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Philippines Information Technology Report Q3 2007Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2007 Product Code: R302-1331 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. Growth will depend on continued good economic performance but will be supported by a positive outlook for enterprise spending, a new low price PC programme, and continuing growth in the BPO (Business Process Outsourcing) sector. The overall economic outlook appears generally favourable, with BMI predicting GDP growth of 5.2% this year on the back of resilient external and domestic demand and a revival of government investment. As highlighted in this report, IT vendor attention is increasingly focusing on the Southern Philippines where there is a considerable and largely untapped market. Overall computer penetration of just 4% represents a considerable opportunity as does the currently low share of branded products compared with many other Asian markets. 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. Call centre services will remain the largest sector in the local IT industry and the government has said that the promotion and marketing of IT enabled services (ITES) will continue to be one of the key thrusts of the Arroyo administration. Increasing factors are government initiatives to encourage regional development with the Cebu region emerging as a new BPO hub. Government programmes 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. However, recent research has also highlighted the size of the opportunity presented by the SME segment over the next few years. According to an earlier survey in 2006, SMBs were expected to spend at least a collective US$185mn on IT Services last year. The market is becoming increasingly important in regional terms, with Samsung for example revealing that the Philippines has become its third most important regional market for IT products. Industry Developments There are signs that the government is preparing to abandon its long term objective of creating a fullyfledged ICT Ministry. Recently it has emerged that the Commission on ICT (CICT) is now studying the feasibility of transforming itself into a think-tank type organisation in the style of the National Economic Development Authority. While this would enhance its influence it would fall short of the status of a full department. The possible new role for the Commission is said to have been inspired by the Information Development Authority (IDA) of Singapore which was founded in 1999. The CICT remains the primary body for planning and coordinating ICT related policy and promoting its use. Meanwhile, figures released by the Central Bank in May showed that the Business Process Outsourcing (BPO) industry earned US$2bn in 2005, up 53% on the US$1.3bn in 2004. According to the Bank the Services sector, which includes a large number of BPO companies, made a substantial contribution to economic growth of 5.4% last year. The report comes as the Philippines is becoming an increasing popular BPO destination for European companies to outsource such processes as call centre back office, medical & legal transcription, software development and engineering design. Company News Global vendors are placing a new strategic focus on the IT market in the Southern Philippines which is becoming an increasingly large recipient of investment from global IT Service vendors such as IBM and Accenture. Recently Accenture opened a new IT outsourcing centre in Cebu which will have 500 seats and provide application management, systems development and other related services to global clients. Other IT companies have also identified Cebu as a major focus as an IT hub for the expanding Visayas and Mindanao regions. A recent survey by IBM highlighted the potential of the Southern Philippines market, identifying potential revenues of US$218mn, with most opportunities in services and software development. Meanwhile, IT vendors are reporting a greater demand in the Philippines for branded PCs as opposed to white boxes. While the white box is still estimated to account for around 80% of the market, demand for branded PCs has grown. The branded PC share in many other Asian countries is around 50%, indicating considerable room for development, and vendors are preparing to take advantage of this opportunity. Leading market player HP is planning to extend its product line to offer more affordable PCs, while in April, Lenovo launched a new line of products for consumers, focusing on those in Manila, Cebu, and other key cities. Computer Sales BMI expects total 2007 hardware spending of around US$725mn, up from an estimated US$648mn in 2006. Affordability remains a key criterion for PC purchase especially among call centre companies which are a major source of demand. Prices for branded PCs in the Philippines are now down to around US$800 per unit. Much growth will of course come from increasing PC penetration, which is only around 4% currently. However, even in the Southern Philippines consumers are now showing a greater appreciation of the enhanced features and legal software that comes with branded computers. Low price PC initiatives will play a role in driving growth, and 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 2007, 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 telecom 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, and 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 US$12.2bn in annual revenues and employing 920,000 workers by 2010. E-Readiness Telecoms operator Smart is expanding its nationwide programme for computers in schools this year to include fifty more public high schools and thirty elementary schools. The expansion was formalised by a MoU signed between Smart and the Philippines Department of Education. Under the programme Smart will construct or upgrade computer labs and provide free internet connection for one year. The programme was started in August 2005 and before the recent expansion was announced had already covered one hundred public high schools. The overall 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. Table of Contents
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