Technology Outlook Survey 2013 by KPMG

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Technology Outlook Survey 2013 by KPMG

Technology Outlook Survey 2013 by KPMG

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  • 1. 2013 TechnologyIndustry Outlook SurveyEconomic pressurestemper opportunitieskpmg.com/us/techindustry
  • 2. © 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
  • 3. Table ofContents 1 Foreword 2 Demographics and methodology 3 Survey highlights 4 Detailed findings 4 Geographic expansion 6 Revenue growth 7 Revenue drivers: cloud and mobile 8 – Cloud and mobile revenues 10 – Cloud adoption trends 12 – Cloud and mobile adoption challenges 14 – Data and analytics adoption trends 16 Spending trends 17 R&D growth 18 R&D investment growth 21 Capital spending 22 Employment growth 24 M&A trends 26 Business challenges 29 Management initiatives 30 Political and regulatory change 31 U.S. economy expectations 32 Conclusion 34 About the author 34 Related thought leadership© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firmsaffiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
  • 4. © 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
  • 5. ForewordThe 2013 Technology Industry Business Outlook survey,now in its fifth year, reflects emerging perspectives fromU.S. technology executives about revenue and employmentgrowth, promising applications and platforms, R&D spending,and other trends.This year, U.S. tech executives continue to show moderate optimism aboutrevenue growth. As the tech industry roadmap continues to evolve, the trend,in the next one to two years, is for revenue growth to be driven increasingly bymarkets outside the United States, China, and India.Challenges such as losing market share due to lower-cost providers and politicaland regulatory uncertainties ranked as the top threats to tech companies’business models. In addition labor costs and pricing pressures are seen asgrowth barriers.Increased adoption of cloud and mobile technologies, the rise of new marketentrants, global expansion and growing concerns about economic pressures—inalmost every market in the world—are creating challenges and opportunities forthe tech sector.We hope you find the survey results insightful and welcome feedback about thefindings, or suggestions for next year’s survey.Gary MatuszakGlobal ChairTechnology, Media & Telecommunications© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firmsaffiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 1
  • 6. Revenue Company Type Title/PositionDemographics&methodologyKPMG’s 2013 Technology Industry Business Outlook is the firm’s fifthannual market pulse survey. The online survey reflecting the viewpointsof 102 technology industry executives in the United States wasconducted in February 2013.Public companiesPrivate companies$100 million to less than $1 billion$1 billion to $10 billionMore than $10 billionSenior VP/DirectorCEO, PresidentC-class (CFO, COO, CTO, etc.)Executive VP/Managing Director24%41%35%69%31%17%40%23%20%© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2 | 2013 Technology Industry Outlook Survey
  • 7. SurveyhighlightsThis year, just under 80 percent of the executives expect their company’s revenueto increase over the next year, compared with 77 percent in last year’s results. Theresponses also indicate the growing importance of markets such as Brazil, Canada,Mexico, and South Korea and lower revenue growth expectations for the United Statesand China.As global adoption increases for mobile and cloud technologies, revenue expectations continue to besignificant for these technologies. The majority of respondents say cloud and mobile revenues havemet or exceeded their expectations.Geographicgrowth andrevenue gainsexpectedContinued optimism is leading to further investments in products and servicesdevelopment, core R&D, acquisitions, and geographic expansion.Plans for employment growth reflect broader geographic diversity as emerging marketsincreasingly drive technology demand and many countries offer employment incentives.The United States, China, and India remain the leading countries for employment growth, withexecutives also citing plans to increase headcount in Brazil, Canada, Mexico, the United Kingdom,South Korea, and other countries.SpendingtrendsPricing pressures were cited as the most significant growth barrier over the nextyear, followed by increasing labor costs and the ability to remain on top of emergingtechnologies. Regulatory and legislative pressures also emerged as a more pressinggrowth challenge in this year’s results.The potential loss of market share to lower-cost producers was described as the largest business modelthreat, followed by political or regulatory uncertainty and the emergence of disruptive technologies.BusinesschallengesTech leaders’ expectations for a broader U.S. economic recovery remain muted.Respondents anticipating the economy to remain about the same rose significantly,with a notable decline in those with expectations for economic improvement in theUnited States.U.S. economyexpectations© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 3
  • 8. 68%75%77%2013United States2012 2011Brazil33%29%28%20132012 2011Canada26%21%13%20132012 2011Mexico15%9%3%20132012 2011DetailedfindingsWhile the United States and China were again cited for drivingthe highest percentage of revenue growth, this year’s surveydemonstrated the increasing importance of markets such asBrazil, Canada, Mexico, and South Korea.Geographic expansionThe United States and China are likely to bethe leading geographic markets for revenuegrowth over the next one to two years. Q: Which geographic markets do you believe will have the highest percentageof your company’s revenue growth over the next one to two years?© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.4 | 2013 Technology Industry Outlook Survey
  • 9. 53%51%58%2013ChinaIndia2012 201127%29%43%20132012 2011South Korea14%9%5%20132012 2011These trends can be attributed to factors in countries outside theUnited States, China, and India, such as improving economies,infrastructure investment, government incentives, and increasingtechnology adoption.— Gary MatuszakGlobal Chair, KPMG’s Technology,Media and Telecommunications practice“”Key markets expected to decline compared to 2012Key markets expected to show growth compared to 2012© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 5
  • 10. 15%79%6%% ofrespondents% of expectedincrease1146420+11-201-10% ofrespondents% of expecteddecrease00620+11-201-1077% 20% 3%3%21%76%201220132011Increase No Change DecreaseTechnology executives continue to demonstrate revenueoptimism. The majority (79 percent) expect their company’srevenue to increase over the next year. Thirty-eight percentindicate increases between 1 to 5 percent, followed by26 percent anticipating 6 percent to 10 percent increases.Notably, the percentage of the executives expecting significantrevenue increases (higher than 10 percent) rose to 15 percent,compared with 10 percent last year.Revenue growthMany expect their company’s revenue to increase one year from now. Q: How do you expect your company’s U.S. revenue to change one year from now?© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.6 | 2013 Technology Industry Outlook Survey
  • 11. As the industry continues to evolve, thetrend is for a wide variety of technologiesto drive revenue growth over the next oneto three years. Cloud and mobile (both at38 percent) were again cited as leadinggrowth drivers, but at lower levels thanin previous surveys. (see cloud trendson page 10)Greater expectations propelled data andanalytics into third place, as companiesin a broader range of businesses maketech investments to harness Big Data’spromise to enable real-time, actionableinsights about customers and emergingopportunities. (see data and analyticstrends on page 16)Cloud and mobilecomputing will be thebiggest drivers of revenuegrowth in the next one tothree years. Q: Which areas do you believewill be the biggest drivers ofyour company’s revenue growthin the next one to three years?38%38%33%21%20%16%10%Cloud Computing2012: 51% | 2011: 65%2012: 48% | 2011: 45%2012: 19% | 2011: 43%2012: 19% | 2011: 15%2012: 23% | 2011: NA2012: 22% | 2011: 20%2012: NA | 2011: NAMobile Computing(including mobile devices)Advanced Data & AnalyticsHealthcare IT and ApplicationsConsumerization of ITSecurityArtificial IntelligenceRevenue drivers: cloud and mobile© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 7
  • 12. Looking at revenue growth drivers in more detail, the majority(about three-fourths) indicated cloud technologies generally metor exceeded last year’s revenue expectations, with software as aservice (SaaS) leading cloud revenues.Cloud revenue generally met or exceeded last year’s forecast with SaaSas the main driver.Cloud and mobile revenues**Among those who say cloud computing is a big driver of company revenue growth in the next one to three years.Met forecastAbove forecast Below forecast28%28%44%United States cloud providers are increasinglyworking with customers to develop comprehensivecloud strategies beyond cost savings.—Gary Matuszak“” Q: Which best describes yourcloud revenue in the last year?IaaSPaaSSaaS Consulting services28%5%15%52% Q: Which service is the maindriver of your cloud revenue?© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.8 | 2013 Technology Industry Outlook Survey
  • 13. Mobile revenues matched or exceeded expectations, with mobileapps (31 percent), platforms (31 percent), and devices (28 percent)as the leading sources of revenue growth.Competition is increasing among tech companies to gainleadership in the applications and platform ecosystems,as traditional lines between notebook PCs, tablets, andsmartphones converge.Mobile met or exceeded last year’s forecast with mobile apps andmobile platform as its main drivers.*Among those who say mobile is a big driver of company revenue growth in the next one to three years.Met forecastAbove forecast Below forecast30%26%44% Q: Which best describes yourmobile revenue in the last year?Mobile apps Mobile platformMobile devices Mobile payments/commerce28%10%31%31% Q: Which service is the maindriver of your mobile revenue?© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 9
  • 14. Tech companies are known for rapid implementation of theirown technologies, so it is not surprising that the majority ofrespondents said their organizations have integrated cloud intotheir business strategies and operations. Fifty-seven percent ofthe executives reported no or minor challenges during their cloudadoption initiatives, compared with 15 percent who reportedmajor problems.Also not surprisingly, the favorable cloud implementationexperience indicated by tech leaders is higher than the executiveresponses in nine other industries recently surveyed by KPMG.A majority say they have adopted cloud, and found little to no challengesintegrating it into their business strategy and operations. Q: When it comes to cloud adoption,which of these statements are most truefor your organization?Cloud adoption trendsWe have adopted cloud, and found it an easyintegration into our business strategy and operations14% 3% 11% 16% 8% 8% 7% 10%We have adopted cloud, and found minor challengesintegrating it into our business strategy and operations43% 20% 24% 31% 17% 23% 19% 25%We have adopted cloud, and found major challengesintegrating it into our business strategy and operations15% 15% 11% 17% 10% 12% 12% 4%We plan to adopt cloud, and believe we will easilyintegrate it into our business strategy and operations12% 12% 18% 5% 17% 9% 14% 16%We plan to adopt cloud, and believe we will faceformidable challenges integrating it into our businessstrategy and operations1% 15% 9% 9% 16% 13% 20% 13%We have no plans to adopt cloud 9% 16% 15% 10% 19% 22% 14% 11%Don’t know/NA 6% 19% 12% 12% 13% 13% 14% 21%RetailBankingCommercialRealEstateMedia&TelecomEnergy&UtilitiesFood&BeverageInsuranceRetailTechnology© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.10 | 2013 Technology Industry Outlook Survey
  • 15. Switching to cloud is a significant undertakingwith major implications across the organization.Cloud vendors play a vital role in helpingcustomers present a compelling commercialargument for cloud, and also in the wholemigration and implementation process.—Tom Lamoureux, KPMG’sGlobal and U.S. Advisory Leader, Technology“”© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 11
  • 16. Cloud and mobile adoption challengesCloud-related security/privacy governance concerns increasedthis year, which may reflect a number of highly publicized outagesof cloud services, the growing number of workers accessingcorporate data on mobile devices, and reluctance among someenterprises to trust critical organizational data to a cloud serviceprovider. Cloud customers remain concerned about data lossand intellectual property theft, but are also becoming morecomfortable with mitigation and protection strategies.Reflecting the transformational potential of cloud, and theimportance of comprehensive change management programsbeing embedded into major initiatives, corporate culture andchange management (a new category this year) was cited by30 percent of executives as a notable adoption challenge. Q: What do you see as your biggest challenges for businesses to adoptcloud technologies in the next three years?Security/privacy governanceCorporate culture/change managementTechnology complexityCustomer adoptionDisplacement of existing tech roadmapRisk managementRegulatory complianceOtherMeasuring ROICost22%23%13%9%10%24%20%27%18%25%16%16%21%21%30%NA47%39%1%0% 2013 2012© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.12 | 2013 Technology Industry Outlook Survey
  • 17. The importance of security/privacy governance declined formobile as well as risk management concerns, reflecting agrowing understanding of the associated risks and increasingadoption of governance strategies.Security/privacy governance remains the biggest challenge forbusinesses in adopting social media, cloud, and mobile technologies. Q: What do you see as your biggest challenges for businesses to adoptmobile technologies in the next three years?Security/privacy governanceCorporate culture/change managementTechnology complexityCustomer adoptionDisplacement of existing tech roadmapRisk managementRegulatory complianceOtherMeasuring ROICost2013 2012© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.32%40%24%NA24%21%23%18%15%19%16%29%18%17%20%11%22%23%1%0%2013 Technology Industry Outlook Survey | 13
  • 18. Data and analytics adoption trendsMuch of the data in the world today has been created in the lastcouple of years. As the rate of data continues to increase, techcompanies are capitalizing on the opportunity to enable theircustomers to find new insights that will impact their bottom line.As tech companies implement data and analytics they seecustomer acquisition, operational excellence, and competitiveintelligence as the top areas to gain actionable insights. This trendwas consistent with other KPMG industry surveys conducted inparallel with the tech industry survey.Acquiring customers and improving operational excellence represent thebest use of data and analytics in driving actionable insights.Product positioning 26% 20% 18% 40% 16% 42% 30% 21%Acquiring customers 37% 32% 32% 45% 19% 35% 35% 36%Competitive intelligence 30% 25% 37% 28% 30% 32% 33% 26%Human capital 14% 7% 16% 12% 15% 18% 10% 17%Operational excellence (operations, supply chain) 34% 33% 39% 39% 48% 49% 27% 50%IT infrastructure 24% 25% 20% 18% 20% 16% 17% 31%Finance 14% 16% 29% 16% 14% 19% 21% 20%Government regulation 11% 24% 10% 10% 22% 9% 13% 6%Risk management 15% 51% 17% 12% 31% 9% 37% 9%Other 0% 2% 1% 1% 3% 2% 0% 1% Q: Which of the following itemsrepresent the best use of data andanalytics in driving actionable insights?RetailBankingCommercialRealEstateMedia&TelecomEnergy&UtilitiesFood&BeverageInsuranceRetailTechnology© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.14 | 2013 Technology Industry Outlook Survey
  • 19. My company has high data and analytics literacyMy company is rapidly moving toward becoming an enterprise with highanalytical literacyMy company is about average when it comes to utilizing analytics, and ourmanagement team and workforce have an average analytical literacyMy company has some data and analytics capabilities, but at the momentwe are behind our competitors when it comes to utilizing analytics, and ourmanagement team and workforce have average to low analytical literacyMy company has no formal data and analytics capabilities, and ourmanagement team and workforce have low analytical literacyDon’t know24%23%33%11%6%3% Q: When it comes to data and analytics literacy at your company, whichof these statements are most true for your organization?© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 15
  • 20. 14Tech companies continue to invest to remain competitivein the long term. Increased spending is expected in productdevelopment, core R&D, and acquisitions. The continuedrevenue optimism among tech executives is also an indicator offurther investments in cloud and mobile expansion strategies.New products/services will continue to be first in line to see increasedspending over the next year. Q: In which three areas do you expect your company to increasespending the most over the next year?New products or servicesResearch and developmentAcquisition of a businessInformation technologyGeographic expansionAdvertising and marketing/branding3932302625% in 2013483447332514564038241516% in 2012 % in 2011Spending trends© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.16 | 2013 Technology Industry Outlook Survey
  • 21. 2013R&D growth% ofrespondents% of expectedincrease346020+11-201-10% ofrespondents% of expecteddecrease/don’tknow00320+11-201-102012 2011Increase No Change Decrease/Don’t KnowLooking at R&D spending broadly, the number of U.S. techexecutives who expect R&D investments to increase fell slightly(67 percent this year, versus 70 percent in 2012). Q: What do you expect your company’s R&D spending to be likeone year from now ?A significant majority expect their research and development spendingto increase in the next year.25%67%8%70% 23% 7%9%21%70%© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 17
  • 22. 79%91%97%2013United States2012 2011Brazil18%10%7%20132012 2011Canada26%14%13%20132012 2011Mexico10%6% NA20132012 2011Matching expectations for revenue and employment growth,respondents showed increases in R&D spending in morediversified international markets. While the United States remainsthe leading location for increased spending, it recorded a notablepercentage decline from 91 percent of those surveyed in 2012 to79 percent this year.R&D investment growthA majority expect research anddevelopment spending to increase inthe United States over the next one totwo years. Q: In which geographic markets do youexpect to increase R&D spending the mostover the next one to two years?© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.18 | 2013 Technology Industry Outlook Survey
  • 23. 38%45%52%2013ChinaIndia2012 201143%43%53%20132012 2011UK30%23%26%20132012 2011South Korea13%9%6%20132012 2011Reflecting slower economic growth, intellectual propertychallenges, and increases in labor costs, China (third, at 38 percent)fell below India (now second, at 43 percent) as an attractivelocation for R&D investment growth. And highlighting increasedglobalization of R&D spending, the United Kingdom, Canada, andBrazil were among the nations targeted for notable R&D spendingincreases.Key markets expected to be flat or decline compared to 2012Key markets expected to show growth compared to 2012© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 19
  • 24. © 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.20 | 2013 Technology Industry Outlook Survey
  • 25. Tech leaders’ plans for capital spending were consistent withprevious KPMG surveys, reflecting continued industry optimismto invest for further growth. Nearly half of the companies planto increase capital spending outside the United States, withChina, India, Brazil, and Mexico among the leading markets forinternational capital investments.This broad-based tech-sector optimism aligns with the KPMGGlobal Semiconductor Survey, in which 73 percent of respondentsoutlined plans to increase hardware and software investmentsin 2013.A majority say their company’s capital spending will increaseover the next year. Q: What is the outlook for capital spending by yourcompany over the next year?2013% ofrespondents% of expectedincrease334820+11-201-10% ofrespondents% of expecteddecrease11920+11-201-102012 2011Increase No Change Decrease35%54%11%54% 34% 12%12%35%53%Capital spending© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 21
  • 26. 61%77%86%2013United States2012 2011Brazil26%15%21%20132012 2011Mexico21%14%7%20132012 2011Canada23%19%9%20132012 2011The United States, at 61 percent, remains the leading market foremployment growth, followed by China (49 percent) and India(48 percent).Reflecting increased technology demand in new markets, moreexecutives cited plans to increase headcount in Brazil, Canada,Mexico, and South Korea, among other countries.Employment growthThe United States and China are likelyto provide the highest percentage ofemployment growth over the nextone to two years. Q: In which geographic markets do you believe you willhave the highest percentage of employment growth overthe next one to two years?© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.22 | 2013 Technology Industry Outlook Survey
  • 27. 49%44%52%2013ChinaIndia2012 201148%44%51%20132012 2011UK21%24%19%20132012 2011South Korea12%5%6%20132012 2011Anticipated revenue growth and employment growth rates are closelyconnected, so we are seeing increased employment expectations in anumber of countries that see revenue growth.— Gary Matuszak“”Key markets expected to decline compared to 2012Key markets expected to show growth compared to 2012© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 23
  • 28. Considering plans to make an acquisition in the next year, more than 40 percentof respondents said their organization was very or somewhat likely to purchaseanother company, down from 66 percent in 2012. Q: What is the likelihood that your firm will be involved in a merger/acquisition inthe next year? 2012/2011 question: What is the likelihood that your firm will be involved in a merger/acquisition in the next two years?Very/somewhat likely (as a buyer)Very/somewhat likely (as a seller)Somewhat likely (as a buyer and seller)No plans for M&A activityNot sure/don’t know411862510% in20136815NA1076611NA194% in2012% in2011M&A trendsWith large-scale technology deals in recent years reducing the supply ofavailable high-value targets, tech companies continue to add to recordcash levels and to focus on core products and services. As cloud andmobile grow in importance, tech companies are increasingly acquiringindustry-specific expertise to accelerate product and service development.— Richard Hanley, KPMG’s U.S. Advisory industry leaderTechnology, Media and Telecommunications“”© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.24 | 2013 Technology Industry Outlook Survey
  • 29. Access to new technology and products, new geographicmarkets, and product synergies were other leading driversof alliances, mergers or acquisitions.Labor cost pressures, alluded to earlier as a threat to growthand business models, rose significantly as a driver of M&Aactivity or alliances. Q: Which of the following do you think will be the most important drivers ofalliances, mergers, and acquisitions in the industry over the next year?Access to new geographic marketsProduct synergiesProduction cost pressuresLabor cost pressuresAccess to new technology and productsOtherAccess to employees with new skills and expertise% in201363344711281636931501031121% in2012% in20111921235633937© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 25
  • 30.  Q: Which of the following are the most significant growth barriers facingyour company over the next year?Highlighting more competition and economic concerns,respondents cited pricing pressures (38 percent) as their mostsignificant growth barrier over the next year. Reduced pricingstrength in some segments reflects continued technologicalevolution and commoditization of products considered innovativein recent years.Labor costs and an ability to remain on top of emergingtechnologies tied (at 24 percent) as the second-most-significantgrowth barriers, with increased concern about labor costs likelycaused by higher wages in China and India, and a correspondingdilution of cost advantages in those markets.Pricing pressure is viewed as the most significant growth barrierover the next year.Staying on top of emerging technologiesLabor costsU.S. dollar strengthRegulatory and legislative pressuresPricing pressuresIncreased taxationLack of customer demandLack of qualified workforce% in20134136161332129133834201826111216% in2012% in20111638142412242221Business challenges© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.26 | 2013 Technology Industry Outlook Survey
  • 31. Losing share to lower-cost producers and political/regulatory uncertaintyare the biggest threats to companies’ business models.Losing share to lower-cost producersPolitical/regulatory uncertaintyEnergy costsDisruptive technologiesInability to find visionary leadershipLack of qualified workforceAbility to find capitalCustomer/employee mobilityOther33%31%12%25%4%22%1%17%13% Q: What issues pose the biggest threat to your business model?In a new question this year, the potential loss of market shareto lower-cost producers was cited by tech executives as theirlargest business model threat, followed by political or regulatoryuncertainty. These threats were largely aligned with leaders’ viewsabout growth challenges.Pricing and operational efficiencies are key areasof focus as tech companies manage their globalstrategy and supply chains.Tech leaders are alsopaying close attention to economic pressures andpolitical and regulatory uncertainty, which historicallyhasn’t been high on their list of concerns.—Gary Matuszak“”© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 27
  • 32. © 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.28 | 2013 Technology Industry Outlook Survey
  • 33. Management initiativesAsked about leading management initiatives over the nextyear, tech executives again cited investments in organicgrowth (18 percent) and improving operational processesand technologies (17 percent) at the top of their to-do lists.A new category in this year’s survey, entering new markets, likelyreduced percentages from other responses and ranked third-- consistent with the overall focus on growing revenues andoperations in more diversified international markets.Top management priorities remain consistent, however “new markets”selection reduced percentages from top two responses. Q: What initiative do you expect to undertake over the next year that willconsume the most time, energy, and resources, from a management perspective?2012/2011 question: What is the top initiative from a management perspective for the next two years in terms of energy, time,and resources?% in2013% in2012% in2011Significant improvement of operation processes and related technologyEntering into new marketsMerger/acquisitionsSignificant changes in business modelSignificant investment in organic growth(new product development, pricing strategies, geographic expansion)Navigating significant changes in regulatory environmentSignificant cost reduction initiativesImprove enterprise risk management programs/processesStrategic divestiture of current assetsOtherSignificant changes to financial processes and related technology3719NA161012121113427NA9982172111186176134121120© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 29
  • 34. Asked about their preparation to manage potential impacts frompublic policy and regulatory changes, 88 percent of the techleaders felt either somewhat (59 percent) or very (29 percent)prepared to respond effectively.Although regulatory or political challenges have not traditionallybeen a high concern for tech firms, the growing importance isperhaps a sign of the industry’s continued maturity and a strongerwillingness to engage with the political and regulatory process.As one might expect, the percentage of leaders saying they were“very prepared” to manage the impact of regulatory changewas highest (42 percent) among the companies with more than$10 billion in revenue.Preparation to manage the impact of public policyand regulatory changes. Q: How prepared is your company to proactively manage the impact of publicpolicy and regulatory changes?7592955% Not prepared% Somewhat prepared% Very prepared% Don’t knowLess than$100 million$100 million toless than $1 billion$1 billion to$10 billionMore than$10 billion0 000068225454213Political and regulatory change© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.30 | 2013 Technology Industry Outlook Survey
  • 35. 2012 2011A majority expect a moderate improvement in the U.S. economy, oneyear from now, down somewhat from last year.U.S. economy expectationsIncreaseSameDecreaseDark RedRedCoralOrangeBrightYellowTanDark GreenTurquoiseKPMG Dark Blue*KPMG BlueKPMG Light Blue*Bright GreenDeep PurpleVioletPowder BlueGraySageLavenderSlateGreenSecondary colorsAfter years of challenging macroeconomic conditions, techleaders’ expectations for the U.S. economy remain muted. Thetrend this year is a significant increase in respondents expectingthe economy to remain about the same, with a notable declinein the expectations for moderate economic improvement in theUnited States. Q: A year from now, what are your expectations for the U.S. economy?IncreaseSameDecrease11% 10%17%36%72% 54%2013IncreaseSameDecrease11%60%29%© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 31
  • 36. Conclusionhis year’s survey results reflect a strongerinternational emphasis among U.S. - basedtechnology leaders, with executives calling forhigher revenue, employment growth, and R&Dspending in markets outside traditional tech research andmanufacturing strongholds such as the United States,China, and India. A broader range of markets is offeringattractive growth opportunities and attracting increasedindustry investments. Optimism about revenue andgeographic growth is also reflected in spending plans.Cloud and mobile continue to be the leading technologiesdriving revenue growth. As these technologies mature andenable the growth and management of data, the trend isfor data and analytics to provide attractive opportunitiesto increase revenue as enterprises invest to harness thepotential benefits of cloud transformations and Big Datainitiatives.Concerns expressed about pricing pressures, increasedlabor costs, regulatory and political pressures indicate theimportance for tech leaders to be prepared to managethe impact of economic and political changes in theUnited States and abroad.Consistent with previous surveys, tech sector leaders havemuted expectations for the U.S. economy, with a notabledrop in expectations for economic improvement.T© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.32 | 2013 Technology Industry Outlook Survey
  • 37. © 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.2013 Technology Industry Outlook Survey | 33
  • 38. About the authorGary Matuszak is the global chair of Technology, Media &Telecommunications at KPMG and chair of KPMG’s TechnologyInnovation Center. Mr. Matuszak works with global technologycompanies ranging from the Fortune 500 to pre-IPO startups,and represents KPMG in a number of organizations affectingthe industry. He has influenced the development of key industrypositions on several issues that impact the technology sector.ContributorsMike AlvaAssociate Director, Technology IndustryExternal CommunicationsKevin DavidsonDirector, Technology IndustryProgram MarketingCharlie GarbowskiDirector, Primary ResearchPaul PullaraAssociate Director, DesignPatricia RiosDirector Technology, Media &Telecommunications MarketingBuilding a SuccessfulCloud Provider Service:Accounting and TaxConsiderationsThe rise of the digitalmulti-tasker — KPMG’sDigital DebateBreaking through thecloud adoption barriersMobilizing Innovation:The Evolving Landscapeof DisruptiveTechnologiesRelated thought leadership© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.34 | 2013 Technology Industry Outlook Survey
  • 39. ABOUT KPMGKPMG LLP, the audit, tax and advisory firm (kpmg.com/us), is the U.S. member firm of KPMGInternational Cooperative (“KPMG International”). KPMG International’s member firms have 152,000professionals, including more than 8,600 partners, in 156 countries.KPMG’s global technology practice combines industry knowledge with technical experience toprovide insights that help technology leaders take advantage of existing and emerging opportunities.We also work with our clients to proactively manage business challenges such as privacy, security,international tax and operational transformation.In June 2012, KPMG launched the Technology Innovation Center to assess the business impactresulting from disruptive technologies. The Center connects leading global technology thinkersincluding entrepreneurs, Fortune 500 executives, venture capitalists and KPMG professionals. Formore information visit: kpmg.com/techinnovation© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
  • 40. Contact UsGary MatuszakGlobal and U.S. Chair Technology,Media & Telecommunications408-367-4757gmatuszak@kpmg.comJana BarstenGlobal and U.S. Audit Sector Leader,Technology408-367-4913jbarsten@kpmg.comRichard HanleyU.S. National AdvisoryLeader, Technology, Media &Telecommunications408-367-7600rhanley@kpmg.comTom LamoureuxGlobal and U.S. Advisory Sector Leader,Technology408-367-7093tlamoureux@kpmg.comRusty ThomasGlobal and U.S. Tax Sector Leader,Technology408-666-4067rcthomas@kpmg.com© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network ofindependent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swissentity. All rights reserved. Printed in the U.S.A. The KPMG name, logo and “cutting through complexity” areregistered trademarks or trademarks of KPMG International.