China Market Insights: One of the Biggest IT Growth Markets in the World Evan Zeng Research Director 3 June 2011 This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates. © 2011 Gartner, Inc. and/or its affiliates. All rights reserved. China Economy 2011: Uncertain Times Negatives • Global economy is in a weak recovery mode • RMB appreciation is expected to Positives accelerate, potential impact to • Steady and rapid GDP/FDI growth exporttt trad e • Investment and export-dependent • Firm domestic demand will offset economic model lacks power to export slowdown grow • Stro ng g r ow th of fix ed-asset • China GDP growth signals investment slowdown and fear of hard landing • Government's strong investment in • High CPI signals inflation, central industry upgrade, economic bank fffurther tightens the liquidity of structure transformation and money supply. regionally balanced development • GDP growth expected to remain above 8%-10% in the next four years vs. a worldwide average of 4% growth 1 Key Issues 1. What is the state of IT technology adoption and how big are IT opportunities in China? 2. What are the most promising technologies and local market insights in China? 3. What are the emerging opportunities in vertical markets and their business/IT priorities? 4. How can the bes t grow th oppor tun ities in China be exploited in the next five years? 2 IT Spending Forecast 2011 and Beyond End-User IT Spending Forecast, Market Situation: 2008-2014 • 2011 IT market predicted to be $274 billion (i.e., 27% Millions of D oll ars of the U. S. ) 1,200,000 • CAGR (2010-2014) for IT spending: 10.6% vs. 4% in 1,000,000 U.S. • Highly competitive market, global vs. local players 800,000 600,000 Market Opportunity: 400,000 • Market shift to boost virtualization/cloud computing • Government's strong push for ICT adoption, 200,000 infrastructure expansion 0 • 12th five-year plan's strategic focus 2008 2009 2010 2011 2012 2013 2014 • Industry upgrade and balanced regional development China U.S. IT Sppgending and Growth Rate 2010 ( ()$M) 2008 2009 2010 2011 2012 2013 2014 China 194,305 217,081 246,568 274,326 303,255 334,360 368,280 U.S. 956,920 931,605 972,846 1,008,330 1,047,369 1,090,045 1,135,469 China Growth Rate 12% 14% 11% 11% 10% 10% U.S. Growth Rate -3% 4% 4% 4% 4% 4% 3 IT Hardware Market 2008 Market Situation: 2009 • CAGR (2010-2014) of IT hardware: 14.3% vs. U.S. 2010 04%0.4% 2011 • The No. 2 IT hardware market in the world and will get close to the U.S. market size within the next five China 2012 years 2013 • Client computing market size will exceed U. S. by 2014 2013, major vendors are Lenovo, Acer Subsys • Enterprise computing major vendors: IBM and HP 2008 • Printing systems major vendors: HP and Canon 2009 • Storage subsystems major vendors: EMC and IBM 2010 Market Opportunity: 2011 U.S. • Big data is highest growth engine for storage 2012 • Client computing to grow more in rural and small 2013 cities 2014 • Infrastructure upgrade and expansion 0 50,000 100,000 150,000 • Data center consolidation and transformation Millions of Dollars • Managgped print service (MPS ) and commercial Client Computing Enterprise Computing printing Printing Systems Storage Subsystems • Cloud computing 4 IT Software Market China Enterprise Software Markets Opportunities Forecast (2008-2011) • China is the biggest and fastest-growing software Billions of U .S . D oll ars market in Asia/Pacific; CAGR (2008 -2014) 14. 6% vs. 14 U.S. 8.45% • Government policies promoting and supporting 12 CAGR = 14.6% software industry grow the local and open source development community 10 • High-tech parks in Tier 1 cities support software industry development 8 • Local vendors compete more in enterprise applications (ERP/CRM/SCM), while foreign vendors 6 have a strong foothold in infrastructure software area 4 • Government's cloud initiatives will drive IT spending in applications redesign in cloud or virtualized 2 environment. Threats 0 • The government favors local software vendors over foreign vendors in government procurement • Software piracy is still a very serious issue in China, Infrastructure Software more in the consumer and SMB markets Enterprise Applications Software • The price -sensitive culture makes local software vendors with low-cost structures compete solely on Source: Gartner "Forecast: Enterprise Software Markets, Worldwide, 2008-2011, 1Q11 Update" (G00211727) price 5 IT Services Market IT Services China, Market Situation: Forecast 2009-2014 • CAGR (2008-2014) for IT services: 17.6% vs. 5% in the U. S. Millions of U.S. Dollars 20,000 • No dominant player in the general market CAGR 2009-2014 = 14.6% • Customized and resource-intensive services • Wait-to-see cloud computing delivery model 15,000 Market Opportunity: • Government service economic initiatives in the 12th 10,000 five-year plan • Enterprises shift from hardware investment to productivity and operation efficiency 5,000 • SiService ven dors inves titflitdditit in portfolio standardization • Market shift to cloud computing delivery model • Lack of services experts and expertise in the market 0 Millions of U.S. Dollars 2008 2009 2010 2011 2012 2013 2014 400,000 300,000 Software Support, CAGR = 11.4% 200,000 Hardware Maintenance and Support, CAGR = 9.4% 100,000 Process Management, CAGR = 22.0% 0 IT Management, CAGR = 22.9% Developpg,%ment and Integration, CAGR = 17.9% 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014 Consulting, CAGR = 24.9% China U.S. Source: "Gartner, China and U.S. IT Services Market Comparison" Source: Gartner (March 2011) 6 Top Technologies and Adoption Status expectations Managed Print Service in China SaaS in China Data Deduplication Communications Outsourcing Machine-to-Machine Communication Services CRM, China Contact Center BPO in China TD-LTE IT Outsourcing — Infrastructure Services Infrastructure as a Service Long Term Evolution F&A BPO in China x86 Server Virtualization ERP, China Packaged Application Services Cu stom Application Services TD-SCDMA Domestic Office Productivity Suites Enterprise-Grade Domestic Linux (Client) Solid-State Drives Business Intelligence Platforms Blade Servers As of July 2010 Peak of Technology Trough of Plateau of Inflated Slope of Enlightenment Trigger Disillusionment Productivity Expectations time Years to mainstream adoption: obsolete less than 2 years 2 to 5 years 5 to 10 years more than 10 years before plateau "Hype Cycle for ICT in China, 2010" (July 2010) 7 One China, Four Markets — Geographic Focus 2010 GDP (Billions of Yuan) Provincial Economic Growth Plan by Province Under the 12th Five-Year Plan Guangdong, 4,547 Jiangsu, 4,090 Shandong, 3,942 Inner Mongolia Zhejiang, 2,710 Heilongjiang Henan , 2,200 Hebei, 2,020 Liaoning, 1,750 Jilin Sichuan, 1, 690 Shanghai, 1,687 Beijing Hunan, 1,590 Liaoning Xinjiang Hubei, 1,581 Hebei East Coastal Region Fujian, 1,380 Tianjin Gansu Beijing, 1,378 Shanxi North Eastern Region Anhui, 1,226 Ningxia Shandong Inner Mongolia, 1,162 Central Region Shaanxi, 1,002 Qinghai Jiangsu Heilongjiang, 1,000 Henan Western Region Shaanxi Guangxi, 950 Anhui Shanghai Jiangxi, 944 Xizang Sichuan Hubei Tianjin, 911 Zhejiang Shanxi, 909 Chongqing Jiangxi Jilin, 858 Fujian Chongqing, 789 Hunan Yunnan, 722 Guizhou Taiwan Xinjiang, 542 Yunnan Guangxi Guizhou, 459 Guangdong Gansu, 410 Hainan, 205 Ningxia, 164 Hainan Qinghai, 135 Tibet, 51 8 12th Five-Year Plan (2011-2015) The 11th Five-Year Plan The 12th Five-Year Plan 2006-2010 2011-2015 Investment-driven Consumption-driven Service/innovation on Rely on exports domestic market High energy Energy efficiency and consumption and environmental pollution protection Balanced regional Regional imbalance development 9 Government's 2011 Top Priorities Analysis: Control inflation Improve the agricultural products distribution network and stimulate improve infrastructures of rural, medium and small cities (i.e., • Optimize logistics cost to construct commercial trade and logg,istics, culture, ,p, sports, tourism, GIS logistics centers and chain stores domestic services, e-commerce, and broadband networks) consumer • Upgrade supply chain management Encourage private capital to enter into different industries, such spending • Promote GIS, e-commerce and as national facility, utility, finance, society services, etc. broadband services Analysis: Upgrade manufacturing : R&D,,g,gyy,, branding, energy efficiency, M&A, • ICT sector: Broadband, "triple play" and technology innovation, higher value chain… "Internet of things," software and cloud Transform Foster strategic industries: ICT, broadband, triple-play, energy economic • Energy and environment: Clean energy, savings, environmental protection, clean energy, biotech… smart grid, energy savings, reduce structure and pollution industrial Improve energy and transportation infrastructure: clean energy and efficiency, transport hubs, services economic restructuring • Industry relocation to Central and Western Foster new rural financial institutions, further develop the China financial markets, regional balanced development • Other sectors: FSI coverage, integrated transport hubs and service economy Analysis: Make education