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Malaysia Information Technology Report Q4 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2009 Product Code: R302-8408 Description Market OverviewMalaysian IT spending is expected to dip into negative growth territory in 2009 before recovering to growto around U$4.5bn in 2010, from US$4.3bn this year. Despite a difficult economic and political situation,the market has strong growth fundamentals, including low PC penetration, rising incomes and a hightech-focused national development plan. BMI expects a market upturn in H209 after continued signs in H109 of the market being affected by theglobal economic slowdown. The Malaysian IT market is now projected by BMI to grow at a compoundannual growth rate (CAGR) of 9% over 2009-2013. Recovery may be boosted in H209 by fasterdistribution of stimulus money and possible IT-friendly 2010 budget measures, but much will depend onthe extent of the economic downturn and speed of recovery. There are increasingly attractive opportunities in the IT services area as the government implementsmeasures to grow Malaysia as a regional services hub. There are several potential PC market growthareas, including netbooks and entry-level servers for small businesses. The government has a number oflong-term initiatives with favourable implications for demand for IT products and services, includinginvestment in broadband infrastructure. Industry Developments In the run-up to the 2010 Malaysian budget, Malaysia's IT industry bodies lobbied the government for theinclusion of various measures to boost the IT industry. The Association of the Computer and MultimediaIndustry in Malaysia (Pikom) called on the government to acknowledge that information andcommunication technology (ICT) accounts for more than 10% of national GDP and to implementmeasures to stimulate demand and support local IT companies. Among specific measures requested byPikom were tax exemptions for purchases of hardware and software used in the delivery of IT services. Despite the economic crisis, the government has continued to make progress in some elements of its egovernmentplan. In 2009, around 1.5mn e-tax returns were filed online ahead of the April 30 2009deadline, up from around 189,000 in the first year that the services were available. The total cost of thesystem over the past three years was around MYR34.7mn, with all of the e-forms being developed inhouse.In 2009, the Malaysian government continued its efforts to promote adoption of open source softwarethrough government agencies, although the target for achieving this appears to have slipped. In April, theMalaysian Administrative Modernisation and Management Planning Unit (MAMPU) said that it expectedall government agencies to have implemented open source software by end-2010. Competitive Landscape Despite the economic crisis, many computer vendors remained positive about their prospects inthe Malaysian market. Acer Malaysia has said that it would target 20% revenues growth in 2009, similarto its performance in 2008. Meanwhile, Lenovo said in September 2009 that it saw significant potential inthe Malaysian market, which it has targeted as a priority emerging market on account of projected growthin PC penetration. Microsoft claimed to be confident about the prospects for its new Windows 7 operating system inMalaysia as it prepared for the launch, scheduled for October 2009. As grounds for its optimism,Microsoft pointed to Malaysia's large installed base of around 10mn, mainly Vista users. The companyexpected this total to increase to 20mn within the next decade. Microsoft also anticipated that the releaseof Windows 7 would help to drive Malaysia's broadband penetration to 50% in 2010. Industry-specific applications are a 2009 vendor focus. In August 2009, SAS signed a deal with BankIslam Malaysia to implement a risk-management system as part of the bank's five-year MYR100mn planto overhaul its IT systems. Meanwhile, IBM's first software development lab in Malaysia will focus onsolutions for communications service providers and was expected to employ around 150 staff by end-2008. Computer Sales BMI forecasts that computer hardware sales, including notebooks and peripherals, have a value ofUS$2.27bn in 2009, down from US$2.33bn in 2008. Trading conditions were challenging in H109, butBMI expects conditions to improve towards the end of the year. Stimulus spending and a potentially ITfriendly2010 budget could create the conditions for an upturn in Q409, which would be expected to growstronger in 2010. Growing affordability of notebooks and netbooks has helped to counter shipmentsstagnation and provided an area of opportunity. PC sales will be supported by the government's push for greater broadband penetration, for which anoptimistic target of 50% by 2010 has been sent. Other factors include ICT in education programmes and anumber of e-government initiatives. The government is determined to tackle the digital gap beyond theKlang Valley area and is rolling out an extensive network of community PC centres. One of the targets ofthe plan is middle-income potential computer owners who have the ability to afford a PC. Suchprogrammes, together with falling prices, are opening up the market to lower income tiers. Software Malaysia's software market revenues are expected to dip to US$709mn in 2009, down slightly year-onyear(y-o-y) due to the current economic headwinds. BMI expects a mild pick-up in sales in H209, butwith longer sales cycles as businesses remain cautious and focused on return on investment (RoI). Thelaunch of the Windows 7 operating system, scheduled for October 2009, also has the potential to impactpositively, although much will depend on consumer and business confidence. By 2013 we see software spending rising healthily to US$1.1bn with a software CAGR for 2009-2013 inthe region of 12%. E-business applications such as enterprise resource planning (ERP) and finance arefinding increasing popularity with the business market as enterprises look to enhance productivity throughautomating accounting and other functions. Customer relationship management (CRM) is expected tobe a double-digit growth opportunity despite the economic downturn. IT Services IT services spending, excluding telecommunications-related spending, is forecast to reach aroundUS$1.3bn in 2009, up slightly from 2008. IT services are expected to be the one bright spot for the ITmarket this year, remaining in positive growth territory. However, the financial crisis and governmentretrenchment seems likely to have an impact this year, with a number of projects being cancelled orpostponed. Over 2009-2013, the most potential for large projects is likely to be in key sectors such as financialservices, oil and gas, telecoms and agriculture. The government has accounted for around 15% of ITspending in recent years. The upgrade of core banking systems will drive bank spending on applicationservices. Meanwhile, the government continues to try and create a more competitive environment in thetelecoms sector, pushing newly licensed WiMAX operators to roll out services. E-Readiness Malaysia is developing at a steady rate on most 'e-society' indicators. The government is pursuingprogrammes to reduce the digital divide between urban and rural areas. The Ministry of Rural andRegional Development is co-operating with the Ministry of Science, Technology and Innovation andMalaysia's IT industry association on plans to establish more community PC centres in the country thisyear. Nearly 2,000 such centres are already managed by the Economic Planning Unit (EPU). Theprogramme recognises that many of those who do not own a PC at present are capable of ownership andare hoping to use the programme to draw them in. The growing popularity of broadband after a slow start is set to be an important drive of PC penetrationover the next few years. To encourage faster penetration, the government has awarded WiMAX licencesto a number of service providers, including ISP Jaring. Recently, Telekom Malaysia was awarded aMYR11.31bn contract to roll out a high-speed broadband network. The government will investMYR2.4bn, and Telekom will foot the rest of the bill. This money is only for the first phase, and theproject will be implemented over 10 years. 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