Singapore information technology report q4 2009

The total size of the domestic IT market is expected by BMI to increase from a projected US$5.0bn in 2009 to around US$6.1bn in 2013 as significant government information and communicat

Including 5-year industry forecasts

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Technology Report Q4 2009

Including 5-year industry forecasts by BMI

Part of BMI's Industry Report & Forecasts Series

Published by: Business Monitor International

Publication date: October 2009

CONTENTS

Executive Summary 5

SWOT Analysis 9

Singapore IT Sector SWOT 9

Singapore Telecoms Business Environment Industry SWOT 9

Singapore Political SWOT 10

Singapore Economic SWOT 11

Singapore Business Environment SWOT 12

Industry Business Environment Overview 13

REGIONAL IT BUSINESS ENVIRONMENT RATINGS 15

Asia Regional IT Markets Overview 16

IT Penetration 16

Market Growth And Drivers 17

Sectors And Verticals 19

Market Overview 22

Government Authorities 22

Industry Developments 28

Industry Forecast 31

Singapore IT Sector - Historical Data & Forecasts, 2006-2013 (US$mn, unless otherwise stated) 33

Country Context 34

Consumer Expenditure, 2000-2012 (US$) 34

Rural & Urban Breakdown, 2000-2030 34

Internet 35

Table: Telecoms Sector - Internet - Historical Data & Forecasts 35

Competitive Landscape 36

Company Profiles 38

IBM Singapore 38

Singapore Computer Systems 40

Hewlett Packard Singapore 41

Chartered Semiconductors 42

Country Snapshot: Singapore Demographic Data 43

Section 1: Population 43

Table: Demographic Indicators, 2005-2030 43

Table: Rural/Urban Breakdown, 2000-2030 44

Section 2: Education And Healthcare 44

Table: Education, 2000-2004 44

Table: Vital Statistics, 2005-2030 44

Section 3: Labour Market And Spending Power 45

Table: Employment Indicators, 2001-2006 45

Table: Consumer Expenditure, 2000-2012 (US$) 45

How We Generate Our Industry Forecasts 46

IT Industry 46

IT Ratings – Methodology 47

Table: IT Business Environment Indicators 48

Weighting 49

Table: Weighting Of Components 49

Sources 49

Executive Summary

Market Overview

Singapore's IT market is projected to continue to provide opportunities in H209 despite the difficult

economic climate The total size of the domestic IT market is expected by BMI to increase from a

projected US$5.0bn in 2009 to around US$6.1bn in 2013 as significant government information and communication technology (ICT) spending helps to compensate for deferred consumer and enterprise IT spending The IT market is projected to remain in positive territory this year, although growth will be down on last year

There were signs in H109 that spending on IT and office equipment hardware was surprisingly robust despite the overall gloomy retail outlook, which saw private consumption dip by 5.1% year-on-year (y-o-y) in Q109 Sales of computer hardware advanced by a low single-digit factor, according to industry estimates, driven principally by sales of low-cost notebooks However, growth is still expected

to remain subdued even as the economy makes a mild recovery in H209

Despite challenging trading conditions in 2009, there are a number of factors that will to some extent immunise against slowdown in demand With the iN2015 plan placing IT at the heart of the government's strategy to improve competitiveness, complex government tenders will drive considerable spending in years to come in areas such as education, e-government, transport and healthcare

Industry Developments

In 2009, the government continued to roll out its ambitious cross-governmental Standard Operating Environment (SOE) initiative, while also announcing boosts to IT spending in some key sectors,

including healthcare and public sector construction As of Q309, four agencies had begun actual

implementation of SOEasy, while between 30% and 50% of public officials were estimated to have begun

to utilise the centralised services

Public sector spending on ICT remained a significant source of IT market opportunity in 2009 The Singaporean government had previously revealed that it plans to invest around SGD1.73bn in ICT projects in the current financial year through March 2010 To be put out to tender were 392 new

projects, with 40% of the planned projects expected to be worth more than SGD500,000

The 2009 budget pledged an additional US$4bn for healthcare, including US$200mn specifically

earmarked to develop a better electronic health record system The first phase of the electronic health record (EHR) system implementation was due to start in November 2010 The system, part of the

government's IN2015 ICT masterplan, will cover hospitals and doctors in both the public and private

Company News

Against a backdrop of increased government ICT spending in 2009, IT vendors continued to

compete for major tenders As of mid-2009, the winning consortium in last year's massive SOE1

tender, One Meridian, led by HP unit EDS, had taken over the computer systems of 62 public sector

agencies, although only about four had reportedly started the transformation By the end of 2010, all 75 government agencies were scheduled to be connected to one common platform

Microsoft hopes that the launch of its Windows 7 operating system, scheduled for October 2009, will

boost its local sales However, the launch of Windows 7 was not in time for the roll-out of the latest phase

of the SOEasy government project, which will be based on Windows Vista Agencies due to implement SOEasy next year could potentially move directly onto the platform, if authorities were satisfied as to its stability

Significant opportunities for IT vendors exist in the healthcare sector IBM Singapore is implementing a major contract from SingHealth, the nation's largest public healthcare group, to standardise hardware and software platforms Meanwhile, New Zealand software company HSAGlobal, in co-operation with

SingTel, was planning a multimillion dollar roll-out of its outpatient care solution across all SingHealth

outpatient and GP clinics

Computer Sales

Singapore's spending on IT hardware is projected at around US$2.2bn in 2009 from around US$2.1bn in

2008, with a deceleration evident as the global economic crisis impacts upon consumer and business confidence In H109, spending remained in positive territory, even as spending on many other consumer products declined Vendors cut prices, and there were signs in H109 that most demand in the notebook segment was being driven by sales of models, which retailed at prices of below US$1,000

According to the latest report from the IDA, 74% of Singaporean households now have a PC, and, following demand growth of close to 20% over 2001-2005, this level of saturation would be expected to act as a constraint However, consumers have appeared willing to spend on upgrading their notebook computers, and there is a trend for households to own more than one unit Given an expected 300% growth in broadband penetration by 2013, the increasing number of products and services available on the internet will be a major driver of demand for computer hardware

financial, manufacturing and other sectors, as will the continued expansion of Singapore's e-government systems and e-commerce

Over the forecast period, enterprise resource planning (ERP), customer relationship management (CRM) and other e-business applications will find increasing popularity with the small and medium-sized enterprise (SME) market as enterprises look to enhance productivity through the automation of essential functions Meanwhile, the launch of Microsoft's new Windows 7 operating system, scheduled for October

2009, has the potential to have an impact, although much will depend on consumer and business

confidence

IT Services

In 2009, the IT services sector is projected to be worth around US$2.0bn, with growth down compared with the previous year IT services compound annual growth rate (CAGR) is expected to be 6% over 2009-2013 IT services accounted for around 40% of the domestic IT market in 2008 with spending of US$2.5bn forecast for 2013 Key IT spending sectors such as government, telecoms, healthcare and banking have continued to supply demand for implementation, consulting and managed services

The economic situation, and credit tightening, has had an impact on projects in some market segments, but government ICT tenders were worth an estimated US$1bn in 2008, and other verticals such as telecoms, healthcare and banking should offer areas of opportunity In 2009, government ICT projects, such as SOE2, will again provide significant opportunities In the last few years, there have been growing business process outsourcing (BPO)-related opportunities

E-Readiness

The National Broadband Network (NBN) is at the core of the government's 'Intelligent Nation 2015' initiative The contract for the first phase of the project, which will link businesses, schools, hospitals and homes, involves 45% of the network being rolled out within three years and the entire network by 2012 The IDA recently said that, within two years, 60% of homes and offices should have access to the

network

The second phase of the project will place emphasis on pervasiveness and the provision of wireless access

at affordable rates The project is expected to lead to 68% broadband penetration by 2012 The NBN will

be capable of offering high speeds of 1Gbps or more and aims to provide affordable broadband for 95%

of all homes and businesses by 2012

Reviewing one year of the landmark Intelligent Nation 2015 (iN2015) plan in 2007, Minister for

Information, Communications and the Arts Dr Lee Boon Yang said that much progress had been made but much remained to be done

Key Issues For Investors

ƒ Further government-enforced reductions in labour costs and mandatory corporate contributions

SWOT Analysis

Singapore IT Sector SWOT

Strengths ƒ Strong government support for ICT programmes

ƒ Well positioned to benefit from links with China

ƒ IT-literate population

ƒ Strong financial sector

Weaknesses ƒ Singapore has a small and mature domestic market with relatively slow growth rates

ƒ Sensitive to volatility in the global economy

Opportunities ƒ iN2015 programme will have many direct and indirect benefits for the IT market

ƒ The SOE2 tender for schools in 2009 should provide a boost to the IT market

ƒ Other major projects in areas such as healthcare and transport

ƒ 'Green' IT as companies look to make power savings

Threats ƒ The biggest threat is a prolonged slowdown in the US economy and/or slowdown in

China's economic growth rate, affecting Singapore's economic activity

ƒ The financial crisis will hit Singapore's key IT spending financial services vertical

Singapore Telecoms Business Environment Industry SWOT

Strengths ƒ The country enjoys a mature mobile sector

ƒ Competition exists in the market, chiefly between SingTel, StarHub and M1

ƒ The launch of high-speed downlink packet access (HSDPA) services by all three major operators should drive take-up of 3G

Weaknesses ƒ Limited scope for growth exists in 2G mobile subscriber bases

ƒ Strong increases to prepaid subscriber numbers could prove to be a downfall for blended average revenues per user (ARPUs)

Opportunities ƒ Mobile data usage is likely to increase significantly to 25% or more of ARPU

ƒ An increasing tendency to annual handset replacement will benefit vendors

ƒ The impressive take-up of 3G to date gives good growth indications

Threats ƒ Impending mobile saturation makes Singapore a less attractive market for

multinational vendors more interested in the potential of China, India and Indonesia

ƒ Economic recession will further exaggerate operators falling ARPUs as customers look to reduce costs

Singapore Political SWOT

Strengths ƒ Singapore enjoys a very stable political system, following the country's

second change of leadership in 40 years, which saw Lee Hsien Loong - son

of the nation's founding father Lee Kuan Yew - take over as prime minister in

2004

ƒ Official promises have been made to eradicate Singapore's reputation as an overprotective nanny-state, with efforts to enhance freedom of expression

Weaknesses ƒ Singapore is not a properly functioning democracy The ruling People's

Action Party (PAP) has all but two seats in parliament, and the opposition is restricted from campaigning through tight control over political debate and frequent use of libel laws

ƒ The government has yet to improve the situation for the less well off in Singapore, and there is a rising wage gap between the top earners and the lowest paid

Opportunities ƒ Lee is proving himself a capable leader, moving away from the shadow of

his father by repeatedly calling for more openness

ƒ Singapore is leading its regional neighbours in signing free trade agreements Increased regional integration is likely to give the island more influence in Asia

Threats ƒ There are fears that Singapore's foreign policy alignment with the US will

cause the city-state to become a target for terror attacks launched by Muslim extremists

ƒ The last election showed that segments of the electorate are becoming disenchanted with the PAP and its repression of opposition voices

Singapore Economic SWOT

Strengths ƒ Singapore's monetary policymakers have gained credibility by guiding the

exchange rate to offset inflationary pressures while ensuring stable growth

ƒ Singapore's current account surplus remains about 15% of GDP and its external finances are in good shape This is reflected by the world's credit-rating agencies, which continue to award Singapore top marks for external strength

Weaknesses ƒ The trade-dependent economy remains exposed to global trends in demand

for electronic goods, which account for around half of Singapore's non-oil exports

ƒ Singapore faces a number of long-term economic problems Competition from low-cost neighbouring countries is on the increase and its population is ageing rapidly

Opportunities ƒ In the face of regional competition for both exports and investment, the

government is encouraging economic diversification to boost competitiveness New areas being promoted include biomedical sciences, medical and financial services, and tourism

ƒ There may be increased prospects for Singapore to expand its investments

in the Iskandar Malaysia project (a government-directed economic corridor initiative) in Johor, following a cordial visit by Malaysian Prime Minister Najib Razak in May 2009

Threats ƒ There is significant state involvement in the private sector, with the

government refusing to disclose the assets of the Government of Singapore Investment Corp (GIC) The GIC is one of the world's largest institutional investors, managing foreign exchange reserves and government funds worth more than US$100bn Without increased openness, investor confidence could be damaged and domestic growth hindered

ƒ Singapore's exporters will need constantly to adapt to competition from wage economies such as China and India

low-Singapore Business Environment SWOT

Strengths ƒ Singapore is the least corrupt country in Asia, according to Transparency

International, a Berlin-based anti-corruption watchdog

ƒ Strikes and labour protests will remain rare, if not absent, in Singapore for the foreseeable future due to the government's autocratic insistence on a business-friendly environment Policymakers will continue to use heavy-handed tactics to ensure the unions stay pliant

Weaknesses ƒ Political and economic stability has come at a price The Singapore

government censors the media and limits the distribution of foreign publications The judiciary's record of siding with prominent politicians calls into question the true extent of its neutrality in any contract dispute involving

a politically sensitive issue

Opportunities ƒ Due to the lack of progress at the World Trade Organisation (WTO), the

Singaporean government has committed the country to sign 19 bilateral trade agreements Singapore has already signed agreements with several countries, including the US, Japan, India and Australia

free-ƒ Singapore has one of the best business operating environments in Asia This is reflected by Singapore's second place in the Index of Economic Freedom league table compiled by the Heritage Foundation and the Wall Street Journal

Threats ƒ Singapore is potentially at risk of a terrorist attack The city-state has

previously been identified as a target by Islamist militants from neighbouring Indonesia and elsewhere Singapore's adjacency to the Malacca Straits means that its trade is vulnerable to international piracy

Industry Business Environment Overview

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

over our forecast period, through to 2013 The ratings reflect our consideration of political and economic risks, as well as risks associated specifically with IT intellectual property (IP) rights protection and the implementation of government spending projects

In H109, some important new markets are included in our Asia ratings: Australia, South Korea, Sri Lanka and Thailand In what is a diverse region, the addition of these four markets reinforces a correlation between GDP per capita and business environment ranking The established markets of Australia and South Korea take two of the top four positions in our table, while Thailand and Sri Lanka join their South East Asian peer Indonesia in the lower section of the table

In H109, the global economic slowdown had a marked impact across Asian IT markets, with spending growth declining sharply in some states like Malaysia, but holding up relatively well in others like Australia Australia's top ranking is in part due to ambitious government information and communication technology (ICT) programmes, such as the government National Broadband Network project, which is expected to stimulate IT spending across all sectors of the economy Government tenders will also drive considerable spending in years to come in areas such as education, e-government, transport and

government's ambitious 'Intelligent Nation 2015' plan and the standard operating environment

On the downside, the continued restructuring of both economies to a more service-oriented economic model may limit long-term growth prospects, although this also brings opportunities in sectors such as financial services and banking These markets remain vulnerable to the current global economic

headwinds as export demand weakens and rising unemployment and low asset prices dampen consumer

confidence The turmoil in financial markets may affect the important banking vertical in both markets, with heavy job cuts announced

In China, factors such as China's vast potential rural market, government spending and demand from key verticals such as telecoms should help to prevent stagnation Sectors driving double-digit IT spending growth currently 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

Malaysian IT spending is expected to dip into negative territory despite government measures such as a stimulus package and a small and medium-sized enterprise (SME) modernisation fund In the medium term, growth will be driven by low PC penetration, rising incomes and a high-tech-focused national development plan The subsidised roll-out of a high-speed broadband network will address a relative lack

of ICT infrastructure outside the Klang Valley

In the Philippines, the economic uncertainty and fall in remittances present a threat to enterprise and consumer IT spending, but the IT market will be driven by further growth in IT and business process outsourcing The market has a lower PC penetration than many other Asian countries and offers

correspondingly high growth potential over the forecast period However, there are challenges such as labour shortages and rising wages

India IT PC market growth slowed significantly in H109, but a recovery is expected to begin in the second half of the year The potential of the market is plain, with less than 2% of the population owning a computer, about one-fifth the level in China Realisation of this long-term growth potential depends on fundamental drivers such as raising India's low computer penetration, rising incomes, falling computer prices and the government's ambitions to connect the vast rural areas to the outside world

Three South East Asian markets occupy the final three positions in our table, with low rankings due primarily to business environment factors, despite considerable growth potential In Thailand, tighter credit conditions will lead to deferred IT spending in the short term by consumers and businesses, but the fundamentals of growing affordability and low PC penetration, supported by government ICT initiatives, will keep the market in positive territory during the forecast period

Similarly, with ICT penetration of only around 20% and development restricted to richer areas such as Java, the Indonesian IT market has much latent growth potential Relatively low levels of government IT spending compared with many other states may mean that the Indonesian IT market lacks a stabiliser, although public sector IT spending is expected to increase this year

Sri Lanka's IT market has felt the effects over the years of the country's and political economic instability, from disruption of distribution channels and a flourishing grey market to under-development of the country's telecoms infrastructure However, with the prospect, in mid-2009, of an end to Sri Lanka's long-running civil war, the market will feature on IT vendors' radar as among the best potential growth

prospects in South Asia

REGIONAL IT BUSINESS ENVIRONMENT RATINGS

Limits of Potential Returns Risks to realisation of returns

IT Market Structure Country Limits Market Risks Country Risk Risks Rating IT BE Regional Ranking

provides Business Environment Ratings methodology and is designed to enable clients to consider each rating

individually or as a composite, which 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

Asia Regional IT Markets Overview

IT Penetration

Internet Penetration Broadband Penetration

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

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

during BMI's forecast period to 2013 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 in both countries

computer ownership remains the preserve of a minority In China, PC penetration was only around 16%

in 2007 - although it was far higher in cities like Shanghai and Beijing - and projected to pass 25% overall

by 2013 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 The government's ultimate target of 1bn internet-connected computers in India is equivalent to the total estimated number of PCs in the world today

Around the region, affordable computer programmes are finding favour with governments In early 2009, China announced a new subsidised PC programme aimed at rural residents In the Philippines, where penetration is currently around 5%, the government launched its PC4All programme in 2007 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 India and Indonesia are now above 17% penetration, despite a lack of fixed-line infrastructure in those countries Both have deployed fixed wireless technologies as one alternative solution and overall penetration should pass 30% in both by

2012 The fastest growth is projected for India, in which penetration is projected to increase from 17.7%

to 44% by 2013, while Indonesia suffers from high tariffs

Singapore should also see strong momentum and is projected to record more than 86% broadband

penetration by 2013 This is due partly to the Infocomm Development Authority's ambitious 'Intelligent Nation' initiative Meanwhile, some 46% of Malaysians had internet access in 2008 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 However, even in developing markets, the

number of broadband subscribers continues to gain ground steadily In China, broadband penetration is on course to reach 20% by 2013 In India, where the government designated 2007 as 'the Year of

Broadband', penetration should increase tenfold to reach 5.4% by 2013 from around 0.5% currently This

is far below government targets, however Malaysia and Singapore will also see strong growth in the number of broadband subscribers

Governments around the region are interested in WiMAX as a potential alternative broadband access method, with India and Malaysia among the countries where network deployments are planned

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

Market Growth And Drivers

IT Market Sizes (US$mn) IT Market Sizes As % Of National GDP

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

Most Asian IT markets are expected to remain in positive growth territory in 2009, despite an expected

business and consumer segments weakened in H208, after robust sales in the first half of the year The difficult economic headwinds will persist in 2009, but strong fundamental demand drivers meant that there will be continued opportunities Key factors include cheaper PCs and reform in sectors such as telecommunications and finance, as well as government initiatives

In China, the falling stock market and high inflation affected consumer sentiment in 2008, while declining

external demand influenced business investment plans However, BMI expects IT market growth to be

maintained by an expansion into western China, 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

In India, IT spending growth slowed significantly in 2008 and is expected to ease further in H109, before starting to recover in H209 Fundamental market drivers include the government's ambitions to connect the vast rural areas to the outside world, coupled with falling computer prices In early 2009, India's government announced a series of measures to stimulate the market 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

As mentioned above, 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, relatively low levels

of government IT spending may mean that the

IT market lacks a stabiliser that could help

immunise it from the slowdown Once again,

however, the basic demographics of low computer penetration and growing affordability should keep the market in positive territory

In more developed markets, such as Hong Kong and Singapore, there were indications of declining consumer and business sentiment in H208, but IT spending remained in positive territory for the year as a whole The Singaporean government continued to be a major factor in 2008, with the US$1.3bn Standard Operating Environment tender award In Hong Kong, rising unemployment and exposure to the financial

IT Markets Compound Growth

(2008e-2013f, %)

e/f = estimate/forecast Source: BMI

crisis will contribute to slower growth in 2009, but this will be partly counteracted by higher government

IT spending as well as cross-border trade and co-operation

The largest IT market in the region is, unsurprisingly, China, estimated at US$73.1bn in 2008, trailed

distantly by India (US$13.8bn) and Singapore (US$4.8bn) Singapore's IT market (including

communications) is the largest as a proportion of national GDP (2.7%), followed by China, Hong Kong

and Malaysia, all at 1.9%

The fastest growing IT market over the forecast period looks set to be India, with 2008-2013 compound

growth of 79%, taking first place due largely to low PC penetration China is second, with the IT market

growing by an estimated 74% over the forecast period

Sectors And Verticals

Regional IT markets will remain hardware-centric, with hardware accounting for 45-68% of total

spending in all markets 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

This year is likely to be a challenging year for hardware sales In many markets, demand proved quite

robust in H108 and exceeded forecasts, but there were signs of a slowdown towards the end of the year

Demand from under-penetrated rural areas, affordable computer programmes and growing broadband

penetration should generally prevent stagnation

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

Market Structure (% Of Total IT Market)

(2008e) (2013f)

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

offers as part of its broadband packages 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

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

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

Despite the economic downturn, there are still expected to be opportunities for software vendors in most markets The economic situation is likely to lead to further consideration of open source solutions in some sectors and to encourage vendors to promote software-on-demand solutions 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, ERP and other e-business products still dominate the enterprise software market, but vendors are also looking to other areas such as CRM and business intelligence, where faster growth is possible

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

economic situation and credit tightening are likely to have an impact on projects in some verticals, but continued demand in sectors like telecoms and banking will help to prevent stagnation Government spending will account for a larger share of spending in many markets In China, government stimulus packages should drive IT-related investments, while Singapore government ICT tenders were worth an estimated US$1bn in 2008 and the Hong Kong government's Digital 21 initiative will continue to

generate a number of projects

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

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 Telecom 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

Market Overview

Government Authorities

The IDA, the government's ICT mover and shaker, operates under the Ministry of Information,

Communications and the Arts (MITA) The IDA's main responsibilities include fostering a competitive world-class ICT industry in Singapore, preparing residents for living and working in the 'New Economy', spearheading the delivery of citizen-centric e-government services and building and operating the

government's IT infrastructure

In December 2007, the IDA appointed a new chairman and 10 new board members, who will each serve a two-year term Yong Ying-I, previously permanent secretary of the Ministry of Health, now leads the board of directors

In 2005, the IDA established a high-level steering committee to lead the development of Singapore's iN2015 initiative The committee supervises a number of sub-committees charged with identifying areas

of opportunity where new value can be introduced through IT use, enhancing productivity and

competitiveness Target sectors for the plan include education and learning, financial services, healthcare and biomedical sciences, logistics and high-tech manufacturing, digital media and entertainment, and tourism and hospitality

iN2015 ICT Masterplan

The IDA's 10-year masterplan has the objective of establishing an 'intelligent nation' powered by ICT by

2015 Since the launch of the Singaporean ICT Masterplan iN2015 in June 2006, a number of

programmes and initiatives have been rolled out collectively by the government and industry

The government will spend at least SGD2bn over 2007-2012 to upgrade its IT systems under the plan The IDA also unveiled a detailed roadmap in 2007 for its iGOV 2010 programme to raise the service and efficiency levels of civil servants with the latest technology Major spenders to date have included the IDA, along with the Ministry of Defence and the Defence Science and Technology Agency

Background

As Singapore is a mature economy with a small domestic ICT market, the prosperity of its IT sector is closely linked to exports Singapore's IT sector benefits from close ties to regional economies, especially

India and China To secure its IT hub status, the Singaporean government, through the IDA, has been proactive in cultivating the island state's technology strengths

The government was a major provider of opportunities for IT vendors in 2007, with a string of

government-led projects translating into some large equipment orders It awarded around worth of new Infocomm tenders in FY07 in addition to the tender for the SOE tender This maintained the high level of spending seen in 2006

SGD730mn-Singapore's status as a regional IT hub received a boost in 2007 with direct investments from a number of

IT companies Lenovo selected Singapore for its regional HQ for Association of South East Asian

Nations (ASEAN) countries and China, as well as a global hub for sales support, treasury and supply

chain functions Meanwhile, EMC opened a new South Asia Development Lab (SADL) in the Changi Business Park, and Dell announced plans to split its world headquarters between the city state and its

current Austin, Texas, base The new move will make Singapore Dell's global support hub for both manufacturing and distribution

A series of developments also underlined Singapore's regional role as a centre for the semiconductor and components industry With rising consumer wealth in China, India and Indonesia supporting demand for

chips, Singapore has an important role as a value-added location Marvell, one of the world's top 10 cable

semiconductor companies, announced that it was building a new regional headquarters in Singapore

NXP Semiconductors, one of Asia's top five chipmakers, also announced new plans to shift more of its

high-end facilities and corporate functions to Singapore

Showcasing Singapore's growing attraction as a services centre, a number of vendors have increased their

presence in the market BT Group recently completed an acquisition of Singapore-based IT services provider Frontline Technologies for around US$73mn The company will start operations under the brand name BT Frontline Meanwhile, Lenovo has brought all customer service operations together in

one global service organisation, based in Singapore Such developments are an important driver of local

IT market growth

Singapore will continue to be one of the most comfortable places in Asia in which to do business Its financial system is sound, its banking standards are high, the rule of law is strong and corruption is notable only by its absence Singapore is second only to Hong Kong in the world in terms of economic freedom, according to the Heritage Foundation, a Washington-based thinktank Nevertheless, the

government retains a strong presence in the economy through its powerful government-linked companies (GLCs) These will continue to impinge on the business environment

Hardware

2008, with a market deceleration evident as the global economic crisis impacts upon consumer and business confidence In H109, spending remained in positive territory, even as spending on many other consumer products declined Growth was driven mainly by sales of lower priced notebooks and netbooks,

as consumers remained cautious about discretionary spending, and this added to pressure on prices and margins

The recession may have made consumers more inclined to spend on stay-at-home items such as new computers The government also announced a series of measures to help the ICT industry through the

downturn, including subsidies for computers and broadband for low-income families Although

BMI forecast low single-digit growth in the PC segment in 2009, the economic slowdown was still

expected to contribute to slower retail computer sales revenues growth Vendors have cut prices, and there were signs in H109 that most demand in the notebook segment was being driven by sales of

notebooks, which retailed at prices of below US$1,000

Cutbacks were also reported in the commercial sector, with the replacement cycle for computer systems stretching for some companies However, as in the consumer segment, the growing affordability of notebooks and netbooks should help to prevent stagnation With the increasing ubiquity of wireless technologies, notebooks are becoming regarded by SMEs as an important productivity driver Some surveys have suggested that SME IT budgets would increase over the next year through 2010 in line with expectations of an improving economy

According to the IDA's latest report, 74% of Singaporean households now have a PC Overall PC

penetration is also thought to have passed 70%, following PC demand growth of close to 20% in

2001-2005 However, consumers have appeared willing to spend on upgrading their notebook computers, and it

is also becoming more popular to purchase a second household PC The growing popularity of netbooks should fuel this trend and be one of the brightest areas in the IT market, with double-digit growth

IT hardware spending accounted for around 44% of the domestic IT market in 2008 There are a number

of positive factors that should help to keep computer hardware demand in positive growth territory Firstly, government programmes related to the iN2015 masterplan will provide a bottom for the market

In 2008, the government's SOE tender provided a boost to the PC market The government planned to tender around US$1bn of ICT projects in 2008, with areas of spending including healthcare and taxation 'Computers for Education' is also a significant market component, with cheap computers provided for university students

Secondly, the government's ambitious broadband plans will also drive expansion The iN2015 and Broadband Network plans, in addition to its Connected Homes and IT literacy programmes, should drive the development of services such as online banking and shopping Converged multimedia services such as