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Philippines Information Technology Report Q4 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2009 Product Code: R302-8421 Description Market OverviewBMI expects the Philippine IT market to be a regional outperformer over the next few years, withspending increasing from a projected US$2.4bn this year to around US$3.6bn in 2013. The Philippineshas a lower PC penetration than many other Asian countries and offers correspondingly high growthpotential over the forecast period, particularly with support from government digital divide and otherinformation and communication technology (ICT) programmes. There were signs of consumer and business segment IT spending retrenchment in H109, due to thecurrent economic uncertainty. Real private consumption growth is forecast to dip to just 1.2% this year, asFilipino consumers curb spending in anticipation of hard times ahead. Meanwhile, enterprise ITspending has also been affected by the credit crunch and lower demand in export markets, with reports ofbudgets being cut and hardware replacement cycles lengthening. In H109, however, these negative factors were in part offset by a number of positive market drivers. Inparticular the business process outsourcing (BPO) industry, which accounts for around 30% of ITspending, continued to grow. BMI projects IT spending compound annual growth rate (CAGR) at 11%for 2008-2013, reflecting the fundamental market equation of rising incomes and low PC penetration. Percapita IT spend was estimated at just US$25 in 2008, far lower than in other Asian countries such asMalaysia, and even China. It is forecast to rise to US$36 by 2013. Industry Developments In July 2009, the Commission on Information and Communications Technology (CIFT) unveiled a newlow-cost desktop that it described as integral to the government's ICT programmes. The Nettop ng Bayan,developed in co-operation with Intel, comes with a widescreen LCD monitor, but no bundled internetconnection or software. The new computer is to be affordably priced at around PHP10,800, and it ishoped that this will attract price-sensitive consumers. In H109, despite the economic crisis, various government organisations proceeded with projects designedto facilitate delivery of e-services. The Bureau of Customs announced in September 2009 that itsElectronic-to-Mobile (e2m) project, to introduce paperless transactions for processing imports documents,will have been implemented in nine ports by the end of the year. The e2m project is just one part of thePHP500mn computerisation programme being undertaken by the Bureau, which accounts for around 25%of the government's tax revenues. One of the biggest challenges for the government is to continue to ensure a supply of HR with appropriateIT skills. In a policy address in August 2009, President Arroyo cited the provision of low-cost desktops topublic high school teachers and students as one of six priority areas for her cabinet. The Department ofEducation, under Chief Jesli Lapus, has unveiled a plan to provide computers in an additional twohundred schools, split evenly between elementary and high schools. Company News HP and Acer remain the leading PC brands in a market where 'white boxes' dominate. In H109,multinatinal PC vendors were generally optimistic about the Philippine market, despite the slowdown.Acer claimed to have largely escaped any local market impact from the global economic crisis andexpanded its presence across desktop and notebook segments with more product releases. Meanwhile,Lenovo said in mid-2009 that signs of recovery were now in sight and was focused on opportunities inthe small and medium-sized enterprise (SME) sector, which is anticipated to become a fierce battlegroundfor vendors. Meanwhile, software vendors see the SME segment as one of the most promising segments goingforward. In 2009, Microsoft said that SMEs, which comprise over 90% of registered businesses in thecountry, were its fastest-growing segment. The company recently launched a scaled-down version of theWindows Server 2008 operating system for businesses. IBM Philippines has also said that SMEs will be a major focus for it in the country, commenting thatthey have found 'huge potential'. A key part of IBM's strategy for the sector is to provide financialassistance through IBM Global Financing (IFG). Meanwhile, Oracle is also marketing e-business suiteapplications for SMEs with the selling point that the applications are platform independent. Computer Sales BMI forecasts 2009 Philippines computer hardware spending of around US$1.5bn, which is expected torise to US$2.3bn by 2013. Consumer demand exceeded expectations in H109, but the economicuncertainty, and expected slowdown in remittances due to a weaker global economy, is still projectedto dampen retail spending in H209. Meanwhile, the slowdown, and credit tightening, has also hadan impact on hardware spending in the enterprise sector, with the computer replacement cycle stretchingfor some companies. These negative growth factors should be at least partly compensated for by developments elsewhere. Jobsin the IT industry, particularly the BPO sector, are projected to grow by 20-25% this year, thus drivingdemand for hardware. Government procurements are also providing relief, with a number of egovernmentand public sector computerisation programmes. Education initiatives such as the Departmentof Education's new Laptop for Teachers programme will help to sustain spending in this segment. Software BMI expects software spending to stay in positive growth territory in 2009, with revenues of aroundUS$260mn. Growth should be maintained over the next few years, as BMI projects a CAGR for thesoftware sector over 2009-2013 of around 11%. Software accounted for about 11% of IT spending in2008 by BMI estimates, and sales will grow as higher PC ownership and internet penetration fuel demandfor software. Meanwhile, vendors are exploring new channels to reach the SME segment, such as Saleforce.com andIntel's current co-operation with telecoms company PLDT. Much will depend on success in combatingthe software piracy rate, which was put by the Business Software Association at 69% in 2008. Opensource software is on the rise and is being preinstalled in the PCs to be sold under the new PC4ALLprogramme. Services Growth in the IT services sector continues to be driven by the IT-enabled services sector, particularlyBPO and call centre services. BMI forecasts a value of US$614mn in 2009, up from US$596mn in 2008.Due to evolving demand, vendors have to pay more attention to value-added services such as technicalsupport and product troubleshooting, or basic IT and hardware consulting. Call centres are, unsurprisingly, projected to be the biggest single source of earnings for IT serviceproviders, accounting for around 25% of revenues. After call centres, telecommunications, financialservices and manufacturing are the next most important sectors E-Readiness The overall number of local internet users has grown steadily over the last five years. Falling prices ofPCs and internet subscription rates, partly as a result of greater market competition, have driven thisgrowth. However, low PC and internet penetration rates, along with low telephone density and securityconcerns, still hold back the development of e-commerce. Table of Contents
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