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Home > Computers and Information Technology > IT Administration & Services > General Services
Brazil Information Technology Report Q3 2008
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Market Overview
The total value of Brazilian spending on IT products and services should pass US$21bn in 2008 andUS$32bn by 2012. Despite soaring sales in the PC sector in 2007, a PC penetration rate of less than 25%indicates plenty of growth potential, and penetration could pass 30% by 2012. The Brazilian IT market isby far the largest in Latin America and is projected to grow at a compound annual growth rate (CAGR) of11% over the 2007-2012 period.
Greater prosperity and rising wages are lifting millions into a middle class for whom computers are nolonger beyond reach. The overall economic outlook is constructive for continued growth in IT spending,with lower interest rates encouraging consumer sentiment and the economy projected to expand byapproximately 4-5% on an annual basis throughout the forecast period. The retail PC segment shouldcontinue to register strong growth due to greater affordability, more financing options for consumers andmore flexible terms from retailers.
IT services will be the fastest growing market segment, with some recent large outsourcing deals insectors like telecoms. The financial services vertical accounts for as much as 20% of total IT spending.Government spending is also an important factor, as witnessed by recent large computer tenders in areassuch as education and social security. However, there are some structural inhibitors of faster growth,including a significant digital divide, bureaucracy, and a relatively heavy regulation burden forbusinesses.
Industry Developments
IT for education has emerged as a key priority of Brazil’s government. In April 2008, President da Silvasaid that 37mn elementary school children in Brazil should have access to broadband by 2010. ThePresident reported that it was in a process of equipping all elementary schools with computers, and that in2008 some additional 9000 urban schools and 3000 rural schools would receive them.The government has confirmed that it will reopen bidding for the One Computer Per Student (UCA)programme in the second half of this year. The original tender to supply 150,000 laptops to public schoolswas finally cancelled in February, after the government’s expectations about price turned out to be wellbelow what the market offered. The government has indicted that it now expects to pay about US$200 permachine.
In November 2007, Brazil’s President da Silva announced plans to invest as much as US$23bn in thescience and technology component of the government’s Growth Acceleration Plan. The money isearmarked for innovation and technology projects and must be spent between now and 2010. Recently,Brazil’s social security institute INSS purchased some 1558 PCs at a reported cost of aroundBRL1.63mn.
Competitive Landscape
Global vendors in Brazil’s booming PC market reported high double-digit growth in 2007. HP said thatits total local revenues grew 35% in 2007, a year which saw it overtake Dell in the PC segment. HP is tostart manufacturing two models of workstation in Brazil which will be produced by its partner, Taiwanesemanufacturer Foxconn. Sales are expected to grow 10% during the first year of local manufacturing.Turning to the software segment, the larger domestic ERP companies such as Datasul and Totys conteststrongly for market share with global players like Microsoft, IBM and Oracle. Leading local contenderDatasul reported revenues of US$4.9mn the first quarter of 2008, while revenues were up 40.6% year-onyear(y-o-y). The company had around 3,411 clients as of the end of the quarter, which represented 30%growth.
In the IT services segment, regional giant Sonda Procwork has signalled its growing concentration onthe Brazilian market. The Chilean company believes that Brazilian operations will become its biggestrevenue earner within two-three years. Sonda plans to strengthen its presence in Brazil and has earmarkedaround US$100mn for local acquisitions. Earlier this year Sonda acquired Brazilian company Procworkfor US$118mn.
Computer Sales
BMI is projecting that Brazil’s computer and accessories market will have a CAGR of at least 8% overthe 2007-2012 period. Computer sales in 2007 were put at US$6.9bn, and should pass the US$11.4bnmark by 2012. The market reached a milestone last year, according to the local FGV foundation, when forthe first time more PCs were sold in Brazil than TVs. The study said that a total of 10.5mn desktop andnotebook units were sold in Brazil last year, up 42% on 2006. Annual computer sales are currentlyincreasing at upwards of 20% a year, putting Brazil on course to become one of the biggest computermarkets in the world. Greater affordability combined with more credit options, lower interest rates, andtax concessions have driven sales. There is a sizable grey market, although evidence suggests that this hasbeen falling in recent quarters to below 40% of unit sales.
Software
Brazil’s software market is estimated to have been worth US$2.9bn in 2007, and the figure for 2008 isexpected to come out at more than US$3.4mn. Software CAGR for 2007-2012 is projected at around13%. Software is beginning to gain ground in Brazil, despite high annual software piracy losses. Thesoftware sector’s current high single-digit growth is being driven partly by stronger demand for ERPsolutions from SMEs. Other trends include more investment in security, business intelligence and software as a service (SaaS). Software piracy levels fell 1% year-on-year to 59% according to theBusiness Software Association, which was in line with the regional trend.
IT Services
Brazil’s IT services market is estimated to have grown around 14% in 2007 to just over US$7bn, withsimilar or slightly higher growth expected in 2008. For a developing market, the percentage of IT marketrevenues generated by services is high at around 38%, which corresponds more to developed marketlevels. IBM has already estimated that 54% of its country revenues come from IT services, slightly morethan its global average. One driver for the market will be the government’s intention to develop Brazil’scapabilities in the BPO area and capture a larger global market share. Brazil has an ambitious plan tobecome one of the world’s top IT outsourcing destinations by 2010. Brazil will have to overcome anumber of challenges to achieve this, however.
E-Readiness
The World Economic Forum ranked Brazil 53rd in the world in its most recent survey of ‘degree ofpreparation to participate in and benefit from information and communications technology’, rankingBrazil fourth in the region behind Chile, Barbados and Mexico. According to BMI estimates, the numberof Brazilian internet users reached nearly 36mn in 2007, representing 19% of the population. Thepercentage of broadband subscribers in the general population, however, was only 3.7%.Brazil IT Sector SWOT
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