Argentina Information Technology Report Q2 2009

Market Overview The Argentine IT market is the second largest in the Latin America region and despite the current economic crisis is still projected to grow at a CAGR of 8% over the 2008-2013 period. The total value of IT spending on IT products and services should pass US$4bn in 2011 and reach nearly US$5bn by 2013.

There was a slowdown in demand in both enterprise and retail sectors in H208, but a PC penetration rate of around 22% currently indicates plenty of room for growth.

The overall economic outlook is mixed for IT spending, with the devaluation of the local currency against the US dollar, and deteriorating business sentiment, contributing to a marked slowdown in H208. 2009 is likely to be a difficult year for IT vendors, with negative real growth projected for both investment and private consumption. Despite these factors, however, some fundamental drivers underlie projections that the market will remain in positive growth territory.

The consumer computer segment should continue to be a growth driver due to rising incomes, expanding retail channels, and more flexible terms from retailers. The growing penetration of credit cards, and the availability of VAT rebates on payments made by debit cards, have also helped to grow spending.

Government spending will remain a counter-cyclical support to the IT market.

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. Following similar developments in Mexico and elsewhere in Latin America, Argentina’s fixed-line incumbent Telecom Argentina has begun to sell laptops with its broadband services. Prices for a basic laptop with WiFi connections start at US$56.16 a month on top of the ARS39.9 monthly charge for broadband access.

SAP Argentina, on the back of a 20% rise in Latin America revenues in 2008, said that in the Argentina market it would focus on government and financial sector opportunities in 2009. Meanwhile, software market leader, Microsoft Argentina, expected revenues to rise 24% to around US$100mn in its fiscal year 2009, which ends June 2009. 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 and channels. 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, IBM recently signed an agreement with Chilean systems integrator Synapsis to jointly offer data centre solutions in Argentina and other regional markets.

Computer Sales report projects that Argentina’s computer and accessories market will have a CAGR of at around 7% over the 2008-2013 period. Annual computer sales were about 2mn units last year, and are expected to reach past 3mn by 2013. The global economic crisis, and the more expensive US dollar, contributed to a slowdown last year and there were reports of some companies and business deferring spending. However, the market should remain in positive territory due to falling prices and greater availability of credit for lower income consumers, due partly to affordable PC programmes. Other drivers include growing broadband penetration, retail channel expansion, and the popularity of notebooks and netbooks. For the last five years, the market has enjoyed double-digit growth, with PC dealers selling around 5000 units a day in 2008.

Software Argentina’s software market is estimated to have been worth US$579mn in 2008, and software CAGR for 2008-2013 is projected at around 10%, despite the bad economy and high annual software piracy losses.

Software sales are seen as rising to around US$920mn by 2013. There were reports in early 2009 of some companies scaling back non-essential investments in software. However, demand from small- and medium-sized enterprises (SME) for enterprise resource planning (ERP) applications should 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 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%. The economic situation is likely to have an impact on projects in some key verticals, with the effects most likely to be felt in the second half of 2009 and in 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 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 report 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.