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Saudi Arabia Information Technology Report Q3 2007Product Type: Market Research ReportPublished by: Business Monitor International Published: September 2007 Product Code: R302-2420 Description OverviewThe Saudi Arabia Council of Ministers’ launch in May 2007 of a National Plan for the IT sector demonstrates the growing importance of this market to a country and government which is seeking to channel revenues from high oil prices towards economic diversification and infrastructure modernisation. For many IT vendors Saudi is clearly the most important market in the region and most recorded significant sales growth in 2006. Saudi Arabia’s computer market has continued to demonstrate strong growth in H107 driven by falling prices and growing demand for notebooks. Strong growth in sales of both computers and associated services is being driven by high oil prices and substantial budgets allocated for e-government infrastructure development. Overall, the value of the Saudi Arabian IT market is estimated to have reached US$2.5bn in 2006 and is expected to rise to US$3.9bn by 2011, representing a CAGR of 9%. High oil prices have been stimulating increased spending on IT products and services by government as well as in sectors such as manufacturing and transport. Going forward, telecommunications liberalisation, a push for broadband, and government spending programmes on IT in Education and other areas should reinforce the potential of the market. In the enterprise sector, smaller companies are realising the opportunities to apply IT to achieve efficiencies in such areas as finance and logistics as well as marketing and other functions. The government has recently announced some US$32bn of infrastructure projects in the Riyadh area, including construction of an Information Technology park. The context is a business environment that is becoming increasingly competitive and open, as the country became a membership. Particularly significant is the planned further liberalisation of the telecoms sector, with new fixed-line and mobile licences awarded in 2007. In terms of PC and notebook sales, the market was the largest in the region in volume sales in 2006, with annual per-capita expenditure on IT reaching US$330, and Saudi Arabia continuing to account for around 40% of IT spending in the Middle East region in 2006, the market looming large in the regional calculations of multinational IT companies. Government Initiatives In May 2007 the Saudi Council of Ministers announced approval of a new national plan to guide the Kingdom’s continued transformation into a knowledge-based society and economy. One of the major goals is to further development of domestic telecoms and IT sectors as part of the government’s economic diversification strategy. The Saudi Cabinet meeting, chaired by the Crown Prince Sultan, said it wished to make the sectors ‘one of the main sources of income’. Among the component plans and programmes which have already started to be implemented is the project of Saudi’s first Knowledge Economy City (KEC). Meanwhile, the IT Ministry has launched a SAR29mn project to ensure provision of information services about Haji. The project is expected to be implemented by the end of 2007 and will result in a portal facility offering a number of Haji-related services to citizens, governments and private organisations including airlines. The project will be administered by the Electronic Government Directorate (EGD) which will manage the technical and maintenance side of the project until 2009. Competitive Landscape Oil and gas companies are awarding lucrative contracts as they look to use revenues from high oil prices to modernise and update computing environments. Recently Saudi-Arabia based Petro Rabigh awarded a SAP implementation contract to Indian IT Services giant Wipro, which as reported in earlier BMI quarterly reports is making inroads into the regional market. The value of the contact was not available but Petro Rabigh is one of the largest integrated refineries in the Kingdom. HP Services has also recently announced a new strategic partnership with local SAP consultancy company Al-Bilad Arabia targeting the oil and gas sector. Meanwhile, strong sales at the Saudi Gitex computer show in April helped to continue the sharp growth in computer sales seen since the start of the year, with double digit growth reported. The fast growth of notebook sales is driving computer sales in the Kingdom and sparking fierce vendor competition across all price segments. However falling prices, which are now breaking through the SAR2000 level, are leading to pressure on revenues and margins. Notebook unit sales for the Saudi market are expected to record around 800,000 units in 2007. Computer Sales Sales of computers, including PCs, notebooks and accessories are expected to top US$1bn in 2007, with the segment forecast to grow at a CAGR of 8% in 2006-2011. The number of personal computer users in Saudi Arabia should continue to rise steadily over the forecast, driven by falling prices as well as by programmes such as the ‘Home Computing Initiative’, which permits the purchase of computers at low prices and in easy instalment payment schemes. Telecoms liberalisation, with new licences expected in 2007, and a big push towards broadband penetration are also expected drivers of demand going forward. E-government development and the rollout of wi-fi networks should also provide a boost to demand for computers. Saudi Arabia’s status as one of the more affluent countries in the region, and with its young population, should provide a good context for continued growth, particularly given the current relatively low rates of internet usage. Strong economic growth and the high price of oil is fuelling spending by both publicsector organisations and by enterprises seeking to bring their levels of IT up to international standards. WTO entry and the elimination of customs duties within the GCC should also help stimulate the market, as will growth in the non-oil private sector, and liberalisation in certain sectors such as telecoms. Hardware spending will be sustained by fast growth in demand for mobile computers and higher-end desktops. Notebooks Stronger demand in the notebook sector is a key factor driving growth in Saudi Arabia’s PC market, with consumer sales reaping the results of aggressive retail channel promotions. Prices are also continuing to fall, however, driving sales higher, but depressing actual growth in revenues. One factor in the intensified price competition is the increasing aggressive influence and market share of Asian players such as Acer, as well as LG and Samsung. Aside from the consumer sector, small- to medium-sized enterprises (SMEs) are also showing a stronger tendency to favour mobility, accounting for a growing proportion of shipments. One of the government policies that vendors are capitalising on is the well-known United Instalment Scheme (USI) finance option, which makes high quality notebooks available to small and medium businesses, education and healthcare institutions and individuals. Acer estimated that it had around a 33% share of the Saudi Arabian notebook market in 2006, while Toshiba has also been performing strongly. Software BMI predicts a software market value of US$523mn in 2007, up from US$480mn in 2006. The sector should continue to grow at a CAGR of 10% over the forecast period. With the evolution of the regional economy, more innovative plans for expansion and development are being seen from many Saudi Arabian companies, driving more spending on software as companies adapt to a more e-enabled society. The domestic software market is therefore expected to grow significantly, driven by an increased focus by Saudi Arabian enterprises on more sophisticated solutions that still offer value for money. Saudi Post is one public company currently undergoing a major e-business implementation of Oracle systems to support a new door-to-door delivery system and to control costs. Meanwhile, SAGIA is deploying SAP ERP software to improve its handling of inward investment opportunities. Higher-than-expected oil revenues are also fuelling spending on new systems. Saudi Arabia remains the largest market for software solutions in the region, ahead of the UAE. Oil and gas remains the largest software vertical purchasing sector, followed by telecoms, but large contracts are being seen in the nonoil manufacturing sector in areas such as chemicals and automotive. Saudi Arabian domestic software companies are more advanced than their hardware equivalents, supplying a variety of Arabic language products to the local market. IT Services In the past year demand for IT services, including outsourcing, has shown a strong growth trend. A growing number of companies in the telecoms and other sectors are looking to contract-out functions that they previously kept in-house. Overall the Saudi Arabian IT services market was worth around US$784mn in 2006, and is expected to grow at a CAGR of 10% over the 2006-2011 forecast period. In 2005 support and maintenance accounted for US$252mn, more than one-third of that year's spending on IT services. However, sustained high oil prices have been driving spending on IT projects by government as well as in industries such as oil and gas, transport and utilities. In particular, the government’s US$800mn budget allocation for e-government development should create opportunities for services vendors. To meet the new demand for broader solutions packages, IT services providers have been consolidating operations through mergers or by expanding service portfolios. Wipro is among the most recent vendors to have increased its presence in the market, forming a joint venture with Dar Al-Riyadh Group. The new company, Wipro Arabia, will offer a range of solutions including applications development and management, and SI services. E-Readiness The telecoms landscape in Saudi Arabia is changing dramatically with three new fixed licences expected next year. The Communications and IT Commission also recently announced that Kuwait telecoms service provided MTC will be awarded the country’s third mobile telecoms licence after the success of its US$6.1bn bid. The company will now receive a twenty-five year licence to offer GSM, 3G and 3.5G services in the Kingdom. These changes are expected by BMI to have a positive effect on the local IT market with rising broadband penetration driving demand for computers and notebooks. The Saudi government has announced its intention to drive to increase the number of broadband subscribers in the Kingdom to 12%. According to the CITC the current penetration rate is just 1%, a level recently described by its governor as ‘embarrassing’. Broadband is emerging as a major driver of PC sales in more mature markets, due to the range of multimedia and communications functions it enables. The government has taken a number of major steps in 2007 to liberalise the telecommunications market as part of its drive to create a favourable environment for IT development. The UAE was ranked first out of 122 countries in last year’s Cisco-sponsored Global Information Technology Report, which noted the government’s success in establishing a broad framework for information society development. In the Dubai Strategic Plan 2015 the government identified the role of information technology as an enabler of growth. The number of Saudi Arabian internet users is forecast to increase from 3.6mn in 2006 to 7.4mn in 2011. The rate of internet penetration will reach 24% in 2011. With Saudi Telecommunications Company (STC) committed to modernising its infrastructure, and a new fixed licence expected to be awarded this year, the number of broadband subscribers should increase from 1.1mn to 5.4mn over the same forecast period. Table of Contents
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