Software Industry Growth Potential
Content
SOFTWARE INDUSTRY GROWTH POTENTIAL
Adoption of new liberal policies in India has given birth immense opportunities to its industries. Success story of India's Software Industry is a step in the same direction. The Software Industry, which is a main component of the Information technology, has brought tremendous success for the emerging economy. India's young aged manpower is the key behind this success story. Presently there are more than 500 software firms in the country. Overview on India's Software Industry According to statistics, country's software exports reached total revenues of Rs 46100 crores. The share of total Indian exports form 4.9 per cent in 1997 to 20.4 percent in 2002-03. It is expected that the industry will generate a total employment of around four millions peoples, which accounts for 7 per cent of India's total GDP as in the year 2008. India's Software Exports: Software exports has major share in India's total exports. As of the year 2004-05, both software and services revenue grew by 32 percent to $ 22 billions and $ 28.5 billions in 2005-06. According to NASSCOM, India's domestic market, grew by 24 per cent. Presently Indian companies have concentrated on only two largest IT service markets. They are USA and the UK. Even Canada, Japan, Germany and France represent huge growth potential in the industry. Software industry is one of the major names in the industrial scenario of the United States of America. It is considered as one of the most diverse industries, which caters to a large client base spread around the globe. The software and related services sector employed 1.7 million people in the US in 2007 and real contribution to GDP exceeded $261 billion in 2007. In 2007, the software and related services sector experienced a real annual growth rate of 14 percent, compared with a real annual growth rate of 2 percent for all US industries1. In 2008, the US share of the packaged software market was $136.6 billion, or 45.9 percent of the world market. Although the US is the single largest software market in the world, more than half of the world¶s software market lies outside the US. Companies Involved: According to market researcher Data Monitor, the size of the worldwide software industry in 2008 was US$ 303.8 billion, an increase of 6.5 percent from 2007. Americas account for 42.6 percent of the global software market's value. Data Monitor forecasts that in 2013, the global software market will have a value of US$ 457 billion, an increase of 50.5 percent since 2008. The software companies, particularly in
the United States, share a long lasting reputation for their brand recognition and the services they offer worldwide. Some of the top US companies in the application software are: Microsoft Corporation (NasdaqGS: MSFT), Oracle Corporation (NasdaqGS: ORCL) and SAP AG ADS (NYSE: SAP). MSFT has a total market cap of $219.1 billion, largest in the global industry. ORCL and SAP have a market cap of $162.3 billion and $71.7 billion, respectively, next to Microsoft. The profit margin ratio of MSFT after its second quarter ending December 31, 2010 was 30.84 percent. ROA and ROE were reported as 19.34 percent and 44.35 percent, individually. The industry¶s ROE was 25.70 percent, lower than that of MSFT¶s. It means that the company¶s performance is impressive as MSFT generated a 44 percent profit on every dollar invested by shareholders. On the other hand, ROE of ORCL was 21.59 percent and ROE of SAP was 19.89 percent, lower as compared to industry¶s ROE. Hence, potential investors may be more interested towards making an investment in Microsoft. On the other hand, Activision Blizzard, Inc. (Nasdaq: ATVI), the interactive entertainment software industry's leading publisher, has ROE of 3.99 percent against multimedia & graphics software industry¶s figure of 1.30 percent with the sound current ratio of 1.85. For calendar year 2010, Activision Blizzard's GAAP net revenues increased to $4.45 billion, as compared with $4.28 billion for 2009. The company¶s GAAP earnings per diluted share increased to $0.33 per share, as compared with $0.09 per diluted share for 2009. Threats: The major threat to the software industry is the piracy. It is believed that, at 20 percent, the United States has the lowest PC software piracy rate in the world. However, it has the largest dollar losses from piracy, $9.1 billion. Losses have risen steadily in recent years while the piracy rate has hovered around 20-21 percent. Governments and software companies are working together to improve the situation of illegal use of personal computer (PC) software products. Broadly speaking, high-piracy rate means fewer jobs in IT services. Software piracy also increases the risk of cyber-crime and security problems. Competition is a threat to almost every company in any industry and software is no exception. The heavy competition amongst the companies sometimes makes the demand for the product inelastic. This competition gets stiffer in the days of financial crises or inflation. In both situations, the consumer is not willing to spend their money and rather save them for their future. The quality improvements in open-source software pose a threat to the profitability of commercial software shops. Another major threat that impacts the US software industry is the outsourcing to another country to get the maximum output at the minimum costs. Nowadays, many companies are operating their businesses in the low costs countries like India. The government of India created special economic zones (SEZ) to attract multinational companies to India. The companies operating from SEZ have to pay minimum taxes and can hire employees at comparatively less salary than the US counterpart.
Conclusion: The US software industry contributed an estimated $36 billion surplus to the US balance of trade in 2008, which is indeed a high contribution in the time of economic downturn. The global recession affects the demand and consumption of the industry to a great extent as people may not buy the computers or other devices, hence leaving the software industry into vacuum. The popularity of new portable devices, like iPad and iPhone, may fuel the growth of the industry as software gets easier to use for general consumer.
Adoption of new liberal policies in India has given birth immense opportunities to its industries. Success story of India's Software Industry is a step in the same direction. The Software Industry, which is a main component of the Information technology, has brought tremendous success for the emerging economy. India's young aged manpower is the key behind this success story. Presently there are more than 500 software firms in the country. Overview on India's Software Industry According to statistics, country's software exports reached total revenues of Rs 46100 crores. The share of total Indian exports form 4.9 per cent in 1997 to 20.4 percent in 2002-03. It is expected that the industry will generate a total employment of around four millions peoples, which accounts for 7 per cent of India's total GDP as in the year 2008. India's Software Exports: Software exports has major share in India's total exports. As of the year 2004-05, both software and services revenue grew by 32 percent to $ 22 billions and $ 28.5 billions in 2005-06. According to NASSCOM, India's domestic market, grew by 24 per cent. Presently Indian companies have concentrated on only two largest IT service markets. They are USA and the UK. Even Canada, Japan, Germany and France represent huge growth potential in the industry. Software industry is one of the major names in the industrial scenario of the United States of America. It is considered as one of the most diverse industries, which caters to a large client base spread around the globe. The software and related services sector employed 1.7 million people in the US in 2007 and real contribution to GDP exceeded $261 billion in 2007. In 2007, the software and related services sector experienced a real annual growth rate of 14 percent, compared with a real annual growth rate of 2 percent for all US industries1. In 2008, the US share of the packaged software market was $136.6 billion, or 45.9 percent of the world market. Although the US is the single largest software market in the world, more than half of the world¶s software market lies outside the US. Companies Involved: According to market researcher Data Monitor, the size of the worldwide software industry in 2008 was US$ 303.8 billion, an increase of 6.5 percent from 2007. Americas account for 42.6 percent of the global software market's value. Data Monitor forecasts that in 2013, the global software market will have a value of US$ 457 billion, an increase of 50.5 percent since 2008. The software companies, particularly in
the United States, share a long lasting reputation for their brand recognition and the services they offer worldwide. Some of the top US companies in the application software are: Microsoft Corporation (NasdaqGS: MSFT), Oracle Corporation (NasdaqGS: ORCL) and SAP AG ADS (NYSE: SAP). MSFT has a total market cap of $219.1 billion, largest in the global industry. ORCL and SAP have a market cap of $162.3 billion and $71.7 billion, respectively, next to Microsoft. The profit margin ratio of MSFT after its second quarter ending December 31, 2010 was 30.84 percent. ROA and ROE were reported as 19.34 percent and 44.35 percent, individually. The industry¶s ROE was 25.70 percent, lower than that of MSFT¶s. It means that the company¶s performance is impressive as MSFT generated a 44 percent profit on every dollar invested by shareholders. On the other hand, ROE of ORCL was 21.59 percent and ROE of SAP was 19.89 percent, lower as compared to industry¶s ROE. Hence, potential investors may be more interested towards making an investment in Microsoft. On the other hand, Activision Blizzard, Inc. (Nasdaq: ATVI), the interactive entertainment software industry's leading publisher, has ROE of 3.99 percent against multimedia & graphics software industry¶s figure of 1.30 percent with the sound current ratio of 1.85. For calendar year 2010, Activision Blizzard's GAAP net revenues increased to $4.45 billion, as compared with $4.28 billion for 2009. The company¶s GAAP earnings per diluted share increased to $0.33 per share, as compared with $0.09 per diluted share for 2009. Threats: The major threat to the software industry is the piracy. It is believed that, at 20 percent, the United States has the lowest PC software piracy rate in the world. However, it has the largest dollar losses from piracy, $9.1 billion. Losses have risen steadily in recent years while the piracy rate has hovered around 20-21 percent. Governments and software companies are working together to improve the situation of illegal use of personal computer (PC) software products. Broadly speaking, high-piracy rate means fewer jobs in IT services. Software piracy also increases the risk of cyber-crime and security problems. Competition is a threat to almost every company in any industry and software is no exception. The heavy competition amongst the companies sometimes makes the demand for the product inelastic. This competition gets stiffer in the days of financial crises or inflation. In both situations, the consumer is not willing to spend their money and rather save them for their future. The quality improvements in open-source software pose a threat to the profitability of commercial software shops. Another major threat that impacts the US software industry is the outsourcing to another country to get the maximum output at the minimum costs. Nowadays, many companies are operating their businesses in the low costs countries like India. The government of India created special economic zones (SEZ) to attract multinational companies to India. The companies operating from SEZ have to pay minimum taxes and can hire employees at comparatively less salary than the US counterpart.
Conclusion: The US software industry contributed an estimated $36 billion surplus to the US balance of trade in 2008, which is indeed a high contribution in the time of economic downturn. The global recession affects the demand and consumption of the industry to a great extent as people may not buy the computers or other devices, hence leaving the software industry into vacuum. The popularity of new portable devices, like iPad and iPhone, may fuel the growth of the industry as software gets easier to use for general consumer.
