IT Market Trends in Europe A Strengthening Recovery?

Steven Frantzen IT Market Trends in Europe A Strengthening Recovery? Senior Vice President, EMEA Region IDC Not for Distribution or Publication May 2014

IT Market Developments in Europe Strengthening Recovery? Year on Year IT Spending Growth (%) 15.0% 2013 2014F 2015F 10.0% 7.9% 8.1% 5.0% 2.9% 3.1% 1.9% 2.1% 1.3% 1.4% 5.0% 3.6% 3.6% 2.7% 2.6% 3.1% 3.1% 2.5% 2.0% 2.2% 2.0% 1.4% 0.0% WE5 EU26 CH Austria WE CEE Turkey -2.0% -5.0% EITO Defined IT Market Source: EITO Data 2012 2

IT Spending Dynamics by Technology in Europe Consumers Continue Redefining Spending Trends 25.0% 20.0% 15.0% Summary Spending Growth (%) for WE5 Markets 39.9% 15.0% 2013 2014F 2015F 10.0% 5.0% 0.0% -5.0% -10.0% 5.5% 4.9% 4.5% 4.8% 4.3% 1.1% 0.5% 2.8% 2.3% 0.9% PCs Tablets Servers Storage M FPs Sofware IT Services -1.1% -3.2% -4.0% -3.8% -4.5% -5.8% -6.9% -8.0% -9.9% -15.0% EITO Defined IT Market Source: EITO Data 2012 3

ICT Market Developments in Europe Telecoms Services Remains a Drag on Market Dynamics Year on Year ICT Spending Growth (%) 15.0% 2013 2014F 2015F 10.5% 10.0% 7.1% 5.0% 4.7% 0.0% 2.6% 2.0% 1.3% 1.4% 1.2% 1.1% 1.0% 1.4% 1.0% 0.8% 0.9% 1.0% 0.3% 0.7% 0.7% 0.1% 0.2% 0.2% WE5 EU26 CH Austria WE CEE Turkey EITO Defined ICT Market Source: EITO Data 2012 4

IT Spending Growth by Region/Country Considerable Variation Reflecting Different Trends Year on Year IT Spending Growth (%) 15.0% 2013 14.5% 10.0% 2014F 2015F 6.1% 9.3% 9.8% 8.5% 6.8% 7.0% 5.0% 0.0% 4.9% 4.1% 3.4% 4.0% 3.3% 3.6% 2.9% 4.3% 5.5% 3.1% 3.1% 2.1% 2.2% 0.7% 1.1% 2.2%% 1.4% 0.6% WW USA -0.2% China India Brazil Russia Japan EU26 WE -5.0% -5.1% -10.0% EITO Defined IT Market Source: EITO Data 2012 5

ICT Spending Growth by Region/Country Divergent Impact of Telecoms Emerging Markets Momentum Year on Year IT Spending Growth (%) 2012 20.0% 2013F 2014F 18.4% 15.1% 10.0% 0.0% 10.6% 10.4% 9.8% 10.2% 8.8% 6.6% 8.0% 6.0% 5.0% 4.1% 3.9% 4.7% 3.9% 3.8% 1.7% 1.4% 1.4% 1.3% 1.5%% 0.7% 1.4% 0.8% 0.2% WW USA China India Brazil Russia -0.1% Japan EU26 WE -0.5% -10.0% EITO Defined ICT Market Source: EITO Data 2012 6

Drivers of the IT Market Recovery in Europe Modest improvement in economic environment and investment sentiment in some countries 3 rd Platform and forces of IT and business transformation Cloud migration assessing, planning, piloting/implementation Mobility, enterprise solutions, consumerization and BYOD in the workplace Big Data, analytics & storage management Social business and applications Security, compliance, governance and data privacy Infrastructure modernization - affordable, low-risk transformation and consolidation Application consolidation and modernization Virtualization, automation, converged infrastructure Beyond the 3 rd Platform - Internet of Things (IoT), M2M

Real GDP Growth (%) 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 2013 2014 2015 US Canada WE AP LA CEE MEA World Source: Consensus, March 2014 8

European Business Priorities 2014 Q1. Please rate the importance of the following business priorities to your organization for the next 12 months. TOP2BOX Reduction of costs 2% 8% 41.02% 28.50% 70% Improved quality of existing products/services 2% 8% 45.45% 24.68% 70% Improve business processes 2% 8% 22% 46% 21% 67% Development and launch of new products/services 4% 24% 42% 21% 63% Entry into new markets 6% 13% 22% 37% 22% 59% Organizational change (reorganization, merger or acquisition) 6% 13% 26% 39% 15% 54% 0% 40% 60% 80% 100% Not at all important Slightly important Moderately important Very important Extremely important Source: European Enterprise Software Survey, 2014 n = 1,361 9

European IT Spending Dynamics in 2014 2014 External IT spending Q: In calendar 2014, do you expect your organization's external IT spending to increase, decrease or stay the same? -- % of companies 3,6% 2,3% 2,7% 2,2% 2,5% 5,8% Signs of optimism, even if some cautiousness remains Some 40% plan to increase external IT spending, but large majority (31.6%) by less than 5% Nearly half plan to keep the same level of spending 40% of IT spending controlled by LOB* 31,6% Decision making Q: Considering the overall external IT budget of your organization for 2014, can you indicate the percentage controlled by: -- % of budget 49,3% Increase by more than Increase by 5- Increase by less than 5% Stay the same Decrease by less than 5% Decrease by 5- Decrease by more than Don't know 40,3% 59,7% IT Department LOB or Administration departments Source: IDC European Vertical Markets Survey, October 2013; n=1,651 * Note results may be biased by need of finance sign-off 10

Western Europe IT Budget Allocation Focus Moving from Optimization to Growth 2014 IT Budget Allocation Q: In 2014, what percentage of your IT budget will be allocated to: % budget Western Europe Time to invest for growth, but innovation still limited: 16,3% 18,9% The 2013 Survey illustrates less focus on maintenance compared to prior surveys, as companies increase the share of IT budget dedicated to growth (11.4% in previous survey), and compliance (10.2% in previous survey) but just slightly to innovation (10.7% in previous survey). 12,7% From a vertical market perspective, there are few differences across industries, however: Retail/wholesale, utilities/oil&gas and finance are expected to allocate a larger than average share of their IT budgets to growth Compliance share is larger government/education. 52,1% Growth Innovation Maintain/Run Professional services/transport, with some 53% of its IT budget allocated to maintenance, is the sector allocating the largest share of the IT budget to this component. Finance and process manufacturing over 13% of their IT budget to innovation. Compliance to regulatory requirements Source: IDC European Vertical Markets Survey, October 2013; n=1,651 11

European IT Priorities 2014 Q2. Please rate the importance of the following IT priorities to your organization for the next 12 months. TOP2BOX Improve the service to end-users 2% 25% 43% 63% Reduce/control overall IT costs 2% 11% 26% 42% 62% Improve IT security (mobile, identity, vulnerability, malware, etc.) 2% 28% 38% 22% 60% Support business innovation 3% 9% 30% 40% 17% 57% Introduce new and/or upgrade existing business applications 3% 11% 29% 41% 16% 57% Improve IT processes 5% 12% 28% 40% 15% 55% Reduce the number of different IT systems through consolidation 5% 14% 29% 38% 15% 53% Implement new or upgrade existing business analytics 4% 12% 32% 38% 14% 52% Deliver more information to mobile devices 5% 14% 30% 36% 15% 51% Implement private cloud 8% 15% 28% 35% 14% 49% Introduce new public cloud services (SaaS, PaaS or IaaS) 9% 12% 30% 36% 13% 49% Implement 'big data' initiative 7% 15% 29% 35% 14% 49% Implement social media initiative 9% 15% 29% 35% 12% 47% 0% 40% 60% 80% 100% Not at all important Slightly important Moderately important Very important Extremely important Source: European Enterprise Software Survey, 2014 n = 1,361 12

Shorter Term IT Challenges in Europe, 2014 Q18. What do you see as the primary challenges your IT organization faces in the next 12 months? 50% 40% 30% 35% 32% 30% 30% 27% 25% 24% 0% Source: European Enterprise Software Survey, 2014 n = 1,361 13

APPLICATION NETWORK WORKPLACE DATACENTER IT Infrastructure Investment in Europe, 2014 Q7-1. What are your organization`s three most important areas for IT infrastructure investment in the next 12 months? IT security 53% IT security 47% Cloud 45% Automation 46% Automation 44% Cloud 44% Unified communications 36% Unified communications 37% Mobility Management 36% Mobility Management 36% Consumerization & BYOD 29% Consumerization & BYOD 33% Virtualization 26% Virtualization 26% Internet of Things (IoT) 12% Internet of Things (IoT) 11% 0% 40% 60% 0% 40% 60% IT security 47% IT security 47% Automation 42% Automation 46% Cloud 40% Unified communications 42% Mobility Management 38% Cloud 40% Unified communications 36% Mobility Management 35% Consumerization & BYOD 35% Consumerization & BYOD 28% Virtualization 26% Virtualization 27% Internet of Things (IoT) 14% Internet of Things (IoT) 13% 0% 40% 60% Source: IDC European IT Services Survey, 2014 0% 40% 60% 14

IT Security Concerns in Europe, 2014 Q8-4. In your opinion, which of the following IT delivery and usage models create the highest levels of a concern from an IT security point of view? Use of social media tools for business purposes 4% 11% 36% 35% 13% Use of mobile devices for business purposes (personal or company owned) 4% 39% 33% 13% Public cloud services 4% 40% 34% 13% In-house private cloud services 5% 12% 41% 30% 12% Vendor-hosted private cloud services 4% 13% 42% 31% 0% 40% 60% 80% 100% Not a concern Low concern Medium concern High concern Critical concern Base: n=732 Source: IDC European IT Services Survey, 2014 15

IT Market Value Shifting to the 3 rd Platform 3 rd Platform will dominate IT industry growth: up by 15%, accounting for 29% of 2014 IT spending, and 89% of growth Reshaping the technology landscape of many ICT areas, e.g. security, infrastructure, etc. Vendors are also shifting: more escalation and consolidation; incumbent IT leaders stripping down and reconfiguring 3rd Platform will disrupt all industries: By 2018, 1/3 of share leaders in all industries will be "Amazoned" by new and incumbent 3rd Platform players 16

Mobility and the 3 rd Platform Much of the growth in the ICT industry Major shifts underway From PCs to devices to wearables Operating systems, platform diversity & more complexity Applications galore & new content Consumer-driven transformation 1 st Internet experience for many new users is now a mobile device Users want their devices and applications Connectivity increasingly integrated with business operations Increase in mobile working Q8. What percentage of your current workforce is composed of mobile workers currently and what percentage will be in 12 months from now? 50% 40% 30% 0% 33% Currently 38% in 12 months Base: n=933 Source: IDC European Enterprise Mobility Survey,2014 17

IT Hardware Market Dynamics in Europe Mobility Transition Impact & Enterprise Segment Stagnation M 90.000 Spending on Select ICT Hardware Technologies for the WE 5 80.000 70.000 60.000 50.000 40.000 30.000 20.000 Tablets DT PCs Notebooks Phones Other IT Hardware Enterprise Systems 10.000 0 2012 2013 2014 2015 2016 IDC Visit us at IDC.com and follow us on Twitter: @IDC 18

Mobility Expands Along with Many Challenges Q9. Does your organization have an organization-wide mobility strategy? Q13. Please rank the three biggest mobility challenges in supporting your organization`s workforce. 15% Integration with desktop, IT and communications infrastructure Managing mobile device types & operating systems 41% 46% 49% Security/compliance issues Total cost of ownership 37% 35% 36% Yes No, but plan to create a strategy by next year No, and no plans to create one Base: n=933 Managing & securing 3rd party mobile applications Version control issues between mobile OSs (Not OSSs), and/or Building mobile applications for your company Too complicated to install, manage and support No clear ROI 15% 22% 29% 27% 32% 0% 40% 60% Base: n=933 Source: IDC European Enterprise Mobility Survey, 2014 19

Enterprise Mobility BYOD Evolution Q18. Does your organization have (or plans to implement) a formal program allowing employees to select OR bring the mobile device that they use for work-related purposes? BYOD CYOD 22% 41% 36% Currently 41% In 12 months 23% Not using / No plans 37% n=933 n=933 Main drivers are improving employee productivity, reducing costs and improving employee satisfaction Main concerns are data leakage, lack of IT control, compliance, personal usage/liability, understanding of costs, etc. Source: IDC European Enterprise Mobility Survey, 2014 20

Growing Investment in Mobile Solutions Q14. What are the top three mobility technologies most critical in supporting your workforce at present? Mobile collaboration 44% Desk phone functionality on mobiles (i.e. single number, voicemail, mobile call routing to PBX) 42% Mobility Management and Security 37% Mobile telecom expense management 34% Custom applications supporting a specific business process 32% Sales force automation 26% Supply chain solutions (M2M, RFID, asset management) 23% Business intelligence 23% Fleet management / logistics solutions 23% 0% 30% 40% 50% Base: n=933 Source: IDC European Enterprise Mobility Survey, 2014 21

Cloud Adoption in Europe Cloud Adoption in UK, France, Germany Majority of larger enterprises use some type of cloud today Source: Global CloudTrack Survey, 2013, n = 304 Public cloud usage refers primarily to enterprise-wide, strategically important SaaS There is growth in adoption in all types of private cloud Virtual private cloud and in-house private cloud currently have a wider full scale adoption - security and service level guarantees playing a key role here Hybrid cloud will become the norm as more organizations embrace cloud services IDC Visit us at IDC.com and follow us on Twitter: @IDC 22

Use of Public Cloud Services in Europe, 2014 Q6. In which software areas are you considering, evaluating or already using Cloud Services? E-mail, calendar, diary 18% 25% 26% 17% 13% Security 15% 25% 27% 17% 16% Backup 13% 25% 29% 18% 14% Databases 12% 25% 27% 16% Office productivity 13% 23% 30% 15% File sharing 12% 23% 30% 15% Customer relationship management 9% 26% 27% 21% 17% Archiving 11% 23% 29% 18% Data integration 23% 27% Infrastructure: Servers/Storage, IaaS 23% 28% Datacenter & systems management 9% 23% 29% Application platform/development 9% 22% 28% Content management 9% 22% 27% 22% 21% Collaboration 21% 30% Back office 9% 22% 28% 21% 21% HCM or talent management 8% 22% 28% 21% BI and analytics 8% 22% 29% 21% 0% 30% 40% 50% 60% 70% 80% 90% 100% In use by all applicable users In use by subset of all applicable users Evaluating, planning to use Considering, no plans yet No plans / not aware Source: European Enterprise Software Survey, 2014 n = 1,361 23

Growing Satisfaction with Cloud Services Q5-1. How satisfied are you with the performance of cloud for the following areas? Driving down or controlling the cost of IT 3% 24% 51% 22% Bringing innovation to the business 5% 24% 51% 18% Supporting the business strategy better 4% 27% 53% 17% Using IT to make the business more cost effective 3% 28% 51% 18% 0% 30% 40% 50% 60% 70% 80% 90% 100% Very dissatisfied Dissatisfied Neither satisfied nor dissatisfied Satisfied Very satisfied Base: n=707 Source: IDC European IT Services Survey, 2014 24

European Activities Around Big Data in 2014 Q14. Which of the following Big Data activities is your organization currently undertaking or planning to in the next 12 months? Investing in new storage technologies in order to keep up with data growth Considerably increasing our use of big data 32% 28% 41% 41% Using an accelerated data warehouse or database appliance Providing users of a production system at my organization with access to big data Testing or using a big data solution in the cloud 28% 27% 26% 40% 41% 42% Using big data to integrate social information 26% 40% Building one or more pilots in Hadoop 23% 36% Using Hadoop in production 22% 37% 0% 40% 60% 80% 100% Yes - currently No planned for next 12 months Source: European Enterprise Software Survey, 2014 n = 1,361 25

Perceived Benefits of Big Data in 2014 Q15. What are the expected benefits of Big Data to your organization? 50% 40% 30% 31% 29% 28% 25% 24% 23% 21% 18% 17% 17% 0% Source: European Enterprise Software Survey, 2014 n = 1,361 26

Big Data & Analytics - More Work to be Done Data Organization & Management Analytics & Discovery Decision Support Applications Top Tech Challenges Top Business Challenges Data integration Insufficient analytic skills Data quality Securing budget Data security Agreeing on KPIs Defining business requirements Data governance Justifying business case Measuring project outcomes Source: IDC and Computerworld 2013 Business Analytics Survey 27 Change management

Social Business Deployment in Europe Q17. In which areas of your business are you considering, evaluating, or already using technology relating to the social web? Customer service 23% Promotion and Advertising 25% 18% Revenue generation 14% 21% 24% 22% Recruitment 16% 25% Innovation management 15% 26% Knowledge management 17% 18% 26% 21% Enterprise social network 16% 18% 23% 21% 22% Lead generation 13% 21% 23% 23% Social media listening 15% 23% 24% External social community 14% 25% 22% 0% 30% 40% 50% 60% 70% 80% 90% 100% Using now Evaluating, planning to use in next 12 months No plans / not aware Implementing, operational in next 6 months Considering Source: European Enterprise Software Survey, 2014 n = 1,361 28

Packaged Software Market of the EU5 Benefitting from the Move to the 3 rd Platform 10.0% 2013 2014F 2015F 5.4% 6.1% 5.0% 4.8% 4.0% 4.3% 4.5% 4.8% 4.4% 4.3% 4.5% 3.9% 3.9% 0.0% ADDT Applications System Infrastructure Total 2014 and 2015 will see stronger growth along with shifts in spending to new sub-categories driven by changes in the market, related in part to the influence of the Third Platform Investment reflects and efficiency and innovation agenda Source: EITO Data 2012 29

Packaged Software Market in Europe Q5. How do you see your organization`s spending on software in 2014 as compared to 2013 in each of the following areas? Security software (i.e. anti-virus, identity management, application security, mobile security) Storage software (i.e. backup, archiving, storage management, replication) 2% 3% 8% 9% 45% 50% 31% 26% 13% 11% Server virtualization software 3% 51% 26% 11% CRM applications (i.e. sales, marketing, and customer service) 3% 51% 25% Operating systems (i.e. Windows, Solaris, Linux) 3% 53% 26% 8% Big data (i.e. enterprise Hadoop, NoSQL databases) Analytics (i.e. predictive analytics, fraud analytics, churn analytics) Desktop virtualization software Content management (i.e. document management, search, portals) Datacenter & systems management (i.e. automation, change, and problem management) Collaborative applications (i.e. conferencing, email, unified communication) ERP applications (i.e. financial accounting, order & inventory management) Business intelligence (i.e. reporting, dashboards, OLAP etc.) Middleware (i.e. application servers, integration software, app development tools) Relational databases SCM applications (i.e. logistics, warehouse management, production planning) HR & payroll applications (i.e. payroll, personnel administration & talent mngt) 2% 3% 2% 2% 2% 2% 2% 2% 3% 2% 3% 3% 11% 9% 9% 11% 11% 53% 53% 53% 54% 54% 55% 55% 55% 55% 57% 57% 56% 0% 30% 40% 50% 60% 70% 80% 90% 100% Decrease of or more Decrease up to No change in 2014 Increase of up to Increase of or more 24% 27% 25% 25% 25% 23% 25% 23% 23% 22% 21% Source: European Enterprise Software Survey, 2013 n = 1,361 7% 9% 9% 9% 8% 9% 8% 30

IT Services Market of the EU5 Very Mixed Dynamics, now Affected by Cloud 2013 2014F 2015F 4.0% 3.5% 3.5% 3.9% 2.6% 2.8% 2.6% 2.3% 2.2% 2.1% 0.8% 1.1% 0.9% 0.4% 0.6% Projects Outsourcing (wo BPO) Support & -0.4% Deploy BPO Total -1.0% Source: EITO Data 2012 31

Expectations in Europe Around IT Services, 2014 Q2-2. Now considering 2014, what do you expect will happen to your total external IT services spending? Decrease by more than 5% 2% Decrease by 1-5% 5% Remain about the same 40% Increase by 1-5% 41% Increase by more than 5% 13% 0% 30% 40% 50% Base: n=732 Source: IDC European IT Services Survey, 2014 32

Enterprise Market Dynamics in Europe Moving from Infrastructure to Automation Summary Spending Growth (%) for WE5 Markets 10.0% 2013 2014F 2015F 5.0% 4.3% 4.5% 4.8% 2.3% 2.8% 1.2% 1.6% 0.9% 0.0% -5.0% Servers Storage Sofware IT Services -1.3% -2.6% -4.0% -5.8% -10.0% EITO Defined IT Market Source: EITO Data 2012 33

Enterprise Market Hardware Trends Two design camps emerging - service provider approach vs enterprise datacenters Design for intent becomes standard: densityoptimized, general purpose, application specific and integrated systems Converged is going to be 1/3 rd of the market in 2016, but service provider approach predominates over the longer term Cloud continues to be the main driver for DC deployments, but SDN will be the main talking point ODMs are going to play an increasing role beyond hyperscale DCs Server spending and units for Cloud environments will grow at CAGR until 2016 but Private Cloud spending will continue to eclipse Public Public Shipments will be more than twice the size. 34

What s After the 3 rd Platform? Innovations that will drive the 3rd Platform and possibly the 4 th?: Ubiquitous broadband M to M Internet of Things Wearable computing Location & context Software-defined IT 3 rd Platform Datacenters 3D Printing Robotics Synthetic Biology Innovations that drove the 2 nd Platform: Windows Notebook PC Browser Wifi 35 35

Internet of Things- Foundations Being Laid IoT devices will proliferate 8-10x the rate of PCs 30 billion autonomous things will be connected by 2020 Internet of Things 212 billion installed endpoints in the IoT globally by the end of 2020 "In the next century, planet earth will don an electronic skin. It will use the Internet as a scaffold to support and transmit its sensations. - Neil Gross, 1999 36

Current and Planned Adoption of IoT Q: Are you familiar, do you already adopt or are you planning to adopt M2M (machine to machine) communication and IoT (Internet of things) solutions (e.g. integration of data coming from sensors, tags, RFID, and other devices)?-- % of companies Transportation Telecom/ Media Retail/ Wholesale Utilities/ Oil and Gas Finance Manufacturing Total Professional services Healthcare 25,9% 21,7% 17,4% 14,8% 12,5% 11,8% 11,7% 10,5% 5,4% A large majority of current implementations of IoT are related to asset management and monitoring, tracking and tracing, sensor monitoring, but also customer (especially consumer) related applications Already adopted Plan to adopt in the next 24 months Not adopted and no adoption plans Don't know Not Familiar Government/Education 4,1% 0% 40% 60% 80% 100% (% of respondents) Source: IDC European Vertical Markets Survey, October 2013; n=1,651 37

Essential Guidance Further market recovery in Europe expected Sentiment is improving but significant risk Security, the 3 rd Platform and infrastructure modernization represent the mantra of growth Transforming key technology and solution investment areas Driving growth in ICT investment Significant changes in European ICT landscape underway New drivers on the horizon, e.g. IoT, wearables, etc. IDC Visit us at IDC.com and follow us on Twitter: @IDC 38

Questions? For questions, please contact us: sfrantzen@idc.com 39