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Mexico Information Technology Report Q4 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2009 Product Code: R302-8410 Description Market OverviewBMI projects that Mexican IT spending will dip by 6% in 2009 to around US$12.0bn, due to currenteconomic uncertainties and a decline in private sector credit growth. In a challenging economic climate inH109, consumer sentiment reached an all-time low, and business IT spending fell further, with hardwareupdates particularly vulnerable to cuts. Government spending was a relatively strong area in H109, butcould be hit in H209 and 2010 by a new austerity drive. Despite the difficult environment, there should still be opportunities in H209 in key IT verticals such asfinancial services, telecoms and government. The government has responded with stimulus measures,assisted by a US$47bn bailout package from the IMF. Spending on government IT projects was budgetedto increase by as much as one-third in 2009, although a new wave of austerity drives launched in Q309 isnow likely to have an impact. Going forward, the consumer fundamentals of low household penetration of many digital devices such asnotebooks computers, and greater affordability should return the IT market to an upwards parity.Meanwhile, growing broadband penetration, including 3G mobile, will drive the PC market. Netbookswill be the main growth area here, with their main attraction for price-sensitive consumers and smallbusinesses being their low cost. Industry Developments In August 2009, the government launched budget cuts that seemed certain to have an impact on currentand future IT projects. Total government IT spending had been budgeted to increase this year by aroundone-third in local currency terms, but this must now be in question. Areas of spending at the federal levelincluded integrated enterprise resource planning (ERP) and back office systems and e-services platformsand interfaces In the short term, most 2009 budgets had already been confirmed. However, it was unclear whethercontinuing tight credit conditions and fiscal pressures would ultimately impact on government ITspending should the economic downturn be prolonged. Meanwhile, fiscal pressures were behind a federal government proposal to end financial assistance forcompanies that end in technology. The proposal, heavily criticised by Mexican IT association Canieti,threatened to eliminate the provision of federal funds to cover 30% of companies' investments ininnovation and technology development. Competitive Landscape In H109, the main domestic PC market driver was laptop sales, an area where foreign vendors retained acompetitive advantage. The popularity of netbooks has reinforced the preference for mobility in theMexican market, with a wave of rival product roll-outs from vendors such as Asus, Acer, HP, Dell andToshiba. Local companies competing in the netbook segment in 2009 included Lanix, Blue Light andDextra. In February 2009, Chinese PC giant Lenovo launched a new plant at Apodaca (Nuevo Leon) with 1,500employees. The company plans to spend US$40mn to manufacture laptops in Mexico. The plant isreportedly the biggest investment made by Lenovo outside China and indicates the strategic significanceof the Mexican market for PC vendors. Lenovo has also expanded its Mexican retail sector presence byrecruiting new channel partners through its principal wholesalers in Mexico: Ingram Micro,CompuSolociones, Avnet and Exel. In early 2009, many software vendors in the Mexican market responded to the global economic crisis byadjusting their strategies and client focus. SAP announced plans to target its existing installed base oflarge customers in Mexico with the May launch of its Business Suite 7. Meanwhile, localsoftware vendor Softtek identified the economic crisis as an opportunity to enhance its position asnearshore services provider for US firms. Computer Sales Mexican computer hardware sales are projected to contract in 2009, with lower sales of desktops the maindriver. Mexico's computer hardware sales are projected at US$5.7bn in 2009, down from US$6.1bn in2008. Sales are projected to reach around US$8.3bn in 2013. In H109 there were reports of somecompanies deferring replacement purchases as hardware was generally the first target for Mexicanbusinesses looking to make savings from IT budgets. Despite the challenging environment for PC vendors in 2009, there are still some opportunities. Inparticular, the popularity of netbooks will continue to boost sales in the notebook segment. Growing fixedand mobile broadband penetration has driven PC sales, as mobile network operators have emerged as asignificant distribution channel for portable computers. The small and medium-sized enterprise (SME)segment is expected to be a significant opportunity for netbook vendors in H209. Most netbooks currentlyretail in Mexico in the US300-US$500 price range, however, adding to pressure on average PC prices. Software The software market in 2009 is projected to dip to US$2.2bn, from US$2.4bn last year, with importedsoftware accounting for at least 80% of the total. Software compound annual growth rate (CAGR) for2009-2013 is put at around 12%, outpacing general IT market growth, as the government turns itsattention to overcoming Mexico's long-standing under-investment in this area. There were reports in early 2009 of some companies scaling back non-essential investments in software,with most spending coming from existing clients. However, other companies view software investmentsas strategic, rather than operational, reducing their vulnerability to cutbacks. In 2009 the most popularapplications remain basic ERP, and supply chain management solutions, while business intelligence andsecurity software should provide growth opportunities, including more spending on networked securitysolutions. IT Services The Mexican IT services market is projected at around US$4.2bn in 2009, with spending slightly downfrom last year. The economic situation is expected to be the main reason for negative growth in 2009. InH109 there were reports of IT managers in various sectors reviewing IT spending plans. Early signs werethat only around 30% of companies were cutting budgets. However, government spending in H209 is nowlikely to be less than previously expected. Despite near-term economic exigencies, the market should ultimately grow at a CAGR of 12% through2013. The increasing number of multinational companies operating in the market is an important driverfor spending. Opportunities also reside within the SME sector, where companies are trying to usecomputing resources more effectively. Meanwhile, Mexico is becoming an increasingly important hub forprovision of business process outsourcing (BPO) and other outsourcing services. E-Readiness The World Economic Forum's latest annual survey found Mexico continuing to make steady progress onnetwork indicators. The survey had Mexico climbing six positions in the rankings from 55th. The reportattributed the improvement to the adoption of more efficient electronic strategies for digital networks andinfrastructure connection nationally and regionally. The potential for new broadband technologies to take hold in Mexico is high, with the energy utilityowning fibre-optic infrastructure and WiMAX licences expected to be auctioned in 2009. With Cofeteltaking a more combative stance to Telmex, BMI believes that there is a good chance that new operatorswill enter the market and be responsible for strong growth. E-Government The 2008 UN e-government survey found that Mexico had the most advanced e-services development inLatin America, due to a 'strong national government portal', which encouraged online consultationsbetween government and citizens. Recent state and municipal statistics have highlighted gradual progress in the implementation of egovernmentin Mexico at a federal and state level. In 2001 the government launched an e-governmentinitiative that prioritised providing health, education and other government services online, as well as thedevelopment of e-commerce. Since then, however, funding has rarely been sufficient for much progressto be made given the substantial task involved, and state and municipal governments are increasinglyseeking to launch their own initiatives. Many states are seeking funding from the private sector to makegood gaps in public funding. Table of Contents
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