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Home > Computers and Information Technology > IT Administration & Services > IT Spending & Administration
Indonesia Information Technology Report Q3 2007
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Market Overview
With compound annual growth (CAGR) of at least 11% expected between 2006 and 2011, the Indonesian IT market is becoming an increasingly important market for vendors. It is one of the faster growing in the region. The dominant factor remains a very low IT penetration level with only six million PCs for Indonesia’s 240mn people representing a PC penetration rate of 2.4%. Given information and communication technology (ICT) penetration of only around 20% and development restricted to richer areas such as Java, the potential is obvious. By 2011, the hardware-dominated IT market should reach a valuation of US$3.64bn, with Indonesia displaying faster growth than many ASEAN neighbours.
Hardware still accounts for around 70% of sales.
With overall information and communication technology (ICT) penetration of only around 20% and development restricted to richer areas such as Java, the need for basic hardware is obvious. Cheap computer programmes are likely to be justified in future as they will stimulate even faster internet penetration, and computers in schools programmes alone are thought to represent a potential demand for up to 25mn units. Spending in the first half of 2007 was slower than expected, due mainly to delays in government tendering. Spending for H107 was probably around US$400mn, only around 2/3 of the US$600mn anticipated. However, with government projects likely to come online later on, BMI still expects IT spending for the year to top US$2.4bn.
Indonesia’s uneven development (and resultant digital divide) remains a barrier to faster growth. Government spending is relatively small compared with regional neighbours such as Singapore and India, but the consumer market is still largely reliant on government initiatives to increase penetration. A relaxed monetary policy and buoyant economy should at least help to create favourable conditions. There is also emerging demand for applications and managed services, particularly from verticals such as Banking and Telecoms. A particularly strong overall driver is demand from the financial sector which has accounts for as much as 30% of spending, as well as Indonesia’s high-spending telecoms operators many of which have annual CAPEX budgets in excess of US$1bn.
Industry Developments
In a new government initiative, regional governments are being encouraged to adopt the new institution of a CIO (Chief Information Officer). The move as the government revealed that the main focus for the Directorate General of Telematics this year would be the development of e-government applications and key public infrastructure. The Director General of Telematics Applications at the Department of Communications and Information said that the new CIO post was needed in every government institution.
According to the government, e-government in Indonesia is still at an early stage. Promoting the new CIO position is being described as key to making e-government ‘inseparable’ from public service.
Meanwhile, the government is cooperating with Microsoft on a project to introduce IT to three million rural inhabitants. In the first two years of the project, online services and IT training will be provided to 64,800 farmers in fifteen provinces. One major delivery channel will be the construction of Community Learning Centres (CTCs) in six provinces in Java, and forty-two others in provinces outside Java including North Sumatra, Lamping and Bali. In 2006, President Susilo reiterated his commitment to the government’s plan for around 40,000 of Indonesia’s least-developed villages to enjoy ICT within the next 10 to 15 years.
Competitive Landscape
Global vendors are reporting a growing demand for IT Services from Indonesian clients particularly in the telecoms, manufacturing and banking sectors. Oracle recently signed an agreement with local IT solutions provider PT Sigma Cipta Caraka to provide outsourcing services. The arrangement will focus on providing big companies with business related software that ensures security, performance and business continuity as well as manpower. Meanwhile HP, which is currently promoting the idea of Business Technology (BT) in Indonesia, is to intensify its IT infrastructure recovery service.
The increasing opportunity presented by Islamic banking in Indonesia was highlighted by the news that PT Bank IFI is converting to be a Sharia bank. Islamic Banking has been growing in popularity in Indonesia over the past couple of years as an increasing number of the local population and businesses choose to do business with banking institutions that comply to the principles of Islamic Banking. Bank IFI is now preparing to deploy a Sharia system as the new core of the bank, a major operation which has been assigned to PT Collega Inti Pratama as IT vendor.
Meanwhile, computer vendors such as HP, Acer and Dell have been benefiting from rapid growth in PC sales. According to local data, sales in Q107 were up 23% over the same period of last year, with a total of 360,500 units being sold. The top five vendors dominate 40 of the Indonesia market, with Acer the leader in the notebook sector and HP the overall leader. Acer claims to have 60,000 of the 200,000 notebook computers in circulation in 2006. The company has set a target share of 10% of the total market for PCs this year.
Computer Sales
Computer sales (including notebooks and peripherals) will be worth an estimated US$1.34bn in full year 2007, according to BMI estimates, up from US$1.21bn in 2006. In 2007 the PC market will receive a further boost from software upgrade cycles, and the launch of Microsoft’s new suite of software including Windows Vista and Office 2007. Notebooks are now growing faster than the PC market as a whole and by 2009 are expected to account for around 20% of annual unit sales. Demand for notebooks is being driven by falling prices as well as smaller and lighter form factors and entertainment and wireless networking features. Prices of both notebooks and desktops are falling with desktop prices now as low as US$400 while notebooks start from around US$700. While the consumer market is only around one quarter of the whole, it is growing fast and has become a growing focus of attention for some vendors, including Lenovo, which in November 2006 launched its first consumer oriented products in the market. Around one third of the market is accounted for by non-branded locally assembled PCs.
Software
One the key functions of the new Information and Communications Technologies Council founded last year (see Industry Developments) is to address the piracy issue, with Indonesia having one of the worst records in the world in terms of its failure to bring down the piracy rate. IT Minister Sofyan recently commented that the president was concerned with Indonesia’s rate of piracy and the fact that it has limited the country’s development. 2007 legal software sales are forecast by BMI at US$308mn, up from an estimated US$266mn in 2006, despite the continuing piracy problem. The piracy issue lay behind the MoU signed last year between the government and Microsoft. Under the agreement the government reportedly agreed to purchase 35,496 licensed copies of the MS Windows operating system and 117,480 copies of the MS Office package for a total price of around US$41.9mn. However, the deal has attracted growing criticism from the Open Source lobby in Indonesia, which claim that the MoU serves as a barrier to entry to software producers other than Microsoft and impedes the development of the domestic software industry. Given these developments, over the 2005-2010 period, overall software sector CAGR is forecast at 14%. Application software accounts for more than 40% of the total software market currently, and is the largest portion, followed by systems infrastructure. The market is evolving from an emphasis on basic enterprise resource planning (ERP) applications focused on operational efficiency, to more strategic modules such as customer relationship management (CRM) and business analytics.
IT Services
Indonesia’s IT services market is expected to be worth US$416mn in 2007, recording year-on-year (y-oy) growth of 14% from US$366 in 2006, based on BMI estimates. Hardware deployment services remain the largest Indonesia IT services category, with approximately a 20% share. Currently, opportunities are mainly in fundamental services such as system integration, support systems, training, professional services, outsourcing and internet services. Sector CAGR over the 2005-2010 period is expected to be around 12%.
E-Readiness
With an ICT penetration rate of around 20%, only about 11% of Indonesians have internet access currently, translating into around 25mn users. Low telephone line density, high charges and low PC penetration are all significant obstacles. Moreover, only 42% of those Indonesians with internet access have ever made purchases through the internet. However, the picture is not all bad, as there are signs of faster growth in user numbers, and recent surveys have shown that among a very small elite, there is fast adoption (by regional standards) of broadband and a willingness to pay for video conferencing, security and other additional features. BMI estimated that there were around 45,000 broadband users in 2005, representing a 0.2% penetration rate, and this is expected tenfold over the forecast period. The government is encouraging fixed wireless deployments, including WiMax, to bring internet to more remote areas.
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