are well positioned to capture share in this emerging segment, as smartphones are almost always used as the "remote control" for many IoT apps

Growth from wearables, content, services

Rise of new value-based players

• Oppo, Vivo, and OnePlus (all independently operated brands owned by Shenzhen (China) based BBK), are among the new wave of Chinese manufacturers offering premium Android-based phones at value prices. These have shifted market structures in their favour by gaining share from incumbents Samsung, Sony, Apple, and Xiaomi

o According to Gartner, global sales of smartphones reached 366.2 million units in Q2’17, with Vivo and Oppo achieving the best performances in the second quarter

• These companies’ growth has been due to selling in second tier cities and rural areas, using celebrities in marketing, and competing on specific features to differentiate themselves

o Vivo phones have hi-fi audio; Oppo phones have advanced cameras; and OnePlus combines good design with most features of a ‘top of the line’ Samsung at less than half the price

As the market matures, players are adopting value-added strategies, entering adjacent segments, and investing in technology topursue share gains


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