Major Outcome based pricing deal by Top Indian Outsourcing Vendors till 2012

TCS started to use outcome based pricing in 2006 during which it signed some deals but the major deal it did was in 2008, when it won a project from Ministry of External Affairs to automate passports and is paid a combination of project fee and an outcome fee based on number of applications it process. In 2007, TCS signed a $1.2 billion deal with Nielsen, provider of consumer and media information services spread over 10 years and as soon as the finance and the HRO processes are centralized onto the new platforms, TCS has an option to review the deal and move to outcome-based pricing. TCS has used outcome-based pricing models in its BPO deal with Pearl Insurance in the UK and in the $250m IT infrastructure management deal with Tata Teleservices in 2005. TCS' British BPO subsidiary, Diligenta, will be taking over the IT and customer services functions of the UK business of Friends Life earlier known as Friends Provident, for 15 years and the deal is worth $2.2 billion. It is outcome-based pricing and TCS will charge per policy to the client.

In December 2008, AstraZeneca has awarded Infosys a five year, multi-million dollar global sourcing deal Infosys is delivering the services through a global shared-services model that offers fixed price for outcome-based deliverables, and flexible, unit pricing for managing changes in the base scope of the engagement. Infosys signed three-year Services agreement to manage Microsoft's Internal IT Services in April 2010 and the deal includes IT Help Desk, Desk Side Services, and IT Infrastructure and Applications Support and the engagement is delivered based on outcome based pricing model, enabling Microsoft to associate and manage IT costs directly to business variables and demand. Infosys highlighted that outcome-based model was at the core of its new strategic vision 'Infosys 3.0' and the main vehicle for the new model was the firm's 'Infosys Edge portfolio of platforms. “Each of the Infosys Edge platforms guarantees a business outcome to our clients - it either contributes to clients' revenues or it contributes to profitability by driving efficiency. This is a strong differentiator for us," the firm said.Infosys' result-oriented model provides clients with "outcome-based", "transaction-based" or "function-based" pricing and CEO Shibulal highlighted the increasing acceptance of customers for Infosys’ new engagement model based on variable pricing. The model is based on the number of transactions, events, maintenance tickets or devices.

Cognizant’s earliest projects based on outcome were with pharmaceutical company AstraZeneca. For 3M too, Cognizant used an outcome-based, managed service engagement model with productivity benefits over the long term. In its partnership with Sanofi Pasteur, there was an increase in effectiveness as measured by time. This reduced process hiccups in bringing the drug maker’s vaccines to the market. One area where PAC (a privately held research & consulting firm for the software and ICT services market) believes Cognizant has a particularly strong story is in moving towards outcome-based pricing models. In the F&A space, Cognizant is looking beyond taking out cost and hitting SLAs, to committing to targets that increase its client’s revenue and working capital, or improve compliance and control. In life sciences, the vendor is talking about moving towards being charged per study for handling clinical trials, while in the area of mortgage administration, it is looking at charging lenders for only processing the loans that are signed rather than the quotes they provide for customers. Recently Cognizant signed a deal with Royal Philips Electronics for services like consulting and application services on a global basis. As per the terms of the multiyear engagement, Cognizant will allow Philips to switch the IT organization to a platform and output-based managed services model across multiple business lines and corporate functions.

Wipro said that it has numerous clients whose billing/payments are intimately linked to the client's business. "Some of our clients, like airports, pay us based on the number of boarding passes or the baggage tags issued," said Suresh Senapaty, Wipro's chief financial officer. In December 2011, as part of the five year strategic relationship, Wipro will be supporting both systems and processes to enhance efficiency of Premier Foods’ supply chain. Wipro’s strong partnership with SAP, global SAP consultant base, end to end implementation coverage, delivery innovation, and outcome based service models and competencies in cloud based services will be leveraged for this engagement. In June 2011 Wipro won an outcome-based deal from Chaucer Syndicates, a specialist insurer at Lloyd’s, to develop an end-to-end regulatory compliance solution that would generate better analytics and improved management reporting for the client In 2009, Wiprohas won a new application development and support contract with long-time client, UK insurer Friends Provident. The ‘fixed price, outcome-based’ deal runs for three years with a two-year extension option. Wipro says that if they get the full 5-years, it will be worth £40m over the period. TK Kurien, CEO, Wipro Technologies told FE: “We are seeing a great uptick in outcome-based pricing. There is a clear increase in outcome-based models among customers, who want to have their business outcome linked to the actual work done. Most of them love to go for long-term, but you are not sure of the long-term perspective. Not all of them are going for long term.”

HCL Technologies, India's fourth largest IT outsourcer, claimed that it had actually "pioneered the outcome-based pricing model in the mid-2000s". "We have many active client engagements based on outcome-based pricing models," a spokesperson for the firm said, citing its multi-million dollar contract with aircraft-maker Boeing where it works on a "risk-reward sharing model". In July 2008, HCL BPO acquired UK-based Liberata Financial with revenues of $80 million, which is to life insurance and pensions and US-based Control Point Solutions, a provider of voice, data and wireless telecom expense management services with revenues of $37 million and both the companies helped the company to increase its outcome based pricing revenues. HCL BPO is offering platform-based offering, a combination of software platforms and services such as administering payroll for a client and charging the client based on transaction or outcomes. HCL Tech, which acquired Axon, an SAP consulting company in 2008 which has significant capability in terms of outcome based pricing models. “We have worked with number of companies on business outcomes based on our outsourcing work and this is an area that we will continue to build on,” says Shami Khorana, President, HCL America. However, he added that the company will look at a combination of regular outsourcing and outcomes-based outsourcing, in the future.

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Indian BPO Industry losing its sheen & continue to face tough challenges in 2013

Source: NASSCOM . FY2012-13 estimated is self estimate.

With diminishing cost arbitrage and margins, Indian BPO players are struggling to keep up the growth and last four years (2008-2012), CAGR for the BPO sector has been slow at 12.47% compared to  India’s IT services exports, which posted a 17.23% growth during the same period. With reducing client spends and IT budgets Indian BPO industry is further expected to face tougher year in 2013. Another important reason is that India’s cost advantage as an offshoring destination has dropped by 30-40% and also with high attrition rate (40%-50%) as companies are finding it difficult to hold on to employees who were earlier attracted to the industry but presently resenting the BPOs due to the lack of career growth opportunities and falling compensation, perks, bonuses and benefits, industry is facing problems in fueling growth. There has been significant pressure on the margins too due to wage inflation where in the salaries of the employees have risen fast, foreign exchange losses as most of the revenues are dollar revenues and companies failed to hedge the currency risks and the Indian rupee had been very volatile ranging from `43 to `57.15. Companies like general motors who initially outsourced majority of their business processes and IT processes to India have recently announced to move back the outsourced jobs back to United States.

According to The Hackett Group, offshoring of jobs to India will be declining from 2014, and will reach the end of its lifecycle in eight years, as the traditional model of US and European companies moving finance, IT, and other business services jobs offshore will reach its maturity and there will not be many jobs left out with the companies to outsource to India. According to Nasscom, software services are the fastest-growing segment with 19% growth in FY12, while BPO exports grew at 12% over last year. “Gone are the days of over 30% growth for the BPO sector, going forward it will be in low single-digit,” says TPI’s Pai. The rise of other low cost destinations like Philippines and near shore destinations like Brazil, Argentina for United States and Poland for Europe have been successful in attracting outsourcing business through quicker response time, better technical support and near-shore advantages. Despite the low cost advantages these low cost locations cannot match India in terms of economies of scale, large pools of skilled talent and workers, experience and technical knowhow and ability to deliver large scale projects. But most of the Indian BPO vendors are not agreeing with the Hackett Group view that Indian BPO will be reaching maturity and they are focusing on improving their product and service offerings and move up the value chain.

Indian BPO vendors like Genpact, WNS, Infosys BPO, TCS BPO, HCL Tech BPO, Aegis, etc. are struggling to keep up their revenues and margins. Industry leader Genpact had a very bad Q32012 (despite 14.3% increase in revenues net profit impacted by "foreign exchange re-measurement loss and expenses related to special cash dividend") and the company highlighted the volatile economic conditions and clients cutting down budgets but still indicated that it will expect full-year revenues of $1.86- $1.90 billion, and adjusted operating income margin of 16-16.5% in 2012. WNS which earlier had tough time in keeping up growth was able to attain a 6-7% organic growth and guided double digit growth for 2013 as the company has verticalized their services in domain and have adopted technology-enabled non-linear model for their service offerings. Not only WNS but most of the BPO players in India like Genpact, etc. are moving up the value chain by focusing on Analytics, Social Media, Consulting, Mobility and Cloud computing to boost up margins. Products and Platform based offerings are being developed and aggressively marketed to clients as the Indian BPO vendors are looking to increase nonlinear revenues that are revenues independent of headcount rise. Outcome based pricing models are also being adopted too by Indian BPO vendors despite significant risks and most of the BPOs are targeting 30% revenues from Nonlinear outcome based models in next five years.

Generally BPO is not a high value work mostly clerical type of work which is monotonous and repetitive. BPO is an intense operational game and there is severe competition between the Indian vendors and the multinational vendors like IBM, Accenture, etc. which has led to significant pricing where vendors cannot afford to rise prices and are facing severe margin pressures. There is minimum difference between the service offerings of the various vendors both Indian and Multinational, and the Indian BPO vendors could not expand their service offerings sticking with the low end work and not moving up the value chain to more high end work where they can charge more prices and increase their margins and the Indian BPO industry could not scale up its size. “Today none of the standalone BPO firms are of significant size. They are mostly in the $350-million range, expect for one or two like Genpact,” Sid Pai, partner and MD, TPI India. But the Indian BPO vendors have realized this fact and they have been investing significantly over the past few years in the development of products, platforms, new service offerings, and emerging technologies like cloud computing, mobility, analytics and social media. Multinational BPO players like IBM, Accenture, Dell, Xerox, Cap Gemini, etc. are expanding their BPO operations in India and other Low cost destinations like Philippines, Poland, etc. to offer more services to their clients and reduce costs.

“BPO business has become a big-guy game. Smaller players with niche competencies will get acquired. Like in analytics space, every day you hear firms getting acquired by larger firms. It is a very consolidated game and a big player’s market,” says Genpact’s senior VP Shantanu Ghosh. Accordingly there has been consolidation in the Indian BPO industry like Firstsource Solutions being acquired by Kolkata-based power utility company CESC for about R640 crore. According to industry reports, the Essar Group backed Aegis and WNS are looking for PE funds to scale their businesses. Recently, PE major Bain Capital picked up a 30% stake in Genpact for $1billion. Infosys bought Australia based sourcing and category management services firm - Portland Group Pty Ltd for $37Mn.  Indian BPO has moved beyond “bread and butter” voice and transaction processing and is increasingly looking for higher value-adding activities like KPO (Knowledge Process Outsourcing), which comprises legal research, advisory and consulting services among other offerings.

Genpact acquired Triumph Engineering, which provides engineering and technical services to aviation, energy, and oil & gas industries, Atyati Technologies, a technology platform provider for the rural banking sector in the country, and Accounting Plaza, a provider of finance and accounting, human resources services and ERP services in 2012. WNS has acquired South Africa-based Fusion Outsourcing Services in 2012 for £10 million Fusion provides outsourcing services including contact centre, customer care and business continuity services to both South African and international clients and would look at acquisitions of $5-20 million this year.This clearly shows the Indian BPO vendors are acquiring companies for both the revenue growth and for adding skills and capabilities to increase their service offerings. Most of the Indian vendors are sitting huge cash reserves which they can utilize for acquisitions. Overall there is tough year ahead for the Indian BPO vendors in 2013 and they need to prepare themselves for this by aggressively improving their products and services offerings and also look for increasing their nonlinear and outcome based revenues thus moving up the value chain. 

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Verticalization in Indian BPO Industry 2012 – Top Vendors Vertical Strategy

BPO vendors like Genpact, WNS, etc. have adopted the verticalization strategy in the past couple of years and according to Don Schulman GM for F&A and Supply Chain Global Process Services at IBM, verticalizing the horizontal will be the next thing and quickly accelerating and is the key to the future for all the BPO services providers. All along Indian BPOs have been horizontal focused with service offerings like customer interaction and support, finance and accounting, procurement and human resources that are applied across different industry verticals. Nasscom estimates that horizontal services account for more than 70% of the Indian BPO industry.

According to Technology Business Research (TBR) report, Genpact vertical strategy focuses on key verticals like manufacturing and BFSI accounting for 33.3% and 41.9% of top-line revenue and other’s increased to 24.8% in 3Q12 from 22.8% in 3Q11 driven by life sciences, consumer goods and retail. During Q3FY2012, the company exhibited commitment to its vertically-aligned go-to-market transformation, indicated by front end headcount additions to its newly targeted vertical industries beyond the core. Business development leads boasting over 20 years of experience within their respective industries were added to Genpact’s life sciences, consumer goods, and retail businesses. TBR expects Genpact to hire additional experienced employees, including management-level hires, across industries through 2013 to beef up its expertise and gain vertical-specific clout.

WNS has introduced a completely new strategic orientation, by verticalization of the company around six areas and the company expects the restructuring to boost its revenues in the near future. Its businesses will be divided into six key verticals; with travel and insurance being the major focus verticals. Other verticals include shipping, logistics, healthcare, banking & finance and retail. It is also planning to restructure its senior management strategically to handle the new verticals which will function as a Strategic Business Unit (SBU) in order to achieve distinctive as well as overall growth. The company has also realigned the Go-To-Market strategy for each vertical.

Aditya Birla Minacs focuses on banking, financial services and insurance (BFSI), manufacturing, and telecom, media and entertainment verticals. BPO verticalization is forced upon them by Industry-specific customer preferences and goals and a new orientation in the way BPOs offer services offerings. For vertical specific offerings, the BPO services providers have to invest significantly in domain specific human resources and technology which is a major strategic both at the enterprise level  and also at the account level. Clients are looking for a higher level of domain knowledge and expertise in the Indian BPOs as clients want BPO service providers to partner with them and deliver work that will have direct impact on Client’s business. BPOs have to invest in building domain specific expertise and look to offer standardized product and platform based offerings along with customized offerings. Verticalization also helps the BPOs to effectively customize their offerings according to client needs. 

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India IT Spending forecast 2016- Strong despite Inflation & Currency pressures

According to Gartner Inc., IT spending in India is expected to total USD 71.5 billion in 2013, a 7.7 per cent increase from the USD 66.4 billion forecasted for 2012 and expected to touch USD 95.9 billion in 2016.  Gartner forecasts the telecommunications market is the largest IT segment in India with spending forecast to reach USD 47.8 billion in 2013 and USD 59.5 billion in 2016 from USD 44.7 billion in 2012, growing at a CAGR of 3.6 per cent. The IT services market is poised to grow from USD 9.2 billion in 2012 to USD 10.3 billion in 2013 and then touch USD 16.1 billion in 2016. The Software market is expected to grow at a CAGR of 11.4 per cent from USD 3.5 billion in 2012 to USD 6 billion in 2016. The hardware market in India, with CAGR of 7.5 per cent is estimated to grow from USD 9.1 billion in 2012 to USD 14.3 billion in 2016. “India like other emerging markets continues exercising strong momentum despite inflationary pressures and appreciation of local currencies, which are expected in rising economies,” Peter Sondergaard, senior vice-president and global head of research at Gartner said.

India IT spending is expected to grow as businesses are looking to IT to help support the challenges of improving customer support, supply chain management, provide their products and services online, optimize business processes and drive innovation in the business. Not only the businesses but government of India and state governments too are spending heavily on building and improving the IT infrastructure so that they can automate the various processes and provide services to citizens on line there by reducing waiting times, eliminating unnecessary paper works and making governance more transparent. Bids were called for some of the major projects by Governments at the center and state levels which were won by both Indian and Multi National players and work is going on a frantic pace. Indian IT industry is also expected to generate more than 4.5 million jobs and it is one of the critical parts of the Indian economy. There has been a major transformation where in IT is no longer a back office function but a front line function with significant business impact for both businesses and governments. 

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India Data Center Market 2012 – Significant growth forecasted, Future Outlook 2017

India Data Center market is expected to see significant growth in the next five years as there has been increased adoption by Indian companies of the third party data center services and the government has also increased its cloud computing initiatives where it is directly setting up data centers and also using the services of the third party data center service providers. Reliance Communications has announced the multiple orders bagged from Central and State Government of India as the company has signed long term contract with The Department of Post, Municipal Corporation of Greater Mumbai (BMC), Madhya Pradesh Border Checkpost Development Company Limited along with Karnataka DISCOM and Chattisgarh DISCOM. McKinsey has estimated that the third party outsourced data centre market in India is expected to grow at a CAGR of 32% to Rs 5,500 crore by the year 2017 with verticals such as banking and financial services, media and entertainment service, manufacturing, international telecom providers and retail accounting for 70% of this growth. TechNavio's analysts forecast the Data Center Equipment market in India to grow at a CAGR of 10.4% over the period 2011-2015.

The Indian IT infrastructure market comprising of servers, storage and networking equipment will reach US$2.05 billion in 2012, a 10.3% increase over 2011, according to Gartner, Inc. The IT infrastructure market is expected to reach $3.01 billion by 2016. Revenue growth will be primarily driven by ongoing data center modernization, as well as new data center build outs. Servers are the largest segment of the Indian IT infrastructure market, with revenue forecast to reach $754.5 million in 2012, and grow to $967.2 million in 2016. The external controller-based storage disk market in India is expected to grow from $439.4 million in end-user spending to $842 million in 2016. The enterprise network equipment market in India, which includes enterprise LAN and WAN equipment, is expected to grow from $861 million in 2012 to $1.2 billion in 2016. Gartner Analysts predict that Indian businesses are looking to focus on optimizing the IT Infrastructure and strategy by implementing virtualization and ongoing investment in large captive data centers mixed with the capacity growth initiated by the data center service providers are the key drivers for growth. Mobility, social media and cloud computing adoption will have significant influence on the way data centers are designed, operated and managed their by the data center services providers.

Dimension Data estimates data centre market in India is growing at a CAGR of 22% and will touch Rs 6,500 crore by 2016. BSNL offers managed co-location, managed hosting and cloud services through the Internet Data Centers (IDC), which have been built by Dimension Data for BSNL. This public-private initiative will leverage the strength of BSNL in telecom infrastructure and vacant buildings and that of Dimension Data in providing data center and cloud computing," Communications and IT Minister Kapil Sibal said while inaugurating BSNL IDC services. Dimension Data operates and manages IDC centers, which are located in Mumbai, Faridabad, Ahmedabad, Jaipur, Ludhiana and Ghaziabad. Each of these is run at a Tier III level and all make use of vacant space BSNL has at its telephone exchanges.According to Reji Thomas Cherian, VP, Telecom, Media & Entertainment, Capgemini India, the Cloud Computing market including PaaS, IaaS and SaaS was worth $400 mn for India alone. Data center services revenue is projected to touch $2.6bn in 2012. The managed security market in India was worth $321 mn in 2011 and is expected to see rapid growth. Moreover, managed third party data center services generated revenues to the tune of $662 mn in 2011 and this too is on a high growth trajectory.

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India Data Center Market 2012 – Cost Savings & Various Service Offerings

The Indian Data Center market is seeing significant growth in demand as there is not only significant increase in adoption by governments both at the center and state levels where they are aggressively building data centers to utilize cloud computing to store data and provide services to citizens more efficiently but also from the business organizations who have realized that there are significant benefits for them in terms of cost savings and increased focus on their core businesses as hosting a company’s IT infrastructure in a managed data center by a third party service provider and in a centralized rather than distributed manner, works out to be more cost-effective in the long run. In case of captive data centers, huge costs associated with real estate, IT infrastructure, and the manpower to manage it will have a direct impact on the company profitability. Data centers services providers invest hugely (in Crores of rupees) in power and cooling infrastructure such as chiller units, generators, batteries and UPS units, power distribution units (PDUs) and specialized computer room air conditioning units (CRAC) and businesses that are looking to use the data centers services providers can benefit from the economies of scale and shared services model. Data center providers are currently offering infrastructure services along with specialized services (over the cloud) such as security, digital video surveillance and storage and data centers are partnering with vendors and solution providers for offering such services.

Managed hosting services is another key driver of growth in India in which data center provider will lease an entire server to one customer who has full control over the leased server and administration (monitoring, updates, application management, etc.) are offered as add-on services. This is cheaper when compared to deploying a server in-house, as it is costly in terms of power and cooling costs and IT staff costs. Managed services, which include cloud computing solutions, managed ATM services and video conference solutions and Network leases are usually a 12-month contract renewed every year. But for managed service contracts, customers prefer a three or a five-year contract, as they want certainty. Collocation (colo or coloc) is a data center service in which customers can place their own server in a data center and use shared and redundant resources like power and HVAC which is very attractive for the customers as they need not have invest upfront  for such resources. Data centers also offer locked cages for customer servers, monitored by IP cameras at the customer’s end and customers can also visit the site and do server administration from a cubicle. The data center colocation and hosting market in India is estimated to reach $609.1 million in 2012, according to Gartner, Inc. The market will experience consistent growth through 2016 when the market is forecast to total $1.3 billion.

Data center-in- Data center (DiD in which data centers host a major IT service provider like HP, IBM or Dell and the service provider will in turn host infrastructure for its own customers which helps  service provider to focus on its core expertise (applications and services) without making upfront and expensive investments in power and cooling. India players are already hosting some of the major IT service providers and are also opening data centers overseas and are actively looking to go global. Small and Medium businesses are also increasing the adoption and they have significant cost and resource savings by hosting their IT on third party data centers and which is further fuelling demand in India market. The various service offerings by the data centers services providers and the significant cost benefits and increased focus on core business processes are expected to fuel the data center market in India in the next five years and large players are investing heavily in setting up new data centers and increasing capacities. 

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Global Social Media Advertising Revenues 2012 – Forecast 2016, Strong growth expected

Social Media had impacted the business world where businesses across the world have been forced to improve their presence on the various social networking sites that had grown significantly in the recent few years by adding millions of users every year. There are more than billion social media users and most of the social networking sites like Facebook, Twitter, YouTube, etc. claim majority of their users to be active which forced businesses to invest in social media content, improve their presence on various social networking platforms and also increase their ad spends focusing on social networking advertising targeting their customers who are also active social media users. According to MDG Advertising, Social Networking sites including blogs is where online users spend most of their time (22.5%) and this is a significant change from earlier where most of the time was spent on email and games. According to research by Nielsen and NM Incite, Consumers utilize Social media to discover, research, and share information about brands and products and 60% of consumers learned about a specific brand or retailer through social networking sites. Most of the active social media users usually read product reviews online, and also 3 out of 5 create their own reviews of products and services which also highlight the fact that consumer-generated reviews and product ratings are the preferred sources of product information among social media users. NM Incite research also highlights that consumers actively use social networking sites to express their loyalty to their favorite brands and products, users are likely to trust the recommendations of their friends and family most and at least 41% say they share their brand experiences through social media to receive discounts.

eMarketer forecasts advertisers will spend $7.72 billion on social network advertising in 2012, including paid advertising on social sites and in social games and applicationswhich is 48.5% YoY growth compared to 2011. But the YoY growth is expected to fall from 2013 and by 2014 the market is expected to reach nearly $12 billion in annual revenues worldwide.United States contribute more than half of the revenues and advertisers are expected to spend $3.63 billion advertising on social networks in the US, up from $2.54 billion in 2011 and continuing to climb to $5.59 billion by 2014. Facebook is expected to garner most of these social network ad revenues, taking in around seven in 10 of all US social networking ad dollars throughout the forecast period. Twitter’s share, by comparison, will rise from 5% to 8% between 2011 and 2014. According a study into Facebook advertising by TBG Digital, in conjunction with the University of Cambridge that analyzed over 406 billion ad impressions in over 190 countries, the average cost per thousand impressions (CPM) of a Facebook advert has increased by 58% in the second quarter of this year. This rise was not consistent across the world however. America saw a rise of 25%, Canada saw a rise of 21%, but the UK saw ad prices go up by just 7%.

Gartner forecasts Global social media revenue which is in early stages in terms of revenue perspective to reach $16.9 billion in 2012, up 43.1% from 2011 revenue of $11.8 billion. Advertising is expected to continue being the largest contributor to overall social media revenue and is expected to total $8.8 billion in 2012. Social gaming revenue which saw significant growth recently and more than doubled in the last two years is expected to reach $6.2 billion in 2012, while revenue from subscriptions is expected to total $278 million in 2012. As social networking sites have a significant number of engaged users who spend considerable time on these sites — this increases the potential click-through rates (CTRs), most of the marketers are allocating a higher percentage of their advertising budget to social networking sites. Another crucial factor is that since social networking sites are reducing their dependence on the subscriptions and are focusing more on alternative sources of revenue predominantly advertising revenues. Social media advertising revenues in the United States will grow from $3.8 billion in 2011 to $9.8 billion in 2016 (CAGR 21%) and also forecast a $4.8 billion social media ad spend in 2012, according to BIA/Kelsey’s U.S. Local Media Forecast (2011-2016).

Gartner further predicts a moderate growth in the number of social media users as growth in developed countries has almost reached maturity levels and further growth in users will be more from emerging markets. With more users coming from emerging markets social networking sites have to customize the existing platforms and develop new forms of media and entertainment to attract new users and keep existing users engaged on their sites. Competition among social media players is also on the rise, as the key players are competing for consumers' leisure time and attention which will also lead to the development of new forms of social media (Web based and mobile). Also social networking sites should focus on developing innovative advertising options and formats for the marketers. They need to develop and deploy data analytic technologies and integrate them into their networks so that marketers have a more accurate picture of trends, consumers' needs, preferences and return on investment statistics. Gartner also highlights that through Social media sites marketers can target ads to discrete consumer segments by unlocking the interconnected data structures of users that include lists of friends, their comments and messages, photos and all their social connections, contact information and associated media. Most of the marketers particularly in the Fortune 500 companies are not convinced about the social network advertising and its impact on their revenues. They are still looking at social networking sites as brand promotion and customer influence tools but not as revenue generating tool. The data clearly highlights the fact that social networking advertising is going to see significant growth this year and coming couple of years and the businesses of all sizes should allocate significant portions of their advertising budgets to this and also has to engage experts and professional ad agencies who have the necessary expertise to generate the necessary content and also make effective ads for the various social networking sites targeting the customers on these sites. 

Please visit Social Media Crowd Analysis Blog for further reading articles on social media/networking:  http://socialmediacases.blogspot.com/

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Global BPaaS Market 2012- Future Outlook: Growth driver for Indian IT vendors

Everest Group defines Business-Process-as-a-Service (BPaaS) as a model in which buyers receive standardized business processes on a pay-as-you-go basis by accessing a shared set of resources – people, application, and infrastructure – from a single provider. Advantages of BPaaS model includes potential cost reductions, efficiency in operations, access to best expertise, processes and technologies, and also allows the businesses to focus on the core processes by outsourcing the support functions and this is particularly benefit for SMBs and also Large organizations. According to Everest Group research, BPaaS delivers 35-40% cost savings for small businesses, 25-30% cost savings for medium size businesses and 10% cost savings for large enterprises over the traditional IT+BPO model. Many times there is confusion between SaaS and BPaaS, Gartner clarifies SaaS is an offering that enables a business process and it delivers a fully managed application that client uses to deliver a business outcome whereas BPaaS is a cloud service that delivers a business process and it delivers the business outcome for the client. Forrester is predicting BPaaS will grow from $0.53 B in 2011 to $10.02 B in 2020.

According to Gartner report “Forecast: Public Cloud Services, Worldwide, 2010-2016, 2Q12 Update (ID:G00234814)”, Gartner predicted that BPaaS will grow from $84.1B in 2012 to $144.7B in 2016, generating a global CAGR of 15%. Of the eight subsegments Gartner is tracking in the BPaaS forecast, Cloud Payments (17.8%) Cloud Advertising (17.1%) and Industry Operations (15.1%) are expected to have the greatest CAGR in revenues generated by 2016. In terms of revenue generated, Cloud Advertising is projected to grow from $43.1B in 2011 to $95B in 2016, generating 17.1% CAGR in revenue growth through 2016. Cloud Payments are forecast to grow from $4.7B in 2011 to $10.6B in 2016, generating a CAGR of 17.8% worldwide. E-Commerce Enablement using BPaaS-based platforms is expected to grow from $4.7B in 2011 to $9B in 2016, generating a 13.6% CAGR in revenue globally. Gartner 2011 Annual Survey of 610 Organizations highlights the fact that organizations are currently using or planning to use business process utility (BPU) or BPaaS for BPO exceed 60%.

Most of the Indian IT Vendors including BPO Vendors have developed their own BPaaS offerings and are actively offering them to their clients as these offerings fall under the nonlinear revenue model category that will allow vendors to charge premium pricing leading to higher margins and also fueled by economic slowdown, manpower issues and changing client needs wherein they are looking at outsourcing vendors as business partners who will help them improve both Topline and bottom line. TCS, Infosys, Cognizant Technology, Wipro, HCL Technologies, Genpact, WNS, etc. are all offering BPaaS services or Platform BPO offerings. These services have been developed for the past ten years and Indian IT Vendors are branding these offerings and successfully offering them to their clients. Platform BPO is a win-win offering for both the clients and vendors as they improve their process and service delivery and they will earn more from their clients on outcome basis. There has been significant demand from the Small & Medium Business segment but slowly the large business organizations too are significantly increasing their adoption of the BPaaS.

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Global IaaS Industry 2011& Forecast 2014-2016 – Slow adoption by large Enterprises

Infrastructure as a Service is a cloud computing model in which the service provider owns the equipment (Hardware like Storage, Servers, Networking Equipment, etc.  & Software) and is responsible for housing, running and maintaining it and the client typically pays on a per-use basis.  Major players in the IaaS market include Leaders like Amazon Wen Services, Savvis, CSC, Terremark, Bluelock; Challengers like Navisite, Opsource, IBM, GoGrid; Visionaries like Rackspace, Joyent and Niche players like Hosting.com, Tier3, AT&T, Tata Communications, SoftLayer, iland, Carpathia Hosting, Datapipe and Virtacore Systems, according to Gartner Magic Quadrant December 2011. Gartner predicts IaaS is a fast growing market as players like Google & Microsoft entered this market and in future this market will be 1/3^rd of the hosting market. Gartner also forecasts the IaaS market will generate $24.4B in revenue in 2016 from $5.6B in revenue in 2011 and IaaS is expected to grow by over $20B with a CAGR of 41.7% in the forecast period globally. The Compute sub segment is expected to see the greatest revenue growth globally, growing from $3.3B in 2011 to $20.2B in 2016, generating a 43.2% CAGR and other two sub segments CAGR growth - Storage (36.6%) and Print (16%).

Forrester predicts that IaaS market will initially grow for next few years but the market is expected to decline in the long term. Forrester’s report, “Sizing the Cloud”, highlights that IaaS is the second largest public cloud category with a $2.9 billion market size and “IaaS will reach a peak of $5.9 billion in global revenues in 2014 and will then enter a period of significant commoditization, price deterioration and margin pressure and between 2014 and 2020, as a result, the IaaS market will first stagnate and then decline, with total market revenues of $4.8 billion in 2020,” according to Forrester analysts Stefan Ried and Holger Kisker. Yankee Group analysts suggest IaaS might represent $2 billion to $3 billion, globally. IDC also estimates IaaS will decline to $15 billion in 2014 and most of the analysts believe the IaaS market will be larger than the PaaS market and IaaS is one of the most talked about in the cloud space, which saw several important improvements, such as changes in pricing strategies, the appearance of new smaller players, and the entrance of some technology heavyweights.

Enterprise Strategy Group survey published in January 2012 highlights that of more than 600 enterprise and mid-market companies globally; only 27% said they were using public cloud IaaS services. That's up 10% from a similar survey published in early 2011. But 28% of respondents said they have no immediate plans to jump into the cloud, and another 24% said they haven't pulled the trigger on a cloud deployment yet, but plan to at some point in 2012. SMBs are at the forefront of IaaS adoption totally for IT infrastructure needs but large enterprises are selective in adoption and using public IaaS primarily for these specific use cases: R&D projects, load testing, move non critical legacy applications from expensive on premise to off premise, build & deploy new apps and as part of SaaS or PaaS usage. With some of the large enterprises that selectively adopted IaaS couple of years back and who effectively utilized it are becoming test cases for more large enterprises to adopt IaaS within their organizations. There are also concerns that the pricing has not fallen for some time till now but with the entry of more players particularly Large IT players, businesses can expect more choice of offerings and reduction in prices.

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Global SaaS Market 2012 – Emerging Markets will drive growth till 2015

Software as a Service also known as on-demand software is a delivery model in which software and its associated data are hosted centrally and are accessed by users using a web browser. After more than a decade of use and vast improvements in the cloud computing technologies and many players like Amazon, Google, Saleforce.com, etc, major software vendors, developers and independent software vendors too invested significant resources both in terms of monetary, human and infrastructure to further develop the cloud computing. Initially IBM kick started the trend towards cloud computing with its On Demand computing initiative in 2003 and later in 2005 Amazon took the market forward with its cloud offerings like the Elastic Cloud 2 (EC2).  Even Indian IT Services Vendors and other small & medium players too are focused on cloud computing and particularly in Software as a Service offerings (SaaS). SaaS growth is an alternative to the on premises software and also Cloud-based licensing is different from traditional on-premises licensing and the market growth is only possible by cannibalizing the traditional software market. SaaS was expected to capture significant market share as its adoption benefits range from significant reduction in costs as buyers need not invest on the IT infrastructure on their premises, pay as you use model, easy to scale and upgrade, tighter IT budgets due to economic volatility in recent years and mobility i.e. access from anywhere and with any device.

According to Gartner, worldwide software-as-a-service (SaaS) revenue is expected to reach US$ 22.1 billion by 2015 as many companies are investing in cloud technology and is expected to grow healthily by 17.9% to reach USD 14.5 billion in 2012 from USD 12.3 billion in 2011. North America revenue is forecast to be US$ 9.1 bn in 2012 compared to US$ 7.8 bn in 2011, Western Europe revenue 2012 forecast US$ 3,2 bn compared to US$ 2.7 bn (2011), Eastern Europe (2012) US$ 169.4 million compared to US$ 135.5 million (2011), Asia Pacific (2012) US$ 934.1 mn compared to US$ 730.9 mn (2011), Japan (2012) US$ 495.2 mn compared to US$ 427 mn (2011) and Latin America (2012) US$ 419.7mn compared to  US$ 331.1 mn (2011). According to IDC, SaaS market revenue which includes cloud applications, application development and deployment, and system infrastructure software sales will rise to $53.6 billion by 2015 at a CAGR of about 26%. IDC also asserts that SaaS will grow faster than traditional software and will comprise 80% of the software delivered by new ISVs. By 2015, nearly $1 of every $6 spent on packaged software, and $1 of every $5 spent on applications, will be consumed via the SaaS model. According to Forrester, the public cloud market for SaaS is the biggest and fastest-growing of all of the cloud markets ($33 billion in 2012, growing to $78 billion by the end of 2015). According to market research firm Global Industry Analysts, the global SaaS market will reach $26.5 billion by 2015, as more companies will seek low-cost enterprise software solutions to accommodate limited IT budget growth, which could slow due to the global economic recession.

SaaS market growth is different in different geographies and compared to mature North America market that contributes 2/3^rd of the total SaaS market revenues is expected to grow by 16.7% and Western Europe the second best market expected to grow by 18.5% YoY, which is less when compared to 28% YoY growth for Asia Pacific excluding Japan, 27% growth for Latin America, 25% growth for Eastern Europe and Japan too is expected too see low YoY growth of 16% like in the other mature markets. Data highlights that SaaS market growth lies in the emerging markets as the countries in those markets are improving their IT infrastructure and looking to adopt SaaS technologies aggressively. Small and Medium Enterprises (SMBs) are driving the growth when compared to large enterprises that find it difficult to migrate to cloud computing from their existing on premise software and hardware systems as they have made significant investments in building these systems for years and due to other concerns like data security integrity, privacy, skilled man power, pricing and contracting issues, regulations, etc.  SaaS has become a common delivery model for most business applications, including accounting like expense management, financials, collaboration, customer relationship management (CRM), management information systems (MIS), enterprise resource planning (ERP), invoicing, human resource management (HRM), content management (CM) and service desk management.

Asia Pacific is high growth market for SaaS and this is driven by increased adoption in India, China driven by adoption of financial applications like accounting. ERP functions like Expense management and Employee Performance management, along with office suites, email and CRM sales are the other applications that are being deployed by companies in this region. Mature economic countries in this region like Australia, New Zealand, Hong Kong, Singapore, South Korea and Taiwan are driving SaaS adoption as they have good IT infrastructure that encourages increased adoption. Emerging countries in this region like Malaysia, Thailand, Indonesia, Philippines, and Vietnamwhere IT infrastructure is developing fast are also expected to increase SaaS adoption. Japanwas affected by the 2011 earthquake and Tsunami but SaaS market is gaining traction as Japanese companies are looking at SaaS as a defense against future power outages and disasters but there are concerns in terms of security, costs, and integration. Despite Japaneconomic problems and tighter IT budgets the demand for SaaS solutions is increasing due to their lower implementation costs and faster deployment times. SMBs too are driving growth and according to AMI Partners, SMB focused market research firm, forecast that the SaaS market in Asia/Pacific (excluding Japan) will reach $1.5 billion by the end of 2012 and expects the market to more than double by 2015.

Expense management, financials, email and office suites are the business apps deployed through SaaS and Web conferencing is also highly used as most of the American companies have global operations situated across the world but the market is also facing problems in terms of limited flexibility of customization and limited integration to existing systems according to Gartner. Gartner analysts said in Western Europe, the most developed sub region, SaaS Market is rapidly increasing as North America-based SaaS vendors further penetrate the region and the number of local European SaaS vendors increases. In Eastern Europe and the Middle East and Africa, which are small and emerging markets overall, the potential opportunity for SaaS is more in the medium to long term due to ongoing infrastructure challenges that vendors need to overcome if they are to be successful in these regions. In Latin America, SaaS has been deployed in the areas of email, financial management (accounting), sales force automation and customer service, and expense management. While regional adoption will be positive, it is fully expected that Braziland Mexicowill drive a majority of adoption and revenue opportunities.

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Mobile Application Stores Profile - Apple Inc.- App Store

Apple App Store - Number of Applications Downloads & Applications (Apps)

Apple App Store is a digital application distribution platform for iOS that opened in July 2008 and allow users to browse and download applications ( Apps) from iTunes Store. Applications range from business to game applications, entertainment to educational applications, and many more applications available for free or for sale.

As of April 2012, the iTunes App Store has over 600,000 apps available on Apple’s iOS platform and it added around 50,000 in previous two months. Around 200,00 apps are specially optimized for iPad. Apple tightly controls the App store and the approval process for Apps make sure quality of Apps.

According to data collected by 148Apps.biz from iTunes Store:

Total Active Apps (as per May 2012): 635,050; Total Inactive Apps (no longer available for download): 178,579; Total Apps Seen in US App Store: 813,629; Number of Active Publishers in the US App Store: 157,197

According to data collected by 148Apps.biz from iTunes Store- Most Popular Categories: Games (111,164 active); Books (63,604 active); Entertainment (63,432 active); Education (62,755 active); Lifestyle (53,420 active)

The App Store is now available to users in 123 countries and the number of app downloads reached 25 billion in March 2012. iTunes Store sells apps for iOS, as well as music, movies, podcasts and e-books, all of which contributed US$3.6 billion in first two quarters of FY 2012 and total revenues for FY 2011 is US$5.4 billion.  

According to IHS Screen Digest May 2011 research, Apple App Store expected revenue of $2.91 billion for 2011, up 63.4% from $1.78 billion in 2010. The report  further forecasted Apple App Store revenues to be  approximately $4.26 billion for 2012 (76% of Total Market) and $4.98 billion for 2014 (60% of Total Market).

Apple also said developers have made more than $4 billion from the App Store since it was launched in 2008. Apple receives a 30% cut of revenue generated by content sold through iTunes for iTunes operational costs and app developers and content makers get the remaining 70%.

Flurry Analytics reveals that Apple's App Store generates the most revenue for developers that means for every $1.00 an app generates in the App Store, it would generate $0.89 in the Amazon Appstore and $0.23 in Google Play.

According to Fiksu App Store Competitive Index which tracks the aggregate volume of downloads per day achieved by the top 200 ranked free iPhone apps in the U.S. In March 2012, the Index decreased by almost two million daily downloads - a 30% drop - to 4.45 million, down from 6.35 million in February.  

The Cost per Loyal User Index measures the cost of acquiring a loyal user for brands who proactively market their apps and for index purpose loyal users are defined as people who open an app three times or more. In March, the cost per loyal user held steady, moving less than 1 percent to $1.30, from $1.31 in February.

Post the hyper demand activity due to iPhone 4S launch in October 2011 and holiday season, dip in march 2012 is expected. Apple Policy against the use of robotic install tactics by app marketers also caused the slowdown but spending by mobile marketers was steady.

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Global Mobile Application Store Revenues – Smartphones & Tablets drive growth

According to ABI research, Total mobile app store revenues from pay-per-download, in-app purchase, subscriptions, and in-app advertising will rise over the next five years, growing from $8.5 billion in 2011 to $46 billion in 2016. Pay-per-download dominates the category but in-app purchase is also rising. ABI Research estimates that 29 billion apps were downloaded worldwide in 2011; up from 9 billion in 2010, the market growing at 12% month-on-month with nearly 36 billion apps downloaded in 2012 to smartphones and tablets. According to Strategy Analytics, 2012 Global mobile media revenues will be $150 billion, which will be 17% rise from $128 billion in 2011 and consumer spend will increase from $121.8 in 2011 to $138.2 billion in 2012 and advertiser spend will almost double from $6.3 billion in 2011 to $11.6 billion in 2012. Applications are forecasted to account for 19% of global consumer spend, or $26.1 billion in 2012, rising 30.7% from 2011. Revenues will remain relatively flat, music will continue to be a strong category, accounting for 11.6% of consumer spend, or $16 billion and video will account for just 2% of consumer spend globally. Apple’s App Store and Android’s Google Play are now big business with 32 billion apps expected to be downloaded in 2012 compared with 23 billion last year.

According to Juniper Research, more than 31 billion apps downloaded to mobile devices in 2011 and estimates consumer app downloads are expected to reach more than 66 billion per annum by 2016. Annual revenues from consumer mobile applications will approach $52 billion by 2016 as consumer smartphone adoption accelerates along with the emergence of tablet market. According to International Data Corporation (IDC), the global mobile app downloads are forecast to soar to 182.7 billion in 2015. By the end of 2014, Gartner forecast over 185 billion applications will have been downloaded from mobile app stores, since the launch of the first one in July 2008. According to May 2011 IHS Screen Digest, combined revenues from the four major mobile application stores run by Apple Inc., Google Inc., Nokia Corp. and Research In Motion Ltd. will leap 77.7 %in 2011 to $3.8 billion from $2.1 billion in 2010 and revenues will continue rising in the next few years, jumping to $5.6 billion in 2012, $6.9 billion in 2013 and $8.3 billion in 2014. The total number of downloaded applications in 2011 is expected to reach 18.1 billion by year-end, compared to 9.5 billion last year, 3.1 billion in 2009 and by 2014, downloaded applications will top some 33 billion.

Mobile Applications or Apps are specialized software that run on a mobile device such as mobile phone, MP3 Player, Tablet that performs or executes a specific task and the apps have been existed for several years on personal computers, but real fame for mobile apps is because of Apple Inc.’s App Store that has revolutionized the mobile apps world through its App Store on iTunes, a unique monetization model, that encouraged developers develop apps that educate, entertain and assist the mobile users in their day to day lives. Today there are many different apps like games, music, social networking, photo/video, productivity, entertainment, etc and there are more than million applications that are downloaded close to 20 billion times onto smartphones, feature phones, Mp3 players and tablets. Apple Inc’s App Store, Google Inc.’s Google Play (Merged Android Market & Music Service), RIM’s Blackberry App World, Nokia Ovi Store, Microsoft Windows Marketplace, Samsung Apps are the most popular apps stores. In fact availability of millions of apps has fueled the sales of smartphones and feature phones and developers are making money through a 70/30 revenue split where in developers get 70% of revenues & rest to app store owners. Mobile device makers too are including powerful chips, advanced software and hardware like advanced display screens, long battery life, etc so that apps can run smoothly and customers can easily access, install and use them easily.

App Stores are critical for smartphones and tablets success and developers need to be attracted and encouraged to develop applications that are bought and downloaded by consumers. Developers need to be provided with necessary software development toolkits, constantly be informed various updates being made to the core software code, favorable revenue splits and conferences have to be organized regularly so as to keep the interaction going and since past couple of years many application stores have been set up by various players, which also created a tough competition among the various stores to attract and retain their developers. Developers have to constantly develop and innovate new applications, work to add new features, improve app users experience, localize the app according to user’s regional background, culture, language and make the apps more users friendly to survive in the highly competitive market. App Store owners too have to tightly control the content, organize the store properly and the quality of applications on the stores has to be maintained to attract consumers and earn revenues. Since consumers are looking for accessing the various products and services they use through their mobiles and tablets, businesses are forced to include apps as part of their integrated multi channel distribution systems and apps help businesses to engage and retain consumers which are also fueling the mobile applications market.   

Developers and Content providers are actively looking for other storefronts other than the current App Store fronts and with development of technologies like HTML5 will allow them opportunity to offer apps that consumers download directly and install easily without the App Stores. The competition is further intensified with mobile operators and telecom companies are offering their own app stores for consumers and there is even more competition for attracting the developers. But in near future Apple App Store will dominate the market distantly followed by Android and the monetization of apps at stores other than Apple App Store is a major concern and in fact slowing down the App Store revenues growth. Pay per click and Pay per download models are loosing to In App Purchase models as consumers are more interested in free apps and content and are not interested in paying for apps upfront. Games dominate the market followed by music and social networking apps, but photo/video sharing apps and productivity apps are gaining prominence.

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Global Semiconductor Industry will continue its slow growth in 2012

Global Semiconductor Industry saw tremendous growth in 2010 post the global financial crisis as major semiconductor companies invested in manufacturing facilities to meet the raising demand from consumers fueled by sales of tablets, personal computers, datacenter server demand and mobile phones particularly smart phones. But the growth stalled in 2011 due to the volatile macro economic environment particularly the European Debt Crisis and the US economic slowdown, subsequent effect on other countries particularly nations like India, China, etc that saw slowdown in economic growth, natural disasters like the Japan Earthquake and Tsunami, Thailand Flooding too played their part but the global semiconductor industry survived these adverse conditions and grew modestly in single digit. The industry went through bad patch in 2009 due to the Global financial crisis where the YoY growth declined by 20% but it recovered in 2010 with a remarkable double digit more than 20-30% growth but due to the above mentioned adverse conditions growth was modest between 2-4% in 2011. But with the growing consumer demand for tablets, e-readers, personal computers like laptops, ultra books, smartphones, datacenters and cloud computing, etc the Global Semiconductor Industry is expected to reach approximately $412.8 billion in 2016 according to IHS iSuppli Global Manufacturing Market Tracker report. Global semiconductor revenue will reach $324.6 billion with 4.37% YoY growth in 2012 where as industry grew by only 1% in 2011 according to IHS.

Source: IHS iSuppli Research, April 2012

According to IDC, Worldwide semiconductor revenues increased more than 3.7% YoY to $301 billion in 2011, compared to more than 24% YoY growth to $282 billion in 2010. IDC expects 2012 semiconductor revenue growth to be in the 6-7% range fueled by accelerated growth in second half of 2012 when fab utilization rates rise and semiconductor cycle that started in mid 2011 will bottom out by second half. Gartner forecasts worldwide semiconductor revenue to total $316 billion in 2012, a 4% increase from 2011 level of $306.8 billion, up $5.4 billion, or 1.8% from 2010 level of $301.4 billion. Gartner is expecting a rebound starting in the second quarter of 2012, supported by inventory corrections, bottoming foundry utilization rates and global economy stabilizing. According to both IDC and Gartner, Intel is the market leader with close to $51 billion in revenues; Samsung is number 2 with $27 billion revenues (Gartner) and $29 billion revenues (IDC).According IDC Texas Instruments is third followed by Toshiba and Renesas Electronics but according to Gartner Toshiba is number three followed by Texas Instruments and Renesas. Also similar difference is there for number seven and eight positions according to IDC Hynix is seven and STMicro eight but Gartner classifies STMicro is seven and Hynix is eight.

Microprocessors performed well in 2011 after not doing so well in 2010 and are expected to continue to do well in 2012 with high average selling price and strong demand for Intel chips for use in Personal computers like notebooks & ultra books and servers. NAND flash memory revenues are expected to grow in 2012 just the way they grew in 2011 fueled by strong increase in mobile consumer devices and solid-state drives. DRAM pricing fell by 50% has affected the overall industry revenues in 2011due to falling ASPs and oversupply as it poorly performed where in the revenues fell by 25%. But DRAM will see slight recovery in 2012 as one of the major player Elpida filed for bankruptcy. Inventory is a major concern for the industry and according to IHS despite the semiconductor suppliers reducing their inventory by 7.5% over the last 6 months, total inventory remains at high levels both in terms of aggregate dollar value as well as in days of inventory but further reductions at least another 5%, expected through H1 2012, are necessary for chip makers to experience sustained demand and growth.

Gartner forecasts semiconductor revenue from media tablets will reach $9.5 billion as unit production is expected to increase by 78% YoY, semiconductor revenue from PCs will reach $57.8 billion as unit production expected to increase 4.7% and semiconductor revenue for mobile phones will reach $57.2 billion as production is expected to grow 6.7% in 2012. Consumer demand from Asia Pacific and Americas is expected to rise further but demand in Japan and Europe is expected to be seeing negative growth. The semiconductor industry is also seeing consolidation as larger players have significant cash reserves and looking to acquire smaller players as companies in the industry is positioning themselves for the next phase of growth with devices becoming more intelligent and needing support for high-level operating systems, connectivity, and application processing capabilities, according to IDC. A number of mergers and acquisitions came to fruition in 2011, most notably Qualcomm–Atheros, Texas Instruments–National Semiconductor, SMSC–Conexant, Broadcom–NetLogic, CSR–Zoran, and Microsemi–Zarlink and this trend is expected to continue in 2012 according to IDC. Ultimately the growth of the global semiconductor industry is dependent on macroeconomic environment stabilizing and improving with containment of European Debt crisis and growth returning back to emerging countries like India, China, etc that drive demand for PCs, tablets like iPads and e-readers, Smartphones like iPhones, no major natural disasters, and manufacturers of PCs like notebooks, ultra books, servers, mobile phones, etc launch new models and attract more consumers. Most of the research firms and semiconductor companies expect that growth will return by second half of 2012.

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