Argentina Information Technology Report Q1 2009

Market Overview The Argentina IT market is the third largest in the Latin America region and despite a continued slowdown in 2009 is projected to grow at a compound annual growth rate (CAGR) of 11% over the 2008- 2013 period. There were signs of a decline in demand in the retail sector in H208, but a PC penetration rate of around 22% currently indicates plenty of room for growth. The market is, however, characterised by significant income and geographical disparities.

The total value of IT spending on IT products and services should pass US$4bn in 2010 and reach nearly US$6bn by 2013.The overall economic outlook is mixed for IT spending, with the consumer-driven growth of recent years cooling due to higher inflation and power costs restraining real wage growth.

Despite these factors, government spending will remain a counter-cyclical driver and key support to the IT market, with cheap computer programme accounting for around 10% of PC sales in some quarters.

The consumer computer segment should continue to be a growth driver due to rising incomes, expanding retail channels, and more flexible terms from retailers. Other drivers are expected to include growing internet and broadband penetration, government programmes, an expansion of retail channels, falling piracy rates and a shrinking ‘grey’ market. The current economic crisis may lead some companies to cut IT budgets or defer systems updates, but others will see IT as a way of bringing greater efficiencies and increasing competitiveness in difficult times.

Industry Developments 2008 saw the continuation of government efforts to expand computer penetration. Regional governments are launching their own IT development campaigns, which complement central government initiatives.

Buenos Aires province rolled out an IT Action Plan 2008-2011. Buenos Aires governor Daniel Scioli said that he wants to make the province a leading supplier of software and IT services. The province accounts for at least 60% of Argentina’s IT spending.

Meanwhile in Q408 the government of the province of Santa Fe opened bids on a contract to build computer labs in public schools across the province. The estimated 43 labs will be constructed in the interior parts of the province as well as in the major cities of Santa Fe and Rosario. The government has allocated more than ARS5mn to the project from its education improvement fund.

The national government is continuing to invest in e-services. In 2008 there was a drive to introduce einvoicing by government and throughout the economy. Argentina’s tax agency AFIP announced that it was to introduce compulsory e-invoicing for some groups, starting in November. Last year certain other types of company including satellite TV and mobile network operators also started issuing e-invoices.

Competitive Landscape Argentina’s consumer PC segment is an increasingly important competitive battleground. Dell Argentina expected consumers to account for 20% of its local sales in 2008. In November 2008 Dell Argentina was targeting households with new PC products built with Intel Centrino 2 processors. Earlier in 2008, Dell started selling through local branches of Wal-Mart , following distribution agreements with local retailers Garbarino and Compunundo.

Software market leader Microsoft Argentina expected revenues to rise 24% to around US$100mn in its fiscal year 2009, which ends June 2009. Fiscal 2009 brought changes in the structure of Microsoft Latin America, which involved establishment of some new country subsidiaries including Microsoft Argentina.

Despite the global economic slowdown, Microsoft said that it planned to continue hiring in Argentina, and was also drafting a financial assistance plan for partners.

IT services vendors are responding to an evolving market by developing new services. IBM Argentina said that it had developed new solutions in response three local market trends: the increasing mobility of data, rising energy costs, and increased concerns over IT security. Meanwhile the Argentine unit of Atos Origin, traditionally strong in auto, manufacturing and government sectors, was also planning to target new areas including telecoms. Atos anticipated that revenues growth would fall to 8% in 2009, from 25% in 2008.

Computer Sales BMI projects that Argentina’s computer and accessories market will have a CAGR of around 9% over the 2008-2013 period. For 2008, market revenues were estimated at US$1.5bn, and should be approaching the US$2.5bn mark by 2013. The main drivers are falling prices and greater availability of credit for lower income consumers, due partly to accordable PC programs. Other drivers include growing broadband penetration, as telecoms companies such as Telefónica partner vendors to offer customers PC and connectivity packages. However, BMI sees the market slowing in 2009 due to a combination of inflation, which is cutting into real wage growth, rising energy costs, and a slowing economy. For the last five years, the market has enjoyed double-digit growth, with PC dealers selling around 5000 units a day in 2007. The consumer segment was expected to grow 80% in 2008, as compared with 50% for the corporate sector.

Software Argentina’s software market is estimated to have been worth US$194mn in 2008, and the figure for 2009 is expected to come out at around US$195mn. Software CAGR for 2008-2013 is projected at around 13%, despite high annual software piracy losses. Enterprise software accounts for around half of total software revenues. Demand from small- and medium-sized enterprises (SME) for enterprise resource planning (ERP) applications will remain robust, as many companies build on earlier investments in infrastructure and basic systems. The economic slowdown may encourage enterprises to treat software as a strategic area to enhance productivity. Investment by larger companies has been relatively weak since the financial crisis of 2001, but as these companies invest in updating their systems, this will give further impetus to the market. The main functional category currently remains ERP solutions, estimated to account for more than 80% of the enterprise software total.

IT services Argentina’s IT services market is estimated to have grown around 14% in 2008 to around US$971mn, with slightly slower growth expected in 2009. 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%. However, IT services revenues are expected to grow faster than for the market as a whole, with CAGR for the 2008-2013 period in the mid double-digit range. 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 of the market.

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. According to BMI estimates, the number of Argentine internet users was 14.2mn in 2008, or 35.6% of the population. The percentage of broadband subscribers in the general population was 7.8%, with 3.1mn subscribers.