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Philippines Information Technology Report Q1 2007Product Type: Market Research ReportPublished by: Business Monitor International Published: March 2007 Product Code: R302-1163 Description Market OverviewBMI expects the total size of the Philippines’ IT market to increase from US$1.4bn in 2006 to around US$2.2bn in 2011, with a positive outlook for enterprise spending, a new low price PC programme, and continuing growth in the BPO (Business Process Outsourcing) sector all providing grounds for optimism. The overall economic outlook is also favourable, with resilient external and domestic demand and the Philippines currently a favoured investment destination ahead of other regional rivals Surveys show that most companies expect expenditure on IT to rise in 2007 and overall IT market CAGR is put at 9% for the 2006-2011 period. Indeed the market is becoming increasingly important in regional terms, with Samsung for example revealing that Philippines has become its third most important regional market for IT products. Samsung is responding by investing in a new support centre, and over the forecast period, core service offerings are likely to expand to include more technical support services. Call centre services will remain the largest sector in the local IT industry, accounting for around 63% of the sector’s total workforce currently. Another theme of the 2006-2011 period is likely to be geographical expansion, with new government initiatives to encourage regional development and the Cebu region emerging as a new BPO hub. Government initiatives to leverage ICT for development purposes in areas ranging from schools to the courtroom will also influence the market, with assistance from both companies and international organisations. Computer Sales BMI expects total 2007 hardware spending of around US$725mn up from an estimated US$648mn in 2006. One major factor is that PC penetration is still low in the Philippines, translating into opportunities for vendors particularly in the context of low price PC initiatives. Following the relatively unsuccessful Bayan PC initiative of 2005, a joint initiative of the Philippine government and Intel, in 2007 the CITC (Commission for Information and Communications Technology) is supporting a new ‘PC4All’ programme. The 2007 programme aims to increase the PC to user ratio by making available more affordable computers and the CITC is currently in discussion with vendors. Whereas the Bayan PC computers were hardly much less expensive than ‘commercial’ PCs, it is hoped to lower costs under the new programme through installation of open source software. The target price for the PCs is around PHP10,000. In addition to the PC4All programme, likely computer sale drivers over the forecast period include education, lower prices, IP telephony, cheaper processors, and entertainment and wireless networking features. Software BMI expects growth in software spending to continue in 2006, projecting 12% growth from 2006 spending of around US$211mn. This level of growth should be maintained over the next few years, with BMI seeing CAGR for the software sector between 2005 and 2010 around 9%. The launch of the new suite of Microsoft software products in 2007, including Microsoft Visa and Office 2007, should provide a boost in the short term. However, open source software is on the rise, with software like Edubuntu, Poppy Linux, and Open Office being preinstalled in the PCs to be sold under the new PC4ALL programme. In addition, a bill promoting the use of FOSS (free and open source software) is currently making its way through Congress. In response Microsoft is offering a stripped down version of Office that retails at about half the price of the full version, although no Tagalog version is available yet. SMEs represent a potentially important segment of demand, but creative methods will be needed to reach this, as with Saleforce.com and Intel’s current cooperation with telco PLDT. Services Growth in the IT service sector continues to be driven by sustained growth in the IT enabled services sector, particularly BPO and call centre services. BMI forecasts a value of US$615mn in 2007, up from US$549mn in 2005. Due to evolving demand, vendors are having to pay more attention to value-added services such as technical support and product troubleshooting, or basic IT and hardware consulting. Call centres are, unsurprisingly, projected to be the biggest single source of earnings for IT service providers, accounting for around 25% of revenues. Estimates show BPO services generating 12.2bn in annual revenues and employing 920,000 workers by 2010. E-Readiness The number of local internet users has grown steadily over the last five years, reaching an estimated 8.1mn in 2006 according to BMI figures. Meanwhile the number of broadband subscribers was around 600,000 in 2006 and is expected to grow to 3.5mn by 2011. By 2011, Internet and broadband penetration rates are expected to be 27% and 3.8% respectively. Falling prices of PCs and internet subscription rates, partly as a result of greater market competition, have driven this growth. However, low PC and internet penetration rates, along with low telephone density and security concerns, still hold back the development of e-commerce. Industry Developments The Philippines government has announced a new focus on partnering with IT industry associations and boosting SME’s utilisation of ICT. So-called “micro” SMEs (MSMEs) account for a significant portion of the company sector by numbers, but the majority have a low awareness of the potential advantages of applying IT to their businesses. The major problem however unsurprisingly remains a lack of funds, combined with insufficient business planning. Under the proposed programme the government intends to partner with both IT industry associations and vendors to make sure that SMEs are provided with the necessary tools to increase profitability, production and service delivery. Meanwhile, industry association the Contact Centre Association of the Philippines (CCAP) has countered recent uncertainty by asserting that BPO and IT business in the country will register 100% growth in 2007. The Association claimed that call centres will lead the expansion and responded to warnings about the growing attractions of rival BPO centres in the region by pointing to increasing client satisfaction at the quality of BPO and IT services in the Philippines. Overall, the government is hoping to generate US$12.8bn in revenues from what it terms the ‘cyber service industry’ by 2010 and create 1.803mn jobs in the same period. Company News Looking to move beyond established regions and large client groups to strengthen their position in the Philippines IT market, multinational IT vendors have signalled an increased focus on targeting the SME sector. IBM has launched a campaign to target SMEs in six provinces where the combined IT market opportunity was estimated at over US$340mn in 2006. Potential areas of demand in the enterprise sector include resource optimisation, and security and disaster recovery. Meanwhile, Oracle is marketing e-business suite applications for SMEs, with the selling point that the applications are platform independent and can be used by SMEs in any operating system. However, Oracle does not have any immediate plans to follow Microsoft, which recently established an office in Cebu to serve the Southern Philippines. Cebu was also the location for the second SME training centre established by Intel in cooperation with the Department of Trade and Industry as part of a pilot scheme to provide training to SMEs in a number of areas including IT utilisation. Table of Contents
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