Argentina's IT spending is projected to grow at a compound annual growth rate (CAGR) of 10% over 2009-2013, with growth expected to be flat this year before the market recovers to grow to around US$3.7bn in 2010, from US$3.5bn in 2009. Negative growth is expected in the PC segment this year.

There were signs of an improvement in retail demand in Q209, but the full-year decline could be more pronounced than our core scenario currently suggests if an expected recovery in Q409 does not materialise. In 2009 IT vendors have faced challenging trading conditions, with negative real growth projected this year for both investment and private consumption. Despite current economic headwinds, the second largest market in the region has strong growth fundamentals, including low PC penetration, rising incomes and a high-tech-focused national development plan.

Government sector spending should be one growth area in 2009, with the potential for a boost after the recession. The prospect of mid-year elections led to delays in some projects. In August 2009 the government launched a US$150mn tender for computers in schools. Meanwhile, the popularity of lower priced notebooks and netbooks has provided a growth area, with notebook sales continuing to grow in H109. Industry Developments Argentina's government continued in 2009 to roll out a number IT-related projects.

One area of spending was computers in education, with a tender launched in August 2009 for 250,000 netbooks to be distributed to students of public schools. The budget for this programme is reportedly US$150m, which, in addition to the netbooks and 1,155 servers, also covered shipment and installation. There has also been a drive to introduce e-invoicing by the government and throughout the economy. In H109 Argentina's tax agency, the Administración Federal de Ingresos Públicos (AFIP) announced that it was to introduce compulsory e-invoicing for independent professionals and others, starting in November. The introduction of e-invoicing is targeted mainly at professionals and companies with annual revenues of around US$100,000 and above. In mid-2009, controversy erupted concerning a government proposal to impose new taxes on luxury items, including notebook computers and monitors, as well as other consumer electronics products such as mobile phones.

The government said that the intention behind the proposed tax hikes was to provide assistance to the electronics manufacturing hub of Tierra del Fuego, which has been hit by the global electronics demand slowdown. Competitive Landscape In 2009, as a result of the economic crisis, leading vendors such as HP and Dell have adjusted their Argentine market strategy, particularly for the business segment. Leading local PC manufacturer Sicsa was among vendors to report an increase in orders during the second quarter of 2009. Sicsa has announced plans to modify its strategy to increase the sale of its revenues that comes from direct sales to verticals like the government and banks. Currently around 80% of Sicsa's overall sales come from the retail segment. Software market-leader Microsoft Argentina expected revenues to rise 24% to around US$100mn in FY09, which ended in June 2009. Microsoft hopes that the launch of its Windows 7 operating system, scheduled for October 2009, will boost its local sales. FY09 brought changes in the structure of Microsoft Latin America, which involved establishment of some new country subsidiaries, including Microsoft Argentina.

IT services vendors have responded to an evolving market by investing in infrastructure, developing new services and reaching out to new segments. In September 2009, Indian IT giant Tata Consultancy Services (TGS) opened a new global delivery centre in Buenos Aires, which will initially employ 250 staff. Meanwhile, earlier in 2009, IBM's IT outsourcing centre in Buenos Aires was upgraded to global delivery centre status, as one of the top IBM IT services centres worldwide. Computer Sales BMI projects that Argentina's computer and accessories market will have a CAGR of around 8% over 2009-2013, reaching around US$2.1bn by 2013. Argentine sales of computer hardware are projected to experience negative growth in 2009 following sharp year-on-year (y-o-y) declines in volume sales in H109. In H109, volume sales suffered a double-digit percentage decline, with lower sales of desktops the main driver. The steepest decline came in Q109, and by Q209 there were signs of recovery, with retailers increasing their orders.

Despite the challenging environment for PC vendors in 2009, there are still some opportunities. In particular, government sector spending is one growth area, with a continuation of PC procurement at national and provincial levels. Other drivers should include greater availability of credit for lower income consumers, due partly to affordable PC programmes, as well as growing broadband penetration, retail channel expansion and the popularity of notebooks and netbooks. Software Argentina's software market is projected to be worth US$593mn in 2009, and software CAGR for 2009- 2013 is forecast at around 12% despite the economic climate and high annual software piracy losses.

Software sales are seen as rising to around US$927mn by 2013. There were reports in early 2009 of some companies scaling back non-essential investments in software. Demand from small and medium-sized enterprises (SMEs) for enterprise resource planning (ERP) applications should continue to grow, particularly in relatively untapped provincial areas. The main functional category currently remains ERP solutions, estimated to account for more than 80% of the enterprise software total. However, vendors will increasingly look to applications such as customer relationship management (CRM) and business intelligence, where faster growth is projected.

IT Services Argentina's IT services market is forecast at around US$1.0bn in 2009 with low single-digit growth expected despite the economic slowdown. For a developing market, the percentage of IT market revenues generated by services is fairly typical at around 25%, but lower than some other countries in the region where the services share is already above 30%. The economic situation is likely to have an impact on projects in some key verticals, with the effects most likely to be felt in H209 and 2010. However, IT services revenues are expected to grow faster than for the market as a whole. Led by the financial, telecoms and public sectors, there is a trend towards bigger managed service and outsourcing deals in key sectors of the local market. However, traditional services such as desktop support are still the mainstay.

E-Readiness Argentina has one of the most dynamic telecoms markets in the region, with a dramatic expansion in the number of mobile subscribers in the past few years. Fixed-line penetration is among the highest in Latin America, providing a good platform for strong growth in broadband services adoption.