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Home > Computers and Information Technology > IT Administration & Services > General Services
Singapore Information Technology Report Q3 2008
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Market Overview
The Singaporean IT market is projected by BMI to reach a value of around US$5.1bn by 2012, fromUS$4.1bn in 2007. Despite the current uncertain economic outlook, PC sales have generally continued toexceed expectations. Total spending on IT products and services should grow at a CAGR of around 4.5%over the forecast period, as spending by sectors such as government and financial services powers growth.A projected rapid increase in broadband penetration to 68% of population by 2012 will drive sales in theconsumer segment.
Singapore is a relatively mature market by regional standards, with PC penetration of around 74%, butconsumers have shown willingness to upgrade to obtain new features, and there remains a digital divide.Growth in notebooks sales has given relatively strong momentum to the PC segment as a whole andstimulated new vendor retail tactics. There have been signs since last year that business spending is alsoon the increase, with IT budgets of smaller and medium firms increasing relative to revenues. This groupis now a major target for vendors.
Within the ambitious ‘Intelligent Nation 2015’ framework, the government will continue to be the majorsource of spending in 2008, as vendors compete for projects such as the US$1bn Standard OperatingEnvironment Phase Two tender. The main downside to our forecast scenario is a continued downturn inthe US economy, which could have an impact on Singapore’s external sector. The continued restructuringof Singapore to a more service-oriented economy may limit long-term growth prospects, although it alsobrings opportunities, particularly in the financial sector.
Industry Developments
The Singaporean government has said that it will tender at least US$1bn of ICT projects in 2008. A largepart of the government’s budget will go on the US$750mn project to build a national broadband networkfor homes, businesses and government institutions. However, several other lucrative projects are in thepipeline, including upgrades to the Inland Revenue Authority of Singapore’s tax administration system.One of the most eagerly anticipated tenders is Phase Two of the huge Standard Operating Environmentproject (SOE2), which involves putting standard computing systems in schools. The huge project willcover an estimated 100,000 students and teachers in 3650 schools and higher education institutions. Thetender is schedule to be called by the end of the year.
Other IT tenders scheduled for 2008 include an upgrade of the Singapore Civil Defence Forces commandsystems, and a planned US$100mn second government datacentre. Since the launch of the SingaporeanICT Masterplan iN2015 in June 2006, a number of programmes have been rolled out collectively by theGovernment and Industry.
Company News
Prequalification for the estimated US$1bn Standard Operating Environment Phase Two project to supplycomputer systems to schools closed on April 29 2008. ST Electronics and HP, which missed out on theSOE1 government sector tender, have announced that they will team up again for SOE2. Other companiessuch as IBM, Microsoft, NCS, Cisco and Singapore Computer Systems (SCS) are also likely to bidagain. The tender is expected to be called by the end of the year.Opportunities for IT vendors in the Health sector have been highlighted recently. The government hopesto create a centralised pharmacy system across health institutions. Recently SCS announced thecompletion of the latest stage of the iPharm implementation for Singapore’s National Healthcare Group(NHG). In addition, IBM Singapore won a major contract from SingHealth, the nation’s largest publichealthcare group.
Singapore’s status as a regional IT hub received a boost in 2007, with direct investments from a numberof IT companies. Last year, Lenovo selected Singapore for its regional HQ for ASEAN countries andChina, as well as a global hub for sales support, treasury and supply chain functions. Meanwhile, EMCopened a new South Asia Development Lab (SADL) inside Changi Business Park, and Dell announcedplans to split its world headquarters between the city state and its current Austin, Texas base.
Focus: Financial Vertical Opportunities
Singapore’s banking and financial services sector has been successful over the last few years in attractinga new wave of investment. Banks are looking to increase their presence in the booming island, and areinvesting more in IT infrastructure and back-office operations, which is generating opportunities forvendors. Merrill Lynch for example has increased its IT budget by an average of 60% annually in thepast few years. Bank deposits in the Asia Pacific region are projected by Deloitte to exceed US$1trn by2010, and financial services providers have an increasing need to deploy advanced technology tostreamline and enhance end-to-end operations. In the last couple of years, Credit Suisse has announcedthe creation of 900 outsourced jobs, including IT functions, in Singapore, as part of an exercise to cutcosts in back-office operations. Merrill Lynch will add 800 back-office jobs in Singapore; and BarclaysBank is another global player centralising its AP functions in Singapore.
The government is naturally keen to encourage the trend. IDA has said that Singapore can use its abilityto harness IT to be a ‘showcase for innovations in the financial services industry’. Internet and telephonebanking have already swept through the region, but the ability to integrate and manage informationrelating to different customer segments - and from front-office delivery systems to trading platforms anddistribution channels - is becoming increasingly important. The Singaporean government has beenoffering financial incentives to multinationals to create a hub for international banks and funds. A furtherattraction of Singapore is its superior infrastructure, compared with other destinations in the region.
Computer Sales
Spending on IT hardware is expected to rise to around US$1.9bn in 2008 from around US$1.8bn in 2007,as healthy economic growth leads a pick up in the IT market. In 2007, spending on PCs continued toexceed analyst expectations for this mature market. According to the latest report of the IDA, 74% ofSingaporean households now have a PC and, following PC demand growth of close to 20% in 2001-2005,this level of saturation would be expected to act as a constraint. However, consumers have appearedwilling to spend on upgrading their notebook computers. Moreover, there still exists a significant digitaldivide in Singapore, particularly between income groups, something that represents a source of potentialdemand given the government’s intention to address the issue. Given an expected 300% growth inbroadband penetration by 2012, the increasing number of products and services available on the internetis likely to be a major driver of demand for computer hardware.
Software
Software accounted for about 15% of the domestic IT market in 2007, with estimated spending ofUS$614mn. As the market focus moves from hardware to services and solutions, the share of the ITmarket accounted for by software should rise to 17% by 2011, with enterprises seeking greater leveragefrom their investments. ERP and other e-business products will find increasing popularity with the SMEmarket, as enterprises look to enhance productivity through the automation of essential functions. Asevidence of the importance of this segment to vendors, Microsoft is offering SMEs six different options tomigrate to the Windows Vista operating system, along with a variety of financial packages.
IT Services
IT services accounted for about 40% of the domestic IT market in 2007, with spending of US$1.6bn, upfrom US$1.5bn in 2006. CAGR for the segment is estimated at 5% over the 2007-2012 period. The BPOmarket is currently growing at a double-digit rate, and the IDA said that it would devote US$12mn in2006 and 2007 to developing Singapore’s BPO industry. Finance and accounting will remain the mostimportant BPO categories, with Singapore currently enjoying revived popularity as a BPO location forfinancial sector organisations. The government is to tender at least one major outsourcing contract in2008, and there have been large tenders in the private sector in recent years from companies such asSingapore Airlines. Local companies are also following the trend, with Singapore Computer Systems(SCS) recently handing business continuity and disaster-recovery solutions provider SPRING Singaporea three-year deal to outsource its infrastructure and applications.
E-Readiness
Narrowband internet penetration in Singapore is estimated at around 22% in 2007, and broadbandpenetration also at around 22%. The National Broadband Network is at the core of the government’s ‘Intelligent Nation 2015’ project.The contract for the first phase of the project, which will linkbusinesses, schools, hospitals and homes, involves 45% of the network being rolled out within three yearsand the entire network by 2012. The second phase of the project will place an emphasis on pervasivenessand the provision of wireless access at affordable rates. The project is projected to lead to 68% broadbandpenetration by 2012.
The NBN will be capable of offering high speeds of 1Gbps or more, and aims to provide affordablebroadband for 95% of all homes and businesses by 2012. Broadband has become an increasing importantdriver of PC and notebook sales in mature market such as Singapore, with vendors such as Acer and HProlling out new models with popular multimedia and entertainment features.
Reviewing one year of the landmark Intelligent National 2015 (iN2015) plan last year, the Minister forInformation, Communications and the Arts Dr. Lee Boon Yang said that said that much progress hadbeen made but much remained to be done.
Key Issues For Investors- ??Further government-enforced reductions in labour costs and mandatory corporate contributions topensions;
- ??Cuts to corporate and income taxes if the government sticks to its budgetary commitment to lowerbusiness costs;
- ??Competitiveness is at risk of being eroded by cheap labour in China.
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