Vietnam information technology report q3 2013

Potential for strong growth in licensed operating systems, business software and security software however this outlook depends on the success in bringing down illegal software use.. Key

Q3 2013 www.businessmonitor.com

VIETNAM

INFORMATION TECHNOLOGY REPORT

INCLUDES 5-YEAR FORECASTS TO 2017

Report Q3 2013

INCLUDES 5-YEAR FORECASTS TO 2017

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: July 2013

Business Monitor International

© 2013 Business Monitor International

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of the publisher

DISCLAIMER

Report Q3 2013

INCLUDES 5-YEAR FORECASTS TO 2017

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: July 2013

Business Monitor International

© 2013 Business Monitor International

All rights reserved

All information contained in this publication iscopyrighted in the name of Business Monitor International, and as such no part of this

publication may be reproduced, repackaged,redistributed, resold in whole or in any part, or used

in any form or by any means graphic, electronic ormechanical, including photocopying, recording,taping, or by information storage or retrieval, or byany other means, without the express written consent

of the publisher

DISCLAIMER

BMI Industry View 7

SWOT 9

IT SWOT 9

Wireline 11

Business Environment 13

Political 14

Economic 15

Industry Forecast 16

Table: Vietnam IT Industry - Historical Data And Forecasts (VNDbn) 16

Broadband 21

Table: Telecoms Sector - Broadband - Historical Data And Forecasts 21

Macroeconomic Forecasts 23

Economic Analysis 23

PMI Data Suggests Economic Recovery Remains On Track 23

Downward Revision To Reflect Weak Q113, But Growth Trajectory Intact 25

Table: VIETNAM - ECONOMIC ACTIVITY 26

Industry Risk Reward Ratings 27

Industry Risk/Reward Ratings 27

Table: Asia Pacific IT Risk/Reward Ratings - Q3 2013 30

Market Overview 31

Hardware 31

Software 38

Services 48

Industry Trends And Developments 53

Regulatory Development 57

Table: Government Authority 57

Regulatory News 59

Company Profile 62

FPT Software 62

Table: FPT Group Revenue By Segment (VNDbn) 64

Table: Profit Before Tax Margin By Segment (%) 64

Regional Overview 66

Demographic Forecast 71

Table: Vietnam's Population By Age Group, 1990-2020 ('000) 72

Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 73

Table: Vietnam's Key Population Ratios, 1990-2020 74

Table: Vietnam's Rural And Urban Population, 1990-2020 74

Methodology 75

Methodology 75

IT Industry 75

IT Ratings - Methodology 76

Table: IT Business Environment Indicators 77

Weighting 78

Table: Weighting Of Components 78

Sources 78

BMI Industry View

BMI View: We forecast IT spending will increase by 17.6% in 2013 to reach a total value of VND62,082bn

(US$2.97bn) This is a slight downgrade from the Q213 update on the basis of a slightly weaker economic environment, however, the macroeconomic environment remains supportive of fast IT market growth over the medium term Household PC penetration remains low, meaning an opportunity for vendors to record sales growth over the medium term as incomes rise Meanwhile, a range of government ICT initiatives and

a campaign to develop Vietnam's domestic IT industry will also boost growth In the enterprise market there

is strong demand for ERP and security solutions, as well as medium-term opportunities in cloud computing services as telecoms infrastructure improves Finally, the outsourcing market is also expected to expand rapidly over the medium term as enterprises, particularly in Japan, switch business away from China in search of cost savings.

Headline Expenditure Projections:

Computer Hardware Sales: VND44,389bn in 2013 to VND68,935bn in 2017, CAGR of +12.5% in local

currency terms Low PC penetration provides opportunities for sales to first time buyers while the influx ofcheap tablets from Android and Windows 8 vendors and notebooks are expected to provide a growthavenue over the medium term

Software Sales: VND5,610bn in 2013 to VND10,378nn in 2017, CAGR of +17.5% in local currency

terms Potential for strong growth in licensed operating systems, business software and security software however this outlook depends on the success in bringing down illegal software use

-IT Services Sales: VND12,083bn in 2013 to VND22,812bn in 2017, CAGR of +18.2% in local currency

terms Services will be the outperforming segment of the IT market as demand grows in several verticals,including banking, telecoms, energy and government Additionally, there is a potential boom in outsourcingfrom Japanese enterprises to drive outperformance of services segment

Risk/Reward Ratings: Vietnam scores 41.1 out of 100 in our Asia Risk/Reward Ratings table This places

the country 11th, ahead of Sri Lanka and behind Indonesia and Thailand

Key Trends & Developments

PC penetration remains low in Vietnam, although it has been rising in recent years as device prices havedeclined at the same time as Vietnamese incomes have risen and supporting infrastructure has improved.Low penetration gives PC vendors an opportunity to tap both the first time buyer and upgrade/replacementmarket to achieve strong growth in the coming years However, the complexion of the hardware market ischanging with competition to international vendors most notably coming from low-price Chinese tabletssuch as Hipad, Ondan, Teclast and Ampe in 2013 These products are undercutting traditional notebooks onprice, even after local dealers benefitting from high mark-ups The margins available mean they are beingheavily promoted by local retailers This has reportedly resulted in declines in prices for notebooks, whichare nevertheless finding themselves unable to compete at the low end of the market

The outsourcing market in Vietnam has the potential to be one of the fastest growing segments of the ITmarket, however there are challenges to continued growth On the positive side, there has been increasinginterest in Vietnam as a business process and software development outsourcing location, particularly fromJapanese enterprises Vietnam has a cost advantage over China, which accounts for the majority of Japaneseoutsourcing by value This could see significant shifts as the trend gains momentum However, in 2013there have been concerns raised about the availability of skilled labour, with IT university admission ratesdeclining, which could ultimately lead to a bottleneck that stymies the development of Vietnam's

outsourcing sector

IT SWOT

SWOT Analysis

Strengths ■ Government policies to expand ICT infrastructure and internet penetration are driving

demand for IT products and services

■ Vietnam's gradual integration into the global trade network via its accession into tradeorganisations such as ASEAN and WTO, as well as bilateral agreements with Japanand China

■ The domestic IT market is in a rapid growth phase, with trade liberalisation andgrowing affordability driving Increased adoption among enterprises and consumers

lower GDP and GDP per capita

■ Low levels of access to credit and budgets restrain spending by SMEs

■ Highly cost-sensitive market, with 75% of software provided by lower-cost localsoftware vendors

■ High level of software piracy, although progress has been made in recent years

Opportunities ■ Low PC penetration means there is scope for vendors to tap first time buyer market

as well as the upgrade/replacement market

■ Low-cost tablets are proving popular with consumers, with significant medium termsales growth potential

■ Vietnam is becoming a popular destination for outsourcing, with particularly stronggrowth potential from Japanese enterprises

■ National IT Plan will drive spending on IT utilisation in areas such as government, taxation and education

e-SWOT Analysis - Continued

■ SMEs have much potential to increase spending on basic solutions, includingcustomer relationship management and security

■ Banking and finance, oil and gas, aviation and telecoms are projected to be some ofthe biggest opportunities for multinational vendors

■ The government's drive to create a significant IT services industry over the next 15-20years is expected to be a significant factor shaping the IT market through incentives

to create IT clusters

established multinationals will face a growing challenge from low-cost Chinesevendors in the Vietnamese market

■ Low cost tablets from own-brand Chinese vendors a particular threat to low- andmid-range notebook vendors

■ Falling prices may further undermine margins and profitability after steep discounting

■ Cyber security issues could undermine confidence in IT solutions and services, withBig Data and cloud computing vulnerable

Wireline SWOT

Strengths ■ Fixed-line penetration levels and internet user rates are high in major urban centres

such as Ho Chi Minh City, Hanoi, Danang and Haiphong

■ Competition exists in fixed-line and internet access markets; VNPT faces competitionfrom several other state-owned companies and privately owned operators

■ High levels of literacy and other demographic factors bode well for strong andcontinued demand for wireline services over the next few years

Weaknesses ■ Vietnam's fixed-line and internet access markets are dominated by state-controlled

Opportunities ■ The privatisation of VNPT could help to bring about increased investment revenue

and the arrival of new skills

■ On a national level, broadband penetration rates remain low - this means that thesector has considerable growth potential

■ Significant opportunities exist to develop alternative broadband technologies,including WiMAX, LTE and fibre; WiMAX and LTE internet services have the potential

to raise the level of internet user penetration in rural parts of Vietnam

Wireline SWOT - Continued

■ Draft Bill of Law on Telecommunication has been put forward for discussion at theNational Assembly Steering Committee If passed, the bill will allow private

companies to build network infrastructure for the first time and will open up thetelecoms market to foreign investors

consequences for DSL growth

■ As the market for mobile data services grows, this could have potentially negativeconsequences for the growth of fixed broadband services

■ VTV's dominance in the pay-TV sector is holding back market development

Business Environment

SWOT Analysis

attractive to foreign investors

■ Vietnam's location - its proximity to China and South East Asia, and its good sea links

- makes it a good base for foreign companies to export to the rest of Asia, andbeyond

Weaknesses ■ Vietnam's infrastructure is still weak Roads, railways and ports are inadequate to

cope with the country's economic growth and links with the outside world

■ Vietnam remains one of the world's most corrupt countries According toTransparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123out of 176 countries

Opportunities ■ Vietnam is increasingly attracting investment from key Asian economies, such as

Japan, South Korea and Taiwan This offers the possibility of the transfer of high-techskills and know-how

■ Vietnam is pressing ahead with the privatisation of state-owned enterprises and theliberalisation of the banking sector This should offer foreign investors new entrypoints

protectionism, which will remain a concern

■ Labour unrest remains a lingering threat A failure by the authorities to boost skillslevels could leave Vietnam a second-rate economy for an indefinite period

SWOT Analysis

we do not expect major shifts in policy direction over the next five years The party system is generally conducive to short-term political stability

one-■ Relations with the US have witnessed a marked improvement, and Washington seesHanoi as a potential geopolitical ally in South East Asia

Weaknesses ■ Corruption among government officials poses a major threat to the legitimacy of the

ruling Communist Party

■ There is increasing (albeit still limited) public dissatisfaction with the leadership's tightcontrol over political dissent

Opportunities ■ The government recognises the threat corruption poses to its legitimacy, and has

acted to clamp down on graft among party officials

■ Vietnam has allowed legislators to become more vocal in criticising governmentpolicies This is opening up opportunities for more checks and balances within theone-party system

one-party system, and street demonstrations to protest economic conditions coulddevelop into a full-on challenge of undemocractic rule

■ Although strong domestic control will ensure little change to Vietnam's political scene

in the next few years, over the longer term, the one-party-state will probably beunsustainable

■ Relations with China have deteriorated over recent years due to Beijing's moreassertive stance over disputed islands in the South China Sea and domestic criticism

of a large Chinese investment into a bauxite mining project in the central highlands,which could potentially cause wide-scale environmental damage

SWOT Analysis

GDP growth averaging 7.1% annually between 2000 and 2012

■ The economic boom has lifted many Vietnamese out of poverty, with the officialpoverty rate in the country falling from 58% in 1993 to 14.0% in 2010

Weaknesses ■ Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving

the economy vulnerable to global economic uncertainties in 2012 The fiscal deficit isdominated by substantial spending on social subsidies that could be difficult towithdraw

■ The heavily-managed and weak currency reduces incentives to improve quality ofexports, and also keeps import costs high, contributing to inflationary pressures

while making Vietnamese enterprises stronger through increased competition

■ The government will in spite of the current macroeconomic woes, continue to moveforward with market reforms, including privatisation of state-owned enterprises, andliberalising the banking sector

■ Urbanisation will continue to be a long-term growth driver The UN forecasts theurban population rising from 29% of the population to more than 50% by the early2040s

upbeat view of Vietnam If the government focuses too much on stimulating growthand fails to root out inflationary pressure, it risks prolonging macroeconomicinstability, which could lead to a potential crisis

■ Prolonged macroeconomic instability could prompt the authorities to put reforms onhold as they struggle to stabilise the economy

e/f = BMI estimate/forecast Source: BMI.

BMI made a small downward revision to our forecast for IT market growth in 2013 in the Q313 update,

however our forecast for the later years was unchanged. We made a small downward revision to 2013

growth on the basis of a slightly weaker GDP growth forecast, but this revision should be considered in thewider context of a supportive economic environment and a rapidly expanding IT market

We expect the IT market in Vietnam will expand to VND62,082bn in 2013, an increase of 17.6% fromVND57,773bn in 2012 We expect strong growth to continue over the medium term with a compoundannual growth rate (CAGR) of 14.1% 2013 to 2017, with the value of the market reaching VND102,126bn

in 2017 There will be double digit CAGR for all three segments of the market, however we expect softwareand services growth to outperform hardware and account for an increasing share of the total market over thefive years to 2017

The major trends driving this strong growth include increases in PC penetration - driven by the supply ofcheaper hardware from Chinese vendors and a new generation of devices running Windows 8 - underpinned

by improvements in network infrastructure and rising real incomes Government spending and policy willalso add to growth, through procurement initiatives, investments in hi-tech industrial parks and policiesdesigned to boost the sector such as improvements to IT education and security certification schemes forfirms Meanwhile, despite global economic headwinds presenting a risk, Vietnam's software and

outsourcing services firms are positioned to benefit from large foreign enterprises seeking lower costlocations over the medium term

2013 Outlook

BMI has revised our macroeconomic outlook for

2013 downwards slightly, but it will still be

supportive of IT market expansion We forecast real

GDP growth will pick up to 5.6% in 2013 from 5.0%

in 2012, however, the forecast for 2013 has been

revised down from 7% in the Q2 2013 update

Meanwhile, real growth in private final consumption

is also forecast to rise, pushing up to 5.0% in 2013

from 4.7% in 2012 Government spending is

expected to increase by 6.5% in real terms, again up

from 2012, and further, we expect IT spending

growth to outpace overall government spending

growth as it procures IT hardware, software and

services as part of its development plan

Despite a positive growth outlook Vietnam remains

a low income market with GDP per capita expected

to reach just US$1,751 in 2013 As such IT spending on big ticket items remains out of the reach of a largepart of the population Furthermore, the economy is exposed to risks from global economic headwindsthrough the export market, swings in commodity prices and pressure on the value of Dong

BMI expects strong sales in the retail PC market to continue through 2013, based on sales of desktops,

notebooks and tablets Further, the market will gain additional momentum from the impact of new vendorsentering the market and existing vendors releasing new models, including Android tablets and

Microsoft Windows 8 based tablets, hybrids/convertibles and ultrabooks This is an extension of trends

from recent years when declining prices have sustained sales volumes in a market where businesses andindividuals remain price-sensitive However, a more recent factor is the influx of low-priced Chinese own-brand tablets that has deepened the market and allowed growth momentum to be maintained Furthermore,vendors in the notebook category have been lowering prices to compete with this influx, which has helpedmake devices more affordable and boosted sales

Another area of the market performing strongly in 2013 is the outsourcing services market Several pieces

of research have shown that Vietnam is now the first choice for Japanese enterprises looking to outsource

Industry Trends - IT Market

2010-2017

e/f = BMI estimate/forecast Source: BMI.

functions, primarily based on the cost advantages offered The majority of Japan's corporate outsourcing isstill directed to China in terms of value, but software and business process outsourcing has significant costadvantages in Vietnam, as well as a friendly business environment This could see rapid growth as firmsshift from China to Vietnam, and the potential for international demand from elsewhere could sustain theboom.

Government spending and PC subsidy programmes will be supportive of the PC market in 2013 as thegovernment continues to roll-out IT modernisation programmes The government has been spending heavily

on IT, with around 50% of this going to hardware in recent years It has also spent heavily on licensingsoftware used by government agencies, but in 2013 the Ho Chi Minh City government is beginning a push

to increase the utilisation of open source software, which could be replicated elsewhere

Drivers

The Vietnamese government is pursuing policies to promote the development of Vietnam's IT marketthrough to 2020 These policies include promoting the use of IT by government agencies, citizens andenterprises - as well as promoting the development of local industry, particularly in software and

outsourcing services Examples of policies include plans to modernise IT in government agencies and thecustoms department, as well as the Tax Administration Modernisation Plan for 2008-2013, representopportunities for vendors of IT products and services A number of government ministries and

organisations, including the Ministry of Education and Training, have started to promote the roll-out ofcloud services The government has also promoted the IT industry through policy and incentives to grow hi-tech parks, both for the construction of IT hardware, but increasingly software and IT services

The government's drive to create a significant IT services industry over the next 15-20 years is expected to

be a particularly significant factor shaping the IT services market The cost of outsourcing in Vietnam wasestimated in 2013 research to be as much as 30% lower than in China, a fact which Japanese firms wereespecially aware of The momentum that could be garnered from Japanese enterprises shifting businessprocess and software development outsourcing to Vietnam could see medium term increases from Europeanand North American demand

However growth will depend on government progress on various business environment issues, includingcopyright protection Further progress in combating software piracy, which is still reported to be at higherlevels than in China, India and Thailand, despite some progress in recent years, is required The governmenthas indicated a willingness to improve through the implementation of stricter regulations It is also takingsteps to increase the penetration of information security certification by distributing funds to enterprises

Improvements to supporting infrastructure are also driving IT market development Telecoms operators areinvesting in the expansion of both wireline and wireless broadband network infrastructure to rural areas, aswell as upgrading capacity of urban infrastructure and improving backbone networks Additionally,

telecoms operators such as Viettel are emerging as significant distribution channels for notebooks as

vendors seek tie-ups In a country where PC penetration remains low, particularly in rural areas,

government digital divide programmes to boost internet and digital utility in rural areas underpin

addressable market growth and open PC ownership to a growing number of rural inhabitants

Tariff reductions, particularly the ASEAN ones, have contributed to lower prices and a boost to PC sales.However, the new China-ASEAN free trade agreement offers both opportunities and challenges to vendors,given the growing presence of low-cost Chinese vendors in the Vietnamese market Reports from Q113indicate that international vendors have suffered in particular against the supply of cheap own-brandChinese tablets Local dealers are promoting the devices because of the margins available, but even withthis mark-up they are proving a big-hit and hurting sales of traditional notebooks

Segments

Government remains a key IT spending segment and accounts for around 30% of total Vietnamese ITspending, with high levels of investment in hardware Spending has continued to grow both at central andregional government level For instance, in 2010 the prime minister ordered all cabinet ministers to usecomputers as part of a two-year plan to increase IT use in government Most recently in April 2013 the Ho-Chi Minh City authority announced plans to spend VND300bn (US$14.3mn) on developing e-governmentcapacity It will also focus on replacing out of date hardware and improving network security in 2013 Anadditional feature is the authority's intention to work with local small and medium IT enterprises wherepossible, rather than immediately turning to large IT vendors Spending in 2013 is a marked increase overthe 2005-2012 period when the city authority carried out 1,012 projects with a total spend of VND665bn

In the enterprise market it is larger Vietnamese companies that are most likely to buy packaged softwarefrom multinationals, which have only around 25% of the local software market In the large corporatesector, growing demand for digital infrastructure projects in segments such as banking, telecoms and energyhas attracted global IT services leaders, such as IBM, to invest in Vietnam Foreign investment, particularly

by Japanese companies, in call centres and other areas will help to grow the market

Meanwhile smaller enterprises have a lower penetration of enterprise software, including ERP and securitysoftware As such it is an area of the market in which vendors can achieve growth as SME awareness of the

benefits of IT utilisation increase Vendors will have to face the challenge of enterprises that are constrained

by low budgets and lack of access to credit Companies are looking for software that will help boost

performance and operational efficiency Promising SME verticals include discrete manufacturing andconsumer packaged goods, as well as hotels and property management The solution areas with mostdemand currently include security software and key applications such as CRM, ERP and HR management

The banking and finance sector is a promising area for database software and one where foreign companieshave done well Spending opportunities in the finance segment will be driven by regulatory compliance, due

to regulations such as Basel II, HIPPA and the Sarbanes-Oxley Act, and quite likely by new regulationsintroduced in the wake of the global financial crisis

An increasing number of Vietnamese companies have shown an interest in and willingness to use cloudservices, although the market is only in the early stages of development In the short term weaknesses intelecoms infrastructure - in terms of reach and capacity - will limit cloud service adoption, but this barrierwill erode over the medium term The government has also got involved in encouraging the development ofthis business model in Vietnam and new cloud computing offerings and increased competition in thissegment should fuel further demand from end-users to utilise this technology

Summary

Overall, the hardware market is anticipated to grow from VND44,389bn in 2013 to VND68,935bn in 2017,with computer sales rising from VND36,754bn to VND57,216bn over the same period Software spendingshould rise from VND5,610bn to VND10,378bn and IT services from VND12,083bn to VND22,812bn overthe forecast period

Table: Telecoms Sector - Broadband - Historical Data And Forecasts

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

No of fixed broadband internet subscribers ('000) 3,644 4,085 4,775 4,966 5,115 5,218 5,322 5,428

No of fixed broadband internet subscribers/100

e/f = BMI estimate/forecast Source: BMI, VNNIC

According to data provided by the Vietnam Internet

Network Information Centre (VNNIC), there were

31.3mn internet users in Vietnam at the end of

November 2012, up from 30.6mn in 2011 Vietnam's

internet sector continued to exhibit slower growth in

2012, continuing on from the trend seen in 2011

The average monthly growth rate for 2011 was

1.1%, which was lower than the growth average in

2010 (1.4%) The first 11 months of 2012 saw even

weaker growth with an average m-o-m growth rate

of just 0.2% Given that the number of 3G

subscriptions has surged in the past year, it is

possible that the VNNIC does not take into account

mobile internet users in its definition

Fixed internet services are experiencing muted

growth due to the higher cost of ownership as

consumers need to purchase personal computers,

namely desktops and notebooks There has been no explanation for the sudden decline in subscriber growth,but market saturation is likely to play a significant role We now expect 32.1mn internet subscribers inVietnam at the end of 2013, a penetration rate of 35.4% We expect this number to increase to 34.7mn byend-2017, a 36.9% penetration rate

Industry Trends - Broadband

Sector

2010-2017

e/f = BMI estimate/forecast Source: BMI, VNNIC

Although the internet user penetration rate is expected to be approaching saturation in major cities andtowns, rural Vietnam remains comparatively untapped as a result of consumers' lower purchasing power.However, expansion into these areas is costly and the return on investment is not as attractive Mobileinternet services are a more efficient way to capture customers in rural areas.

Vietnam's fixed broadband subscriber market grew by 22.8% in 2010, which was a significant slowdownfrom 44.8% in the preceding year The market registered growth rates of 150.3% in 2007 and 58.3% in

2008, but the higher growth momentum could be attributed to a low-base effect

Like the overall internet sector, Vietnam's broadband industry is experiencing a slowdown There were4.3mn broadband subscribers at the end of November 2012, up by 8.0% y-o-y The average monthly growthrate in the first 11 months of 2012 was 0.5%, down from the 1.0% in the whole of 2011 This was due to thecontractions in the months ended June 2012, September and November 2012 We have raised our

broadband forecasts this quarter, however, in light of strong growth reported in the ministry's subscriberfigures According to MIC, there was a surge in broadband subscribers in end-2012, and, by end-March

2013, there were 4.8mn subscribers in the country

Although Vietnamese telecoms companies continue to deploy broadband services such as fibre-to-the-x,affordability and coverage remain key concerns in the emerging market Furthermore, demand for

traditional fixed broadband services is increasingly under threat from mobile alternatives due to a lower coststructure While we believe there will be limited growth potential for the fixed broadband industry inVietnam in the near future, we retain an optimistic view in light of Vietnam's growing affluence andexpanding middle class While next-generation mobile technologies LTE and WiMAX could cannibalisedemand for fixed broadband solutions, companies could generate consumer interest by introducing

bandwidth-intensive services such as IPTV or target businesses by offering bundled packages such as cloudsolutions

We expect the growth rate of the Vietnamese broadband market to decline in the next few years as

consumers opt for mobile alternatives That said, declining prices of products and services should help thesector to grow by an average of 2.0% between 2013 to 2017 to bring the total number of fixed broadbandsubscribers in Vietnam to 5.4mn

Macroeconomic Forecasts

Economic Analysis

Vietnam's real GDP growth came in relatively weak at 4.9% year-on-year (y-o-y) in Q113, missing

Bloomberg consensus of 5.2% by a significant margin The latest GDP print has fuelled concerns that the

economic recovery could be losing momentum as the government races to restructure the banking sectorand reassure investors that a banking crisis can be avoided Although we acknowledge that uncertaintiesover the build-up of bad debt in the banking sector could continue to weigh on investor sentiment andundermine efforts by the government to reignite growth, this is typically the final saga of a credit cycle.Furthermore, we have witnessed encouraging evidence that an economic recovery in the coming quartersremains on track

Banking Sector Woes Continue To Weigh

Vietnam - Real GDP, VNDbn (LHS) & % chg y-o-y (RHS)

Source: BMI, General Statistics Office

PMI Data Suggests Economic Recovery Remains On Track

The HSBC Purchasing Managers' Index (PMI) showed that Vietnam's manufacturing sector witnessed astrong rebound in March, with the index punching above the crucial 50 point mark to post a 23-month high

of 50.8, up from 48.3 in February We have also witnessed a strong PMI reading of 51.6 in China, up from50.4 in February, signalling that robust demand from the Chinese economy could lend some support inboosting Vietnam's exports over the coming months The latest set of PMI data reinforces our convictionthat economic activity in Vietnam will accelerate over the coming quarters on the back of improvingmacroeconomic fundamentals and easing credit conditions Meanwhile, the Vietnamese equity market hasalso witnessed a strong performance since the beginning of the year, with the benchmark Ho Chi MinhIndex (VNI) recording impressive gains of around 20% year-to-date We view this as a sign of increasingly

bullish sentiment towards the country's long-term growth story

The Vietnamese government has also taken a more aggressive stance with regards to speeding up economicreforms since 2012, and we expect this trend to remain in play in 2013 and beyond Prime Minister NguyenTan Dung approved a master plan in February to further restructure the economy, strengthen oversight ofthe banking system and establish a roadmap to clean up state-owned enterprises (SOEs) The plan isexpected to be implemented by June We are optimistic that reforms to strengthen regulatory oversight ofthe banking system will help to improve the quality of credit and reinstall confidence in the banking sectorgoing forward

Investors have been staying on the sidelines and are keeping a close eye on the government's plan toestablish a new debt management agency that is expected to consolidate non-performing loans from ailingbanks Progress on this front is encouraging, with the government unveiling plans to launch the debtmanagement agency within a matter of weeks Such reforms will play a crucial role in attracting greaterforeign direct investment (FDI) into Vietnam over the coming quarters, and should complement renewedefforts by the government to speed up privatisation of state-owned enterprises (SOEs) to allow the privatesector to assume a greater role in driving economic growth going forward It is widely expected that at leastseven SOEs will launch initial public offerings (IPOs) in 2013 and another 20 more SOEs could be listed bythe end of the year if the response is favourable

Recovery Remains On Track

Vietnam - Purchasing Managers' Index

Source: BMI, Markit/HSBC

Downward Revision To Reflect Weak Q113, But Growth Trajectory Intact

That said, we do not deny that it has been a wobbly start for the Vietnamese economy in Q113, and thatprogress on restructuring the banking sector has been relatively slow compared to what we have initiallyanticipated We expect the recovery in real GDP growth to come into focus in the latter parts of 2013, orpotentially even 2014 Accordingly, we have toned down our real GDP growth target for 2013 from 7.0% to6.3% to take into account of the weaker-than-expected first quarter data and we are keeping our growthtarget of 7.2% for 2014

Expenditure Breakdown

Private Consumption: We expect private consumption to grow at a robust pace of 5.2% in 2013 However,

we note that the risk of further bankruptcies among SMEs could potentially lead to widespread job losses,especially in export-driven sectors Uncertainties over the outlook for employment could, in turn, prompthouseholds to cut back on spending

Gross Fixed Capital Formation: We foresee a significant pickup in private sector investment growth in

2013, partly led by increased foreign direct investment inflows We believe lending rates will gradually easeover the coming months as the effect of recent rate cuts by the SBV begins to kick in We are also seeingevidence that credit conditions are improving Accordingly, we expect gross fixed capital formation growth

to accelerate from 4.3% in 2012 to 5.1% in 2013

Public Spending: We expect total public spending to remain relatively resilient in 2013, expanding at arespectable pace of 5.3% However, there is limited room for the government to increase spending furtherowing to concerns over the need to finance a potential bailout of ailing state-owned commercial banks

Net Exports: Net exports remain the biggest downside risk to our outlook for the Vietnamese economy,although we expect external demand to pick up through H213 Vietnam's trade account has fallen back intodeficits in recent months, but we see the case for a substantial pickup in external demand on the back of arebound in regional growth over the coming quarters Accordingly, we still expect exports to expand at amoderate pace of 6.3% in 2013

Table: VIETNAM - ECONOMIC ACTIVITY

2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f

Nominal GDP,

38.0 1,658,389.0 1,980,914.0 2,536,631.0 2,950,684.0 3,339,417.3 3,788,925.5 4,274,012.5 4,802,601.2 5,389,074.9 Nominal GDP,

US$bn 2 90.3 93.2 103.6 122.8 141.4 159.8 184.2 210.2 238.9 269.5 Real GDP

growth, %

GDP per

capita, US$ 2 1,051 1,072 1,179 1,383 1,575 1,762 2,012 2,274 2,561 2,863 Population, mn

Notes: e BMI estimates f BMI forecasts 1 at 1994 prices Sources: 2 Asian Development Bank, General Statistics Office; 3

World Bank/UN/BMI; 4 General Statistics Office.

Industry Risk Reward Ratings

Industry Risk/Reward Ratings

BMI's Asia Pacific IT Risk/Reward Ratings (RRR) compares the potential of a selection of the region's

markets over our forecast period through to 2017 Our Q313 ratings reflect our consideration of the politicaland economic risks, as well as the risks associated specifically with IT intellectual property (IP) rightsprotection and the implementation of state spending projects There were several changes to this quarter'srankings as we have updated our macroeconomic and industry data

Rising to the top is South Korea with an IT Rating score of 72.2, up from 65.2 the previous quarter Thesignificant improvement was due to an increase in the country's Industry Rewards score, which partiallyoffset a decline in its Country Risks score Two key factors form the foundation for the Industry Rewardsupgrade: South Korea's LTE market is one of the most mature in the world and the country houses the twolargest consumer electronics firms - Samsung Electronics and LG Electronics The close working

relationship between telecoms operators and the two manufacturers means that there is a portfolio of mobiledevices to support the 4G service, which in turns allows companies to develop new services such as cloudsolutions to leverage on the high-speed connectivity

Singapore fell to second rank after its IT Rating score decreased from 74.1 to 71.3 due to a combination ofdeclines in its Industry Rewards and Country Risks scores However, Singapore's Country Score of 100 andthe proactive nature of the ICT regulator continue to provide support Due to the lack of natural resources,Singapore relies heavily on technological innovations to attract businesses Besides rolling out 4G and fibrebroadband networks, the country encourages developments such as creating smart districts and exportableenterprise mobility solutions The Infocomm Development Authority also collaborated on an interoperableNFC infrastructure in the country

Hong Kong remained in third position with an IT Rating score of 68.9, down from 72.2 the previous quarter

in light of a decline in its Country Risks score Hong Kong's trade performance thus far has been in linewith our expectations We acknowledge that the uptick in trade could have further room to run However,

we are still convinced that this momentum is likely to be unsustainable and are maintaining our call foreconomic activity to slide towards the latter stages of the year Hong Kong is a well-established financialhub, and IT solutions present an opportunity for companies to reduce operating costs and improve

operational efficiency when carrying out transactions, particularly cross-border trade

Australia fell to fourth position after its IT Rating score decreased from 73.3 to 68.0 Like several of itspeers, the score revision was due to a change in its Country Risks score Although Australia has its

ambitious National Broadband Network, which will vastly improve broadband coverage and speeds

throughout the country, thereby providing a boost to the IT sector, the project is facing an uncertain futurewith the federal elections approaching in September 2013 The opposition government has announced that itwill rely on less of fibre and more on the existing copper networks to save costs and time We believe thatthis is a short-term solution that will materially impact developments in the IT industry

China rose to fifth position with an improvement in its Industry Rewards score offsetting a decline in itsCountry Risk score While our view for a bounce in the Chinese economy has played out, should the newleadership reduce support for loss-making state-dominated industries, this would mean a much weakerH213 and 2014 for China's economy than the consensus currently expects However, our long-term viewthat China will shift its economy away from infrastructure investment and towards consumer services bodeswell for the IT sector The introduction of next generation broadband technologies will also provide thenecessary growth foundation, providing impetus to new IT services and consumer electronics

Malaysia's IT Rating score increased from 52.3 to 56.4, but the country still fell from fifth to sixth position.The country's score revision was due to an improvement in its Industry Rewards score, which mitigate adecline in its Country Risks score Malaysia's Economic Transformation Programme has earmarked areassuch as cloud computing as one of its top 10 strategic technology priorities For the ICT sector, the countryhas identified business opportunities areas such as fixed and mobile services as well as semiconductors andindustrial electronics

India moved up the Risk/Reward Ratings table as we have factored in the country's longer-term growthpotential - the country's IT Rating score increased from 42.1 to 51.6 India's IT market houses some of theworld's largest players - Wipro, Tata Consultancy and Infosys - and we note that companies in the country

are becoming more receptive to engaging the services of professional IT firms to reduce cost and focus ontheir core competency Assuming that the government is able to eventually sort out the chaotic situation inthe telecoms sector, 3G and 4G services could be unshackled, thereby leading to growth in IT services such

as telemedicine and cloud computing, and consumer electronics products such as tablet computers

The Philippines fell to ninth position even though its IT Rating score increased from 43.8 to 49.6 thisquarter The country follows the theme of an increase in Industry Rewards score offsetting a decline inCountry Risks score The Philippines is a well-established player in the business process outsourcing (BPO)industry but there are signs that the country is trying to move towards high-value services The Philippine

Long Distance Telephone Company agreed to sell its majority stake in BPO unit, SPi, to CVC Capital Partners' Asia Outsourcing Gamma.

There were no changes to the rankings of the last four countries - Indonesia, Thailand, Vietnam and SriLanka - although there were adjustments to their IT Rating scores Indonesia's IT Rating score came in at47.5 One of the most populous country in the world, Indonesia is experiencing strong IT developments inricher areas such as Java, where IT infrastructure is more established Growing urbanisation means thatmedium-tier cities are also becoming investment hotspots, which will lead to demand for IT services Bothconsumer- and business-facing solutions have strong growth opportunities, especially with the governmentkeen to spur developments For example, the Indonesian government is currently in negotiation with

Foxconn Technology Group to set up a manufacturing facility.

Thailand's ICT industry is looking increasingly brighter with the National Broadcasting and

Telecommunications Commission able to implement changes Besides facilitating the launch of 3G

services, which will satisfy pent-up demand from consumers and businesses, the regulator is targeting tokick start the digital TV sector These developments have in turn attracted investments into the country's ITsector In April 2013, NetApp announced that it is tripling its investment in the country to capitalise on the

rapidly growing datacentre market

Vietnam has pledged to invest US$8.5bn in its ICT sector in the next 10 years The government is alsolooking to attract US$5bn worth of foreign investments in the IT sector by 2015, according to Avaya In

April 2013, construction for the Danang Hi-Tech Park, which costs US$278mn and follow the same model

as the US' Silicon Valley and Taiwan's Hsinchui Science Park, was started The project is expected to houseabout 100 businesses, create 25,000 jobs and generate revenue of US$3bn Vietnam's IT Rating score hasincreased from 34.2 to 41.1

Sri Lanka saw its IT Rating score increase from 27.7 to 35.2 due to improvements to its Industry Rewardsand Country Risks scores However, the country continues to lag behind its peers, although telecomsoperators have started to roll out LTE services In January 2013, the Sri Lanka Institute of InformationTechnology joined the EMC Academic Alliance programme, which will offer courses on areas such as

cloud computing, backup recovery systems and architecture and big data analytics to students Sri Lankanreal GDP growth came in much stronger than expected in the final quarter of 2012, surging to 6.3% year-on-year from 4.8% in Q312, surpassing consensus expectations for a 5.5% expansion We are holding on toour core view for full-year real GDP growth to remain flat this year, implying a similar 6.4% economicexpansion for 2013 (up from our previous forecast of 5.4%) We are likely to see renewed headline

weakness through H113, before the economy turns up in the second half of the year Looking further ahead,

we still see growth improving from 2014 onwards

Table: Asia Pacific IT Risk/Reward Ratings - Q3 2013

economic profile, based on BMI's proprietary Country Risk Ratings that could affect the realisation of anticipated returns Source: BMI

Market Overview

Hardware

BMI expects Vietnam's computer hardware market will be worth around VND44,389bn (US$2.124bn) in

2013, up 16% from VND38,261bn in 2012 The growth rate in the hardware market will accelerate from14.6% in 2012, buoyed by an improved economic environment That said, there has been a minor

downgrade to our forecast for Vietnam's IT market in the Q3 2013 update on the basis of a downwardrevision to the growth outlook by the country risk team However, fast growth will be maintained by trendswithin the IT market - with the main growth driver being the availability of affordable tablets and

notebooks

The latest data on the Vietnamese hardware market

indicates growth continued in 2012 despite tighter

credit conditions limiting consumer purchases and

economic uncertainty dampening business

confidence Research firm IDC estimated that PC

shipments reached 638,000 in Q412, up 20.5% q-o-q

and 3.4% y-o-y This was represents slower growth

compared to that reported by Vietnam's General

Statistics Office (GSO) for retail sales as across

economic sectors According to the GSO, the value

of retail sales rose by 16 percent in 2012 to VND

2.324trn (110.7 billion USD) Economic uncertainty

and income distribution means that big ticket PC

purchases are not growing as fast as other areas of

spending in Vietnam

Stronger economic performance in Vietnam in 2013

will be supportive of an expanding first time buyer market and upgrade momentum in the retail market;however investments in the enterprise segment will continue to be constrained by global economic

conditions Meanwhile, government spending will be supportive of the IT hardware market, includinginitiatives in sectors such as education and healthcare It is also providing credit programs to raise

household PC penetration in rural areas, which is estimated to still be below 10%, compared to 50% inhigher income urban areas The most potential being in rural areas where penetration is lower, however forthe time-being Hanoi and Ho Chi Minh City are thought to account for around 85% of notebook sales

Hardware Market (VNDbn)

2010-2017

e/f = BMI estimate/forecast Source: BMI.

Meanwhile the spread of network infrastructure, including fixed and wireless broadband, is also helping toboost demand for devices both as productivity and content consumption devices Telecoms operators such

as Viettel are also emerging as significant distribution channels for notebooks as vendors seek tie-ups.

In 2013, sector procurements across a wide range of sectors will help maintain momentum However, anumber of factors could potentially act as a check on the PC market, including government cutbacks andcontinued caution in the business segment, despite growing awareness of the strategic value of IT

investments

Form Factors

The latest data from the regulator, the MIC show a base of 5.5mn installed PCs at the end of 2011, equal toindividual penetration rate of 6.1% Meanwhile, household PC penetration is still low in Vietnam, at 16% in

2011 and estimated to be around 20% for the country as a whole by H113 This creates a sizeable

opportunity for vendors in terms of the first time buyer market However, with GDP per capita expected to

be US$1,751 in 2013, and only reach US$2,812 by 2017, the mass market is geared towards the value end

of the spectrum Furthermore, with a large number of first time buyers, consumer choice in terms of formfactors is uncertain While productivity devices such as desktops and notebooks will remain popular foreducation and enterprise purchasers, the availability of cheap tablets from China could see large numbers ofconsumers move straight to tablets and have little or no experience with more traditional form factors

In 2013 sales in the retail market are continuing to increase in the desktop, notebook and tablet markets.Tablet growth is to be expected, coming from a low base and considering the increased availability of lowcost devices from OEMs However the desktop and notebook market is also faring well, with IDC data forQ113 showing 13.1% y-o-y unit growth to 500,000 shipments We believe that low PC penetration is thekey to continued growth momentum but migrations to Microsoft's Windows 8 operating system are also

boosting sales In 2012 retailers claimed that many businesses and consumers were waiting for the October

2012 release the new OS before investing in an upgrade The final months of 2012 saw the release by ofWindows 8 RT tablets from Acer, Asus and other vendors, priced at around US$600 However these tablets

are facing stiff competition from low priced Chinese tablet imports, predominantly running Google's

Android OS Local press reports have stated that the very low price tablets are selling well, and beingpushed by dealers who are able to secure high margins on the devices and still undercut the internationalvendors

Although sales of desktops are still increasing in Vietnam, with only slow growth, there is a decline in their

PC market share We estimate desktops accounted for fewer than 30% of units sold in 2012, down fromabove 70% five years previously There could be a boost to the desktop market from Windows upgrades

2013 to 2015 as Microsoft support for Windows XP is withdrawn from 2014, however the extent to which

consumers replace desktops rather than shifting to notebooks and tablets is uncertain Windows XP stillaccounted for 44.6% of Vietnamese PC browsing traffic in May 2013 according to data from Statcounter,illustrating the size of the potential upgrade market However, two factors limit the potential boost todesktop sales First is the competition from mobile computing, as consumers and enterprises will likely shifttowards greater usage of notebooks and tablets when upgrading A second factor is the prevalence of piratedsoftware in Vietnam, meaning the loss of Microsoft support is less of a push factor

Although sales of desktops will only see small impact from Windows 8, the impact on the wider market will

be more significant The release of the Windows 8 OS introduced touch functionality to a wide range ofvendors, deepening the tablet market by providing competition for Apple and vendors producing Androiddevices Apple, unsurprisingly given its premium price orientation, has had limited impact in Vietnam

where devices are not affordable for the vast majority of the population However the proliferation ofaffordable tablets running Android, and the entry to the market of vendors producing Windows 8 devices isalready seeing tablet sales increase rapidly in Vietnam In early 2013 reports of an influx of own-brandChinese made tablets indicate growth at the low value end, but we also expect price competition betweeninternational vendors to boost sales of mid-range tablets in Vietnam

A victim of the surge in tablet sales will be the notebook market - especially netbooks Netbooks saw asteep decline in popularity in 2011, with a number of leading vendors, such as former netbook segmentleader Sony, withdrawing models from the market Netbooks initially suffered under competition from

lower priced notebooks, however tablets are now squeezing them further

With tablets making gains at the low end of the market the notebook category is becoming a primarily range device category in Vietnam as vendors are unable to compete against own brand Chinese tablets onprice Nonetheless the competition has resulted in price drops in the notebook category The release ofWindows 8 has spurred the creation of hybrid devices, which will have little impact in 2013 in Vietnam asearly examples are priced as premium products However price competition will reduce prices and hybridscould be an interesting growth area over the medium term

mid-Windows has a traditional strength in productivity use cases and software, with the OS being central to theenterprise market and Microsoft's Office Suite ubiquitous There is therefore an opportunity for vendors to

leverage this strength over rival iOS and Android devices by designing tablets with strong productivityfunctionality alongside the passive media consumption features Early examples have been hybrid devicessuch as Microsoft's own Surface (RT & Pro), Hewlett-Packard's Envy and Lenovo's Yoga and Helix.

Although design innovation has some way to go, and prices of hybrids will need to decline, the multi-usedevice has scope to capture a share of the tablet market by offering a stronger value proposition to

consumers while not compromising on user experience Such devices, along with ultra-slim notebooks arealready regaining share of sales from tablets in more developed Asia markets in H113, for instance in SouthKorea, and we believe the same phenomenon could impact in Vietnam as prices decline over the mediumterm

Another device category that is evolving is the ultrabook - a category of slim-line, high-spec devices withlong battery life that use Intel processors Initial uptake after launch in 2012 was slow due to the high price

of devices, meaning limited applicability in a low income market such as Vietnam In 2012 brands such as

HP, Asus, Acer, Sony, Lenovo and Samsung launched ultrabooks in Vietnam However they failed to see

success in terms of unit sales due to high prices Local press have reported that prices of low end ultrabookshave declined in early 2013, from around VND15mn in 2012 to VND10mn which could see unit salesgrow Local producer CMC has moved into the ultrabook market in November 2012 with low-end models.

Meanwhile mid-range ultrabooks are reported to be retailing for VND20-30mn while premium models arepriced over VND30mn The cheaper models are using lower power Intel i3 chips rather than i5 and i7 chips.Even after these price cuts ultrabooks will be significantly more expensive than low end tablets

The latest data from IDC show that multinational

brands dominated the Vietnamese PC market in

Q412 Asus was reported to be the top vendor by

unit market share, with 17.8% of sales, with its

position boosted by aggressive promotions and

strong channel support Fellow Taiwanese vendor

Acer was estimated to be second with a share of

10.2%, ahead of HP on 9.1% and Lenovo with 6.2%

However these vendors have differing strategies For

instance, Lenovo is expanding its range of low-end

notebooks to better compete with Asus and Acer in

the mass market, while HP has been successful in

the enterprise market but is seeing its consumer

share of sales decline

The Vietnamese PC market is surprisingly

competitive, with most of the major laptop vendor

players having below a 10% local market share Other multinational vendors, including Dell, Toshiba and

Samsung, have enjoyed strong growth in the market Samsung is considered a threat as it aims to leverageits distribution network and strong brand recognition from the smartphone and TV market into a 10% share

of the Vietnamese notebook PC market

In 2013, vendors are hoping that upgrades to PC devices based on Microsoft's new Windows 8 operating

system will spur a new cycle of procurements The final quarter of 2012 saw the release of a number oftablets based on Windows 8 on the Vietnamese market Acer released two Windows 8 tablets, the InconiaTab W700 and W511, while fellow Taiwanese leader Asus introduced its Asus Vivo Tab The devices werenot cheap, with prices for the products being set at more than US$600

As already noted, Asus has benefited from efforts to strengthen its distribution channel In 2011 Asuslaunched a new partnership with local company FPT Distribution, which has a nationwide network of 400

dealers FPT, a member of FPT Trading Group, will distribute Asus products, with Asus planning to

introduce the full range of its new products in Vietnam during Q211 FTP also distributes a portfolio ofother leading PC brands, including Dell, Lenovo and Acer Asus, which first entered the Vietnamese marketonly three years ago, is also focusing on service as a competitive differentiator FTP will provide warranty

Vietnam PC Installed Base

2008-2011

Source: MIC

services for Asus laptops at its four new service centres in Hanoi, Ho Chi Minh City, Danang and Can Tho.Asus opened service centres across Vietnam in 2011.

While foreign vendors dominate sales of notebook, local manufacturers have a strong position in the, albeitdeclining, desktop market Vietnam's top five computer companies, as selected by the Ho Chi Minh CityComputer Association in 2011, were FTP, CMS, Robo, Viettronics Tan Binh and the Khai Tri

Technology Trading Co The total turnover of these top five companies was around VND1tn in 2011 (US

$48.1mn), down 25% from the previous year

Vietnamese vendors have sought to compensate for declining desktop sales by an expansion into the laptopand tablet segments However, the tablet market remains controlled by major foreign brands, such as Apple,Samsung and Acer Tablets made by domestic vendors, such as FTP and CMS, have not proven a hit withlocal distributors and have claimed less than 1% of the market However, Viettel Group has announced that

it plans to enter the tablet market with a device expected to retail at around US$190

In November 2012 local press reported dealers were pushing cheap tablets from China as a result of themargins they could generate on the devices It has been reported that wholesale dealers are able to sell thetablets for double the market price in China in Vietnam Examples include the Hipad Mid A13 and OndanV971, as well as other own-brand Chinese manufacturers such as Teclast and Ampe - as well as counterfeits

of foreign products

As in many other markets, telecoms carriers have also emerged as a significant channel option for PCvendors Dell has launched a partnership with Viettel, which will distribute Dell PCs Viettel has a

substantial presence in rural areas, which have big PC market growth potential, as PC penetration is

currently low Meanwhile, Dell has also partnered with local retail leader The Gioi Di Dong to sell both

online and through the company's 40 retail outlets

HP's Vietnam market sales have been boosted by government and education sector projects HP was ranked

by market research firm AC Nielsen as the leading laptop and PC market brand in Vietnam in 2010,

however its performance has declined as a result of underperformance in the consumer market HP was alsothe leader in the printer segment Vendors continued to roll-out new models during the economic slowdown,with the popularity of the small form factor netbooks a significant focus

The reduction of import tariffs from January 2009 was a key moment in the evolution of the Vietnamesemarket that encouraged multinational vendors to focus on more imports of high-end devices Sony

announced that it was starting to sell its VAIO notebook in Vietnam, as it started to shift to importing fordomestic sales Sony already has 180 distributors nationwide Meanwhile, working with its partner

DigiWorld Corp, Dell launched a campaign to target the local consumer segment, which is fuelling much

of the current growth

Software

BMI forecasts that software sales in Vietnam will increase to VND5,610bn in 2013, up 21.2% from 2012.

We expect strong growth to be maintained over the medium term with CAGR of 17.5% for 2013-2017 Weestimate software spending comprised 8.8% of total Vietnamese IT spending in 2012, a figure which willincrease to 10.2% by 2017 - when total sales will reach VND10,378bn We expect steady growth in demandfor licensed software from government, enterprise and household segments

The Vietnamese software market remains highly

cost-sensitive, with around 75% of the market served

by lower-cost local software vendors, as well as a

high level of pirated software Local software

dominates the market for government and SME

segments However, larger Vietnamese companies

are more likely to buy higher-priced software from

multinationals, which have around 25% of the

market Vietnamese customers are demanding a

higher level of support for software compared with a

few years previously

Growing PC penetration, as well as new

technologies and business models, including 3G

mobile and WiMAX, and industry trends such as

software-as-a-service (SaaS) and open source will

provide areas of Vietnamese software market growth

going forward Most demand remains for on-premises subscription models, due to the greater perceivedsecurity and degree of control However, as internet infrastructure improves in Vietnam, there should bemore demand for alternative models such as SaaS and other cloud computing services

The economic slowdown, and the fall in demand for manufactured goods, represented a challenge forvendors as enterprises were tempted to focus more on the bottom line Many companies, particularly trading

Software Market Value (VNDbn)

2010-2017

e/f = BMI estimate/forecast Source: BMI.