Argentina Information Technology Report Q3 2009

The report has downwardly revised its latest Argentina IT forecast because of increasing signs in H109 of the market being affected by the global economic slowdown. Spending growth is expected to be flat in 2009 before it recovers to grow to around US$3.7bn in 2010 from US$3.5bn this year. Negative growth is expected in the PC segment.

The Argentina IT market is now projected to grow at a compound annual growth rate (CAGR) of 10% over 2009-2013. Despite a difficult economic and political situation, the second largest market in the region has strong growth fundamentals, including low PC penetration, rising incomes and a high-techfocused national development plan. Recovery may begin by end-2009, but much will depend on the extent of the economic downturn and speed of recovery.

Government sector spending should be one growth area this year, although the recession and the prospect of mid-year elections led to delays in some instances. Larger enterprises seemed more likely to maintain IT hardware spending levels, but a survey conducted in H109 by Microsoft indicated that around half of Argentine small and medium-sized enterprises (SMEs) were still considering new IT investments this year.

Industry Developments

In mid-2009, Argentina's congress was considering a controversial government proposal to impose new taxes on luxury items, including notebooks, monitors and other consumer electronics products. The new tax rate would mean that consumers pay around 20%-25% in taxes on products such as notebooks compared with the current 17%. VAT would also rise to 17% from the current rate of 10.5%, according to reports.

Argentina's government was continuing with a number of information and communication technologies (ICT) e-government projects in 2009, despite the bad economic situation. One area of spending in this year has been computers in education, with a tender confirmed for 250,000 notebooks to be distributed to students of public technical schools, starting in June. The budget for this procurement, the first batch in the one PC per student program, was US$85mn.

In 2009, the local software and IT services sector in Argentina was facing difficult times as a result of the economic slowdown. Industry sources projected that sector growth would be sharply down in 2009, with software and services chamber, the Cámara de Empresas de Tecnologías de Información de Argentina (CESSI), predicting 12.5% overall growth compared with one-third growth in 2008. Last year, the sector grew to sales of around ARS7.74bn while exports exceeded US$500mn.

Competitive Landscape

In 2009, as a result of the economic crisis, leading vendors such as Hewlett Packard (HP) and Dell were adjusting their Argentina market strategy, particularly for the business segment. Vendors were offering more flexible contracts, allowing for the needs of individual clients in the current environment. In the retail segment, many retailers and vendors slashed prices significantly despite low margins, but there were signs by mid-year that prices had stabilised.

In 2009, Dell has been targeting government sector opportunities due to slower growth in consumer and enterprise segments. The company has said that it is well positioned to win public sector contracts and has a tender to supply 20,000 PCs. The bigger picture over the past couple of years, however, has been Dell's distribution agreements with local retailers, such as Garbarino and Compunundo, as part of the company's attempts to increase retail sales.

The economic slowdown may generate more opportunities for vendors of open source software. In 2009, Argentine state oil company Yacimientos Petrolíferos Fiscales (YPF) migrated its proprietary software to Red Hat Enterprise Linux 5, saying that it had made the decision to reduce costs and increase efficiency. Meanwhile, software market leader, Microsoft Argentina, expected revenues to rise 24% to around US$100mn in FY09, which ended on June 2009.

Computer Sales

The report sees Argentina PC sales falling to US$1.89bn in 2009 due to a combination of a slowing economy and local currency depreciation. The full-year decline could be more pronounced if an expected recovery in Q409 does not materialise. In Q109, volume sales suffered a double-digit percentage decline, according to vendors, and this was followed by a further high single-digit fall in Q2.

The report projects that Argentina's computer and accessories market will have a CAGR of around 8% over 2009-2013, reaching a value of around US$2.1bn by 2013. 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 bad economy 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 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 however 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 slower growth expected due to 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. According to the estimates, the number of Argentine internet users was 14.2mn in 2008, or 35.7% of the population. The percentage of broadband subscribers in the general population was 7.9%, with 3.2 million subscribers.