Vietnam information technology report q4 2010

Computer Sales BMI projects that sales in Vietnam's computer hardware market will be worth around US$1.3bn in 2010, up from an estimated US$1.4bn in 2009.. This points to significant g

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INFORMATION TECHNOLOGY REPORT Q4 2010

INCLUDES 5-YEAR FORECASTS TO 2014

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Publication Date: October 2010

CONTENTS

Executive Summary 5

SWOT Analysis 8

Vietnam IT Sector SWOT 8

Vietnam Telecoms SWOT 9

Vietnam Political SWOT 10

Vietnam Economic SWOT 11

Vietnam Business Environment SWOT 12

IT Business Environment Ratings 13

Asia IT Business Environment Ratings 13

Table: Asia Pacific IT Business Environment Ratings 13

Asia Regional IT Markets Overview 16

Vietnam Market Overview 23

Background 23

Hardware 25

Software 27

Services 29

Industry Developments 31

Industry Forecast Scenario 34

Table: Vietnam IT Sector (US$mn unless otherwise stated) 36

Internet 37

Table: Telecoms Sector – Internet – Historical Data And Forecasts 37

Macroeconomic Forecast 39

Vietnam – Economic Activity 40

Competitive Landscape 41

Hardware 41

Software 42

IT Services 45

Internet 47

Company Profiles 48

FPT Software 48

BMI Methodology 49

How We Generate Our Industry Forecasts 49

IT Industry 49

IT Ratings – Methodology 50

Table: IT Business Environment Indicators 51

Weighting 52

Table: Weighting Of Components 52

Sources 52

Executive Summary

Market Overview

The Vietnamese IT market is estimated to grow at a CAGR of 12% over the 2010-2014 period The

addressable domestic market for IT products and services is projected by BMI to reach US$1.9bn in 2010

The addressable domestic market for IT products and services is projected by to reach US$2.9bn by 2014

An ambitious IT plan for 2010-2020 should shape many segments of the Vietnamese IT market, while Vietnam's improving information and communication technology (ICT) infrastructure will also drive growth Vietnam's gradual integration into global trade networks such as the Association of Southeast Asian Nations (ASEAN) and the WTO has helped to bring down prices and increase opportunities for importers

Industry Developments

The Vietnamese government has unveiled ambitious plans for developing the country's IT industry over the next five years The plans, which state of revenues target for the sector of between US$17bn and US$19bn in the next five years, include major investments to develop production centres in software, services, hardware and electronics Revenues are projected at US$2bn from software sales, US$12.5bn from hardware, US$2bn from digital content, and US$1.5bn from IT services

In January 2010, the Vietnam Post and Telecoms Group (VNPT) in Ho Chi Minh City launched a local

version of the Computers for Education programme, which will provide teachers and students in the city with low-priced laptops and DSL broadband connections The discounts will be available through

VNPT's 30 retail outlets and 200 agents in the city In August 2009, the Ministry of Education and

Training launched a national programme to supply 1mn affordable computers to Vietnamese schools by

2011

Competitive Landscape

Multinational brands dominate the Vietnamese PC market, with HP the top-selling PC brand in 2009, ahead of Acer HP's sales have been boosted by government and education sector projects, as well as by

its strategy to target the consumer segment Other multinational PC vendors including Dell, Toshiba and Asus have enjoyed strong recent growth in the booming market

Government plans to expand the local software industry, and develop a number of new software bases, as well as two new software businesses with revenues of more than US$200mn, could potentially have an impact on the local software competitive landscape Vietnamese software producers have a greater presence in their domestic market The Ministry of Information and Communications (MOCI), which developed the plans, has also called for the localisation of some open-source software products for use in state agencies

Vietnam has around 10,000 firms currently licensed to provide IT services, but only one-third are actually operating The MOCI is currently developing a draft decree to map out policies to help the IT industry grow and this is due by the end of the year The decree will stipulate procedures and operational

requirements for firms providing IT services

Computer Sales

BMI projects that sales in Vietnam's computer hardware market will be worth around US$1.3bn in 2010,

up from an estimated US$1.4bn in 2009 The main growth driver will be affordable notebooks, with various models of the smaller form factor netbooks selling well in 2009

PC penetration in Vietnam was around 9.6% in 2007, according to World Bank figures, and in 2010 is

estimated by BMI at around 15% Notebooks are owned by an estimated 7% of the Vietnamese

population This points to significant growth potential for the local PC market, with the most potential being in rural areas Currently Hanoi and Ho Chi Minh City are thought to account for in the region of 85% of notebook sales

Software

In 2010, Vietnam software sales are projected by BMI to grow to US$178mn, despite the uncertain

economic conditions, and software CAGR for 2010-2014 should be in the region of 15% Software spending comprises around 10% of total Vietnamese IT spending

The market is expected to reach a value of around US$312mn by 2014, with steady growth in demand for licensed software from government, enterprise and household segments However, some vendors and distributors saw a slowdown in 2009 due to global economic headwinds Vietnam's software market is developing, despite the problem of software piracy, which still accounts for around 85% of software, compared with 76% in neighbor Thailand

Services

Vietnamese IT services spending is forecast to reach around US$306mn in 2010, up from US$297mn in

2009 The economic crisis had an impact in 2009, with projects being put on hold However, sectoral CAGR is projected at 13% over the forecast period, as the market approaches US$501mn by 2014

IT services now accounts for around 18% of total Vietnam IT spending Over the past few years, the size

of IT services deals has increased in key IT spending verticals Growing demand for digital infrastructure projects in segments such as banking, telecoms, energy and government has attracted global IT services providers to invest more in Vietnam

E-Readiness

Vietnam's fixed-line infrastructure is unreliable and offers poor coverage However, Vietnam has an exceptionally high penetration rate in the mobile market, reaching 126% at the end of 2009, and

registering around 110.8mn subscribers This has been aided by mobile network operators reducing tariffs

to encourage growth of their respective subscriber bases, as well as increased investment in the expansion

of infrastructure to areas outside major towns and cities Demand for mobile broadband has also been accelerated by the changing lifestyles of consumers, who use the service for accessing the internet for work and leisure

SWOT Analysis

Vietnam IT Sector SWOT

Strengths ƒ The domestic IT market is in a rapid growth phase, with trade liberalisation and

growing affordability driving projected double-digit growth of notebook computers

ƒ 2010-2014 CAGR of 12% forecast as per capita IT spend reaches US$31 by 2014, from US$21 in 2009

ƒ Expanding ICT infrastructure and internet penetration will continue to drive demand for IT products and services

ƒ Vietnam’s gradual integration into the global trade network via its accession into trade organisations such as ASEAN and WTO as well as bilateral agreements with Japan and China

Weaknesses ƒ IT spend per capita much lower than in neighbour Thailand, reflecting a much

lower GDP and GDP per capita

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

ƒ Highly cost-sensitive market, with 75% of software provided by lower-cost local software vendors

ƒ High level of software piracy at 85%, although it has fallen in the last few years

Opportunities ƒ High PC market growth potential particular in rural areas due to overall low PC

penetration rate of 15%

ƒ Vast and relatively under-penetrated rural market presents a significant growth opportunity as the government rolls out measures to boost rural connectivity and incomes

ƒ National IT Plan will drive spending on IT utilisation in areas like government, taxation and education

e-ƒ SMEs have much potential to increase spending on basic solutions, including customer relationship management and security

ƒ One Teacher-One Computer programme aims to deliver 1mn computers to schools by 2011

ƒ The banking and finance sector is a promising area for database software and one where foreign companies have done well

ƒ Banking and finance, oil and gas, aviation and telecoms are projected to be some

of the biggest opportunities for multinational vendors

ƒ Tax agencies at all levels of administration are looking to increase the efficiency of tax collection

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

Threats ƒ Continued depreciation of the dong against the US dollar would increase the

pressure on Vietnamese distributors of foreign IT goods

ƒ Falling prices may further undermine margins and profitability after steep discounting in 2009

The implementation of the China-ASEAN free trade agreement means that established multinationals will face a growing challenge from low-cost Chinese vendors in the Vietnamese market

Vietnam Telecoms SWOT

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

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

ƒ Competition exists in fixed-line and internet access markets; VNPT faces competition from several other state-owned companies and two privately-owned operators

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

Weaknesses ƒ Vietnam’s fixed-line and internet access markets are both dominated by

state-controlled operators, VNPT and Viettel

ƒ Although alternative broadband infrastructures are currently being explored, broadband growth continues to be dependent on DSL

ƒ Low fixed-line penetration rates in rural regions limit the scope for DSL broadband growth

ƒ Internet user growth is slowing, despite the limited access to internet infrastructure in much of rural Vietnam

ƒ Broadband tariffs remain high, creating a barrier for low-income subscribers to access

Opportunities ƒ The privatisation of VNPT could help to bring about increased investment revenues

and the arrival of new skills

ƒ On a national level, broadband penetration rates remain low; this means that the sector has considerable growth potential

ƒ VNPT plans to invest US$1bn in 2009, in order to upgrade its broadband networks and expand its international internet bandwidth

ƒ Significant opportunities exist to develop alternative broadband technologies, including WiMAX and fibre

ƒ WiMAX services are currently being trialled with a view to licensing a number of WiMAX service providers in the near future; WiMAX internet services have the potential to raise the level of internet user penetration in rural parts of Vietnam

ƒ Draft Bill of Law on Telecommunication has been put forward for discussion at the National Assembly Steering Committee If passed, the bill will allow private companies to build network infrastructure for the first time and will open up the telecoms market to foreign investors

Threats ƒ Fixed-line sector may enter a period of decline, with potentially negative

consequences for ADSL growth

ƒ As the market for mobile data services grows, this could have potentially negative consequences for the growth of fixed broadband services

ƒ Slower economic growth in 2009 and 2010 could undermine wireline investment and expansion plans

Vietnam Political SWOT

Strengths ƒ The Communist Party government appears committed to market-oriented

reforms, although specific economic policies will undoubtedly be discussed at the 2011 national congress The one-party system is generally conducive to short-term political stability

ƒ Relations with the US are generally improving and Washington sees Hanoi as a potential geopolitical ally in South East Asia

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

the ruling Communist Party

ƒ There is increasing (albeit still limited) public dissatisfaction with the leadership’s tight control over political dissent

Opportunities ƒ The government recognises the threat that corruption poses to its legitimacy

and has acted to clamp down on graft among party officials

ƒ Vietnam has allowed legislators to become more vocal in criticising government policies This is opening up opportunities for more checks and balances within the one-party system

Threats ƒ The slowdown in growth in 2009 and 2010 is likely to weigh on public

acceptance of the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocratic rule

ƒ 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 be unsustainable

ƒ Relations with China have deteriorated over the past year due to Beijing’s more assertive 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

Vietnam Economic SWOT

Strengths ƒ Vietnam has been one of the fastest-growing economies in Asia in recent years,

with GDP growth averaging 7.6% annually between 2000 and 2007

ƒ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004

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

leaving the economy vulnerable as the global economy continues to suffer in

2010 The fiscal picture is clouded by considerable ‘off the books’ spending

ƒ The heavily managed and weak currency, the dong, reduces incentives to improve quality of exports and also serves to keep import costs high, thus contributing to inflationary pressures

Opportunities ƒ WTO membership has given Vietnam access to both foreign markets and

capital, while making Vietnamese enterprises stronger through increased competition

ƒ The government will, in spite of the current macroeconomic woes, continue to move forward with market reforms, including privatisation of state-owned enterprises and liberalising the banking sector

ƒ Urbanisation will continue to be a long-term growth driver The UN forecasts the urban population to rise from 29% of the population to more than 50% by the early 2040s

Threats ƒ Inflation and deficit concerns have caused some investors to re-assess their

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

ƒ Prolonged macroeconomic instability could prompt the authorities to put reforms

on hold, as they struggle to stabilise the economy

Vietnam Business Environment SWOT

Strengths ƒ Vietnam has a large, skilled and low-cost workforce that has made the country

attractive to foreign investors

ƒ Vietnam’s location – its proximity to China and South East Asia as well as its good sea links – makes it a good base for foreign companies to export to the rest of Asia, and beyond

Weaknesses ƒ 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

ƒ Vietnam remains one of the world’s most corrupt countries Its score in Transparency International’s 2009 Corruption Perceptions Index was 2.7, placing it in 22nd place in the Asia Pacific and 120th worldwide

Opportunities ƒ 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-tech skills and knowhow

ƒ Vietnam is pressing ahead with the privatisation of state-owned enterprises and the liberalisation of the banking sector This should offer foreign investors new entry points

Threats ƒ Ongoing trade disputes with the US and the general threat of American

protectionism, which will remain a concern

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

IT Business Environment Ratings

Asia IT Business Environment Ratings

Table: Asia Pacific IT Business Environment Ratings

Limits Of Potential Returns

Risks To Realisation Of Returns

IT Market

Country Structure Limits

Market Risks

Country Risk Risks

IT BE Rating

Regional Ranking

Australia 56 100 71 80 71 75 72.2 1Singapore 53 100 69 70 84 78 71.9 2Hong Kong 48 95 65 70 87 80 69.4 3South Korea 52 75 60 75 71 73 63.9 4Malaysia 41 50 44 35 77 60 49.2 5China 52 35 46 35 68 55 48.7 6India 49 15 37 45 58 53 41.9 7Philippines 37 45 40 43 50 47 41.9 8Thailand 40 20 33 35 73 58 40.5 9Indonesia 38 35 37 35 52 45 39.2 10

Sri Lanka 30 10 23 35 43 40 28.0 11

Scores out of 100, with 100 highest The IT BE Rating is the principal rating It comprises two sub-ratings, ‘Limits Of Potential Returns’ and ‘Risks To Realisation Of Returns’, which have a 70% and 30% weighting respectively In turn, the ‘Limits’ rating comprises Market and Country Structure, which have a 70% and 30% weighting respectively and are based upon growth/size/maturity/govt policy of IT industry (Market) and the broader economic/socio-demographic environment (Country) The ‘Risks’ rating comprises Market Risks and Country Risk, which have a 40% and 60%

weighting respectively and are based on a subjective evaluation of industry regulatory and IP regulations (Market) and the industry’s broader Country Risk exposure (Country), which is based on BMI’s proprietary Country Risk ratings The ratings structure is aligned across the 14 industries for which BMI provides Business Environment Ratings

methodology and is designed to enable clients to consider each rating individually or as a composite, with the choice depending on their exposure to the industry in each particular state For a list of the data/indicators used, please

consult the appendix at the back of the report Source: BMI

BMI's Asia IT Business Environment Ratings compare the potential of a selection of the region's markets

over our forecast period through to 2014 Our Q410 ratings reflect our consideration of the political and economic risks, as well as risks associated specifically with IT intellectual property (IP) rights protection and the implementation of state spending projects

Across the Asia Pacific region, the onset of the global economic recovery and an upwards trend in

consumer confidence has led to improved trading conditions for IT vendors India and Malaysia were the gained most in our rankings for Q410, but many markets recorded stronger than expected year-on-year growth in computer shipments in Q110

Australia retains its top regional rating this quarter In Q110, a number of IT projects delayed from 2009 were launched across sectors, ranging from telecoms to retail, underlying the opportunities in the market Market development will be underpinned by government ICT programmes, such as the National

Broadband Network project, which will drive the development of Australia's digital economy and feed demand for PCs Government tenders will also generate opportunities in years to come in areas such as education, e-government, transport and healthcare

The smaller, but mature, IT markets of Singapore and Hong Kong take second and third spots

respectively in our ratings table, due primarily to their high Country Structure scores Computer sales were strong in Hong Kong in Q110, as the economy recorded positive growth following a contraction in

2009 Hong Kong continues to offer investors in the IT field opportunities associated with its growing links to the vast Chinese market

Singapore benefits from high broadband penetration and initiatives such as the government's ambitious Intelligent Nation 2015 plan and the standard operating environment IT services spending will be

boosted by the continuing boom in IT-enabled services such as call centres and back-office financial services Other promising sectors for IT services include healthcare, as the government launches a series

of initiatives to develop health technology

On the downside, the continued restructuring of both economies to a more service-oriented model may limit long-term growth prospects, although this also brings opportunities in sectors such as financial services and banking Businesses will probably remain cautious and value-focused over the short term

South Korea, in fourth place in the table, should have a resurgence in business orders in 2010 and BMI

forecasts that per capita IT spending will rise from US$750 in 2010 to US$921 by 2014 Consumers appear willing to upgrade their PCs and there is also a trend for households to own more than one

computer There will be a number of key growth areas, including industry-specific software applications and IT outsourcing, which is expected to show a strong demand trajectory

In China, factors such as the vast potential rural market, government spending and demand from key verticals such as telecoms should drive growth Over the forecast period, expectations about China's long-term economic growth will drive IT investments Key sectors include telecoms, government, energy, social security, education and transport However, there are still risks associated with IP rights protection and piracy and a lack of business environment transparency Pressure on hardware prices is also a risk in the current environment

Malaysia rose from sixth to fifth in our regional ratings in Q210 and keeps its place IT spending growth will be driven by a rise in the PC penetration level from around 35%, rising incomes and a hi-tech-

focused national development plan The subsidised rollout of a high-speed broadband network will

address a relative lack of ICT infrastructure outside the Klang Valley There are also increasingly

attractive opportunities in the IT services area as the government implements measures to make Malaysia

a growing regional services and outsourcing hub

In the Philippines, the IT market will be driven by further growth in the local IT and business process outsourcing (BPO) sector The Philippines has a lower PC penetration than many other Asian countries and the IT market offers correspondingly high growth potential over the forecast period However, there are challenges such as labour shortages and rising wages

India was the another country to make gains in our IT market ratings last quarter, following year-on-year computer sales growth of approximately a third in Q110 Even so, the market has yet to return to the high growth recorded before the global economic crisis The potential is obvious, with less than 2% of the population owning a computer, about a fifth of the level in China Realisation of this long-term

growth potential depends on fundamental drivers such as increasing India's low computer penetration, rising incomes, falling computer prices and the government's ambitions to connect the country's vast rural areas to the rest of the world

Three South East Asian markets occupy the final three positions in the table, with low scores due

primarily to business environment factors, despite considerable growth potential In Thailand, once an upturn starts IT spending could drive forward again as customers make good on pent-up demand The fundamentals of growing affordability and low PC penetration should keep the market in positive territory during the forecast period A number of factors should also support momentum, including the

government's PC for Education programme and 3G mobile and WiMAX broadband service rollouts

Similarly, with ICT penetration of only about 20% and development restricted to richer areas such as

Java, the Indonesian IT market has much growth potential BMI expects the Indonesian market to bounce

back strongly from the deceleration in 2009 and become one of the best regional IT market growth prospects over the five-year forecast period The SME sector will drive demand for basic hardware and applications as enterprises look to enhance productivity

Sri Lanka's IT market has felt the effects over the years of the country's political and economic instability, from disruption of distribution channels and a flourishing grey market to underdeveloped telecoms infrastructure However, the market will feature on IT vendors' radars as one of the best potential growth prospects in South Asia Computerisation has only just got started in government services and major public and private sector organisations remain largely underpenetrated in terms of basic enterprise

software

Asia Regional IT Markets Overview

IT Penetration

Across Asia, government ICT initiatives and growing affordability will drive increases in PC penetration

during BMI’s five-year forecast period While some cities and regions stand out, there is an unbalanced

pattern of regional development, with PC penetration in countries like Singapore being above 50%, while

in other countries such as Indonesia, it is less than 2%

The two Asian giants, China and India, embody the region’s growth potential, as computer ownership remains the preserve of a minority in both countries In China, PC penetration was only around 18% in

2008 – although it was far higher in cities like Shanghai and Beijing – and projected to pass 30% overall

by 2014 In India, less than 2% of people own a computer However, some 45% of the population is under

25, which provides a promising demographic context for increased PC ownership

Lower price will help to drive higher PC

penetration in developing markets The

average price of a PC in India has nearly

halved over the past few years, and rising

incomes and greater credit availability

will continue to bring computers within

the reach of lower-income demographics

Around the region, affordable computer

programmes continue to find favour with

governments In 2009, China launched a

subsidised PC initiative aimed at rural

residents Australia’s computers for

schools programme had provided almost AUD260mn of computers by the end of 2009 In Indonesia, penetration of around 2% could double by 2013 if government initiatives are followed through The Indonesian government is also rolling out new e-learning initiatives, with a target of raising the current 1:3,200 ratio of PCs to students in public schools to 1:20

A similarly broad range is found with respect to internet penetration The highest levels of internet penetration are found in South Korea, Hong Kong and Australia, with estimated 2010 narrowband

penetration rates of 74.3%, 73% and 67.7% respectively Singapore has by far the highest rate of

broadband penetration, which was estimated at 134% in 2010 Meanwhile, the Philippines has the lowest level of internet usage, with just 6.6% narrowband and 8.1% broadband penetration estimated in 2010

Broadband Penetration

(Per 100 Population)

Source: BMI

The fastest growth is expected in Indonesia, where narrowband penetration is projected to leap from 30%

in 2010 to 61.2% by 2014 India is now above 20% narrowband penetration despite a lack of fixed-line infrastructure, and this should reach 30% by 2014 Fast growth is also projected for Sri Lanka, where penetration is projected to increase from 10.9% to 21.6% by 2014

Some 48.3% of Malaysians had internet access in 2010 Across the region, government programmes are

an important driver of ICT penetration The Chinese government has a five-year plan to make the internet available in every administrative village in central and eastern China and every township in the west

Dial-up technology is still the dominant access method in many states However, even in developing markets, the number of broadband subscribers continues to gain ground steadily In China, broadband penetration is on course to reach 43.4% by 2014, surpassing narrowband penetration of 33.6% In India, where the government designated 2007 as ‘the year of broadband’, penetration should increase eightfold

to reach 8% by 2013 from around 1% currently This is far below government targets, however

Singapore will also see continued strong growth in broadband penetration, which is projected to reach 174% by 2014

Meanwhile, the growth of Wi-Fi coverage will be one driver of notebook sales in places like Hong Kong, where the government has committed another HKD200mn to the deployment of a Wi-Fi network

covering more than 200 public venues

IT Growth And Drivers

Most Asian IT markets are expected to

report stronger growth in 2010 Across

the region, 2010 should see IT spending a

boost from systems upgrades deferred

from the previous year, although much

will depend on business confidence In

some cases, companies had IT budgets

that were not spent due to economic

uncertainty, and in H110 vendors

reported a pick-up in project flows

Strong fundamental demand drivers of IT

spending meant that there will be continued opportunities Key factors common to most markets include cheaper PCs and reform in sectors such as telecommunications and finance, as well as government initiatives

2010 IT Market Sizes

US$mn*

*estimate Source: BMI

In the largest market, China, an

expansion in consumer credit, as well as

a commitment to modernisation in

sectors like education, healthcare and

manufacturing, will help to sustain

market growth BMI expects China’s IT

market growth to be maintained by an

expansion into the western region, rural

areas and lower-tier cities, as well as

growing demand from SMEs IT

spending will also receive a boost from

government spending and IT projects

associated with the Shanghai World Expo

in 2010

The long-term potential of India’s IT market is plain: less than 3% of people in India own a computer (about one-fifth of the level in China), meaning particular potential in the lower-end product range India’s IT market appears to be positioned for a strong recovery in 2010 thanks to improving an economy and stronger consumer sentiment as well as government support for modernisation in lagging sectors It is estimated that around 5% of India’s 7.5mn SMEs could implement a technology solution in 2010

Meanwhile, India’s business process outsourcing industry is growing at around 40% per annum and will continue to generate opportunities for vendors of IT products and services

The Philippines is one of the countries

currently benefiting from low-priced PC

programmes (PC4ALL), which provide

opportunities for vendors to penetrate the

low-income segments Other regional

computer sale drivers over the forecast

period include education, lower prices, IP

telephony, cheaper processors as well as

notebook entertainment and wireless

networking features Meanwhile, in

Indonesia, the basic demographics of

rising computer penetration and growing

affordability should drive growth SMEs

represent a growth opportunity, as currently only around 20% of Indonesian SMEs are estimated to make use of IT Compliance with government and international regulations will be a driver in financial,

manufacturing and other sectors

IT Market Sizes As % Of National GDPs

In more developed markets such as Hong Kong and Singapore, robust retail sales led the way in early

2010 as spending recorded positive growth following a contraction in 2009 In Hong Kong, consumer

spending is expected to remain strong in 2010, as evidenced by the positive early reception for Apple’s

iPad IT market growth will be driven by government IT spending as well as cross-border trade and cooperation

The largest IT market in the region is, unsurprisingly, China, estimated at US$86.9bn in 2010, trailed distantly by Australia (US$19.1bn), South Korea (US$16.1bn) and India (US$16.0bn) Singapore’s IT market (including communications) is the largest as a proportion of national GDP (2.66%), followed by Hong Kong (2.07%.)

The fastest-growing IT markets over the forecast period look set to be Sri Lanka and India, with

2010-2014 compound growth of 109% and 104% respectively, driven by increasing PC penetration China is

third, with the IT market growing by an estimated 64% over BMI’s five-year forecast period

Sectors And Verticals

Regional IT markets remain hardware-centric, with hardware accounting for 42-71% of total spending in all markets in 2010 However, spending on software and services will grow faster Notebook sales are growing much faster than the PC market as a whole, with growth driven by falling prices and more features

BMI expects a trend of rising hardware investment to establish itself over the next few quarters The PC

market contracted in many markets in H109, following a slowdown towards the end of 2008 However,

growth had returned in most markets by the end of 2009 Sales of Microsoft’s Windows 7 operating system and new Intel core technology also have the potential to help trigger a new cycle of hardware

upgrades in 2010, although much will depend on business confidence

In mature markets like Australia and Singapore, PC sales are dominated by replacement sales In the former, upgrades are estimated to account for at least 80% of business purchases and more than 50% in the case of households More than 90% of Australian households now have a PC, but consumers have appeared willing to spend on upgrading their notebook computers and it is also becoming more popular to purchase a second household PC Indeed, around 30% of households have more than one PC

In less developed markets, demand from under-penetrated rural areas, affordable computer programmes and growing broadband penetration should generally drive growth In much of emerging Asia, demand from smaller towns and rural areas will provide the main source of growth, along with replacement of desktops with notebooks SMEs will be one of the strong growth segments over the forecast period, with SME demand for servers and networking equipment a significant growth opportunity

In both emerging and more mature markets, the growing popularity of broadband will help to support

computer sales China Telecom is among regional telecoms companies to have rolled out PC bundling

offers as part of its broadband packages The Australian government’s National Broadband Network plan should drive development of Australia’s digital economy and services such as online banking and

shopping

Meanwhile, a wave of 3G launches across the region should also provide a stimulus to sales of notebooks,

with Vodafone Hong Kong among service providers offering 3G/HSPA USB modems bundled with

their 3G services However netbooks and notebooks face competition from other form factors such as

smartphones – from Palm, Research in Motion, Apple and other vendors – and tablet notebooks,

spearheaded by Apple’s iPad

Due in part to high levels of piracy, software’s share of IT spending is relatively low, ranging from

11-25% among countries covered by BMI Efforts are being made to tackle the issue of piracy, but despite

government crackdowns in China and the Philippines, software piracy remains above 70% in most of emerging Asia

Across the region, there is a growing trend for smaller companies to seek greater efficiency by using IT to improve productivity and reduce costs (including labour costs) In general, enterprise resource planning (ERP) and other e-business products still dominate the enterprise software market, but vendors are also looking to other areas such as customer relationship management (CRM) and business intelligence, where faster growth is possible

The economic slowdown may have encouraged companies to consider cloud computing solutions such as software-as-a-service (SaaS) The hosted application model may already account for between one-fifth and one-quarter of China’s software revenues SaaS has also enjoyed steady growth in the Hong Kong market over the past three years with, according to vendor estimates, around 8% of local enterprises now use an SaaS security solution Improved broadband infrastructure will assist the popularisation of the rented software model in markets such as Indonesia

New platforms and services in the telecoms field is a driver for that key IT spending segment, where an industry restructuring with the advent of 3G mobile services has led to more competition Meanwhile, expanding technology adoption in the logistics industry and public transport will be a source of IT

services projects Sectors such as hospitals and real estate will also provide opportunities

The IT services segment accounts for 17-40% of spending in the Asian markets covered by BMI The

global economic slowdown and credit tightening had an impact on projects in some verticals, but in 2010,

a brightening business climate should mean more opportunities in key IT-spending verticals like financial services, telecoms, government, healthcare and logistics

Government spending will account for a larger share of spending in many markets In China, government stimulus packages have helped to drive IT-related investments, while in Singapore, government ICT projects such as SOE2 provide significant opportunities, with the government planning to invest around SGD1.73bn in ICT projects in its last fiscal year through March 2010 Australia’s National E-Health Transition Authority has targeted the creation of a ‘paperless environment’ for the health sector and was also expected to launch a standardised reporting system scheme in 2010 Meanwhile, the Hong Kong government’s Digital 21 initiative will continue to generate spending

Regionally, hardware deployment services remain the largest IT services category, with other

fundamental services including system integration, support systems, training, professional services, outsourcing and internet services Main spenders across the region include banks and financial institutions

as well as governments Even in emerging markets like India, IT vendors are having to pay more attention

to value-added services such as technical support and product troubleshooting, or basic IT and hardware consulting

Market Structure (% Of Total IT Market)

f = forecast Scores out of 100 Source: BMI

In many countries, the number and size of local outsourcing deals are increasing Outsourcing could account for as much as 30% of China’s IT services spending by 2013, while in India there have been

some large contracts such as that awarded by Idea Cellular to IBM Singapore – where the government

was to tender a major outsourcing contract in 2008 – and Hong Kong have both seen a trend towards larger outsourcing projects in the public and private sectors

Vietnam Market Overview

Government Authority Ministry of Information and Communications (MIC)

Government Authority

The Ministry of Information and Communications (MIC) is the main Vietnamese policymaking and regulatory body in the fields of IT, although its brief also covers a number of other areas such as

telecommunications, broadcasting and publishing

The MIC's major functions include proposing and drafting laws, regulations and development plans related to IT and other policy areas The current national framework for IT is the Strategy for IT

Development, which was approved in 2005 and covers the 2010-2020 period

Background

The Vietnamese IT market, including computer hardware, packaged software and IT services, was valued

at US$1.7bn in 2009 Vietnam IT spend per capita, at around US$19 in 2009, is considerably lower than the US$178 estimated for ASEAN neighbour Thailand However, IT spend per capita is expected to grow

to US$31 by 2014

Computer hardware, including desktops, notebooks, and accessories, is the largest IT market segment in Vietnam, accounting for around 73% of spending in 2009 Packaged software was valued at US$155mn that year, equivalent to around 9% of spending IT services and outsourcing comprised 18% of spending

Tariff reform, expanding internet infrastructure, a growing economy and government programmes will all play a part in driving Vietnamese IT market growth over our five-year forecast period Vietnam has a relatively good IT and telecommunications infrastructure, with particularly high mobile telecoms

penetration However, with PC penetration at just 15%, there is still a large portion of the population that

do not participate in the digital society and are unable to afford the latest IT products

The household sector, which accounts for only around 10% of the IT market currently, should increase its share by 2014 The country's vast, under-penetrated rural market offers the most PC market growth potential, with Hanoi and Ho Chi Minh City accounting for most sales currently, also presents a

significant growth opportunity as the government rolls out measures to boost rural incomes

The government sector is a key segment of the Vietnamese IT market and comprises about 30% of national IT spending Public IT spending by around 7,000 government organisations at national,

provincial and municipal levels will provide important opportunities to vendors A number of

programmes exist to increase IT utilisation in areas like e-government, e-taxation and education The national IT plan has regional components, focused on northern, eastern and southern regions

The private sector accounts for around 60% of IT demand and both domestic and foreign enterprises are investing in IT to boost performance Large corporations are more likely to buy software from top-tier vendors, but SMEs account for the majority of Vietnam's 400,000 enterprises and are increasingly a target for multinationals There is a lot of potential for Vietnamese enterprises of all sizes to increase spending

on basic solutions, including customer relationship management (CRM) and security

The Vietnamese IT market remains constrained by high levels of grey market activity, and particularly by software piracy, which accounts for around 85% of installed software However, the rate has come down from 95% in the last two years due to a more proactive government approach to the problem

The government has set an ambitious target of 14% annual growth for the ICT sector, with total turnover

to reach US$50bn by 2014 US$14bn is to come from hardware and US$5bn from software

Telecommunications is projected to account for half the total, or US$25bn

Hardware

BMI projects that sales in Vietnam's computer hardware market will be worth around US$1.3bn in 2010,

up from an estimated US$1.4bn in 2009 The main growth driver will be affordable notebooks, with various models of the smaller form factor netbooks selling well in 2009

PC penetration in Vietnam was around 9.6% in 2007, according to World Bank figures, and in 2010 is

estimated by BMI at around 15% Notebooks are owned by an estimated 7% of the Vietnamese

population, which points to significant growth potential for the local PC market, with the most potential being in rural areas Currently, Hanoi and Ho Chi Minh City are thought to account for around 85% of notebook sales

BMI projects growth of around 13% in the Vietnam PC market this year, after the market showed signs

of a rebound in the second quarter In Q210, overall PC sales were estimated to have achieved digit growth, compared with the same period of period of 2009 The growth was driven mainly by

double-imported laptops, with shipments up by around one-third both sequentially and y-o-y Desktop sales, however, remained in negative growth territory

The return to growth Q210 followed a disappointing first quarter of 2010, when notebook sales were slower than expected The relatively sluggish sales were attributed in part to price cuts in 2009 These meant that traditional Lunar New Year holiday season price discounting had less appeal to consumers than previously

Going into H210, growth should receive a boost in August with back-to-school sales, and summer retail promotions Sales of PCs are expected to pick up as new vendors enter the market while others roll out new models, allowing for double-digit growth for FY10 However, a number of headwind will potentially combine to limit growth, including government cutbacks and continued caution in the business segment The depreciation of the dong will also restrain demand by leading to higher prices for imported laptops Vendors reported the number of first-time buyers in the market was currently limited, with most sales coming from purchases of typically lower-priced second computers

In 2009, imports received a boost following cuts in import tariffs on finished electronic products Growth

in 2009 was being driven by the consumer segment, with government and business spending having slowed due to the effects of the economic crisis In contrast, Vietnamese retail sales posted an impressive 21.5% y-o-y growth in January-April 2009, with local consumers apparently more optimistic than their peers in many other Asian economies

The spread of fixed and mobile broadband services will spur purchases of mobile PCs as connectivity

devices As elsewhere, telecoms operators such as Viettel are emerging as significant distribution

channels for notebooks as vendors seek tie-ups Going forward, government programmes are expected to make a significant contribution to computer sales In August 2009, the Vietnamese government

announced a national programme to supply 1mn computers at favourable prices to Vietnamese schools by

2011 Multinational IT vendors such as Acer, Intel and Microsoft were all participating in the

programme Desktops will retail under the programme at around US$161, or about half the usual price The computers will come loaded with educational software and with broadband connections

The programme received reinforcement with the launch in Ho Chi Minh City in January 2010 of a

programme entitled One Teacher-One Computer The programme, which has support from the VNPT and

the Ministry of Education and Training, will provide laptops at a price that is VND800,000 below the market price Discounts of up to 80% for schools and 30% for teachers will also be offered on VNPT's broadband service packages Laptop prices were expected to fall by 10-15% in 2009, boosting sales In H109, the effects of recent cuts in duty were apparent in electronics retail stores, with leading brands of notebooks selling at notable discounts to their 2008 prices In 2008, VAT on electronic products was raised from 5% to 10%, but that hike has now been reversed and much of the benefits seemed to have been passed on to consumers At local electronics and home appliance retail centres, prices for popular

notebooks models by vendors such as HP, Sony and Dell had been reduced by 7-12%

The PC market had slowed to about 8% growth in 2008, with high interest and inflation rates and

currency instability meaning that consumers and SMEs cut back on spending to save money However, sales showed some signs of recovery in H208 and growth is expected to be about 18% in 2009

In H208, vendors turned the situation around with promotions for the back-to-school period and new models that were launched to capitalise on the traditionally higher demand in the second half of the year The biggest threat to continued growth was inflation, which peaked at around 27% in 2008 and made computer products less affordable An easing of inflation should see sales growth pick up again

The main driver of sales is notebooks, for which the addressable market was estimated at around 700,000 units in 2009 Vendors and retailers reported double-digit growth for notebooks in the first half of 2009 Notebooks were responsible for around 30% of PC sales, but should pass 50% within the forecast period

In particular, LCD-screen notebooks are forecast to grow at an almost triple-digit rate over the next year Vendors are promoting small form factor netbooks, a segment that achieved triple-digit growth in 2008 However, this segment will face strong competition from low-end notebooks with more features, as well

as from smartphones, tablet notebooks, and specialist devices such as e-readers