Brazil Information Technology Report Q1 2010

Brazilian IT spending is expected to return to a robust growth trajectory in 2010, as the economy makes a strong recovery from the recession that ended in Q209. Demand for IT products and services is projected to grow at a compound annual growth rate (CAGR) of 14% over the forecast period, making Brazil one of the best-performing global IT markets.

In 2010, double-digit PC shipment growth is expected compared with the previous year, with notebooks again leading the way. We expected a strong Q409 as a seasonal upturn was reinforced by business and government procurements delayed from H109. There was evidence that only around 21% of 2009 IT budgets were spent in the first half of the year.

After 2010, the fundamentals of low computer penetration and growing affordability should return the market to an upward path. Despite current economic uncertainty in Brazil, a PC penetration rate of less than 25% indicates plenty of room for market growth. Infrastructure investments following the award of the 2016 Olympic Games to Rio de Janeiro is expected to drive new spending on IT systems and solutions.

Industry Developments Government ICT spending reached BRL1.89bn (US$1bn) between January and July 2009. In terms of type of service, consulting accounted for about half of government ICT expenditures in the first seven months of 2009, with investment of BRL915mn. An expansion of e-government and government functions has led to an increased data flow, driving demand for renewal of outdated networks, systems and servers.

Among major tenders in 2009 was a BRL14.6mn project by the Cities Ministry to supply and install a new computer system. Meanwhile, Brazil’s army issued a BRL14.6mn tender to provide update to its IT infrastructure. Among other projects, Rio Grande do Sul data processing agency Procergs said that it would invest BRL30mn (US$14.7mn) in e-government projects.

In 2009, the government also continued to roll out its one-computer-per-student programme. The programme received a boost when Brazil’s central bank authorised BRL100mn in funding for national development bank BNDES to purchase PCs through the programme. The funds will be made available to public schools for the purchase of low-cost portable computers and will also cover networking infrastructure costs.

Competitive Landscape

In H109, revenues of Brazilian PC market leader Postivo Informatica were up 1.3% year-on-year (y-o-y) and Positivo claimed that its national market share had risen from 13.5% to 15.6%. In September 2009, the board of Positivo authorised the company to obtain a BRL200mn loan from development bank BNDES, if requried, to fulfil a major PC order from the Ministry of Education. The board also approved a BRL10mn investment to expand capacity until the end of 2009.

Business software giant SAP, meanwhile, has set a target for Brazil to count among its top five bestperforming markets within the next three years. The company said that Brazil was one of the few global markets where it was able to achieve software and services growth in the year from October 2008- September 2009. In 2010, SAP Brazil will debut a business-by-design programme for smaller businesses. IBM has the biggest share of the Brazilian IT services market and will establish a new service delivery centre in Rio de Janeiro – part of an expanded global network. In November 2009, IBM won three new government tenders, including a three-year contract from the federal data processing agency Serpo for server maintenance services, valued at BRL18.6mn (US$10.6mn).

Computer Sales

Brazilian sales of computer hardware are projected to grow robustly in 2010, following clear signs of recovery in H209 from the sharp market deceleration in the first half of the year. PC sales are projected at around US$9.2bn this year, with double-digit growth compared with the previous year. In Q309, surging laptop sales saw a reversal of the market contraction experienced in the first half of the year, with leading vendors reporting double-digit revenue growth.

There remains considerable growth potential as the current level of computerisation is low, with PC penetration estimated at below 25% and expected to increase to 36% by 2013. Greater affordability combined with more credit options, lower interest rates and tax concessions have driven sales. There is a sizable grey market, although evidence suggests that this has been falling in recent quarters to below 40% of unit sales. Software

Brazil’s software market is projected to be worth US$4.0bn in 2010, with more robust growth compared with 2009. Software CAGR for 2010-2014 is projected at around 14%. The software sector’s current growth is being driven partly by stronger demand for enterprise resource planning (ERP) solutions from small and medium-sized enterprises (SMEs), with an estimated addressable market of 400,000 small businesses.

The release of Microsoft’s Windows 7 operating system in October 2009 also has the potential to impact positively on local sales, despite business caution. Meanwhile, the recession may have provided a boost to adoption of open source software, particularly in the government sector. The government claimed that it had saved US$168mn in 12 months by using open source software in several state bodies.

IT Services

Brazil’s IT services market is expected to continue to grow strongly in 2010, with total spending of around US$9.4bn as the economy continues to bounce back from recession. For a developing market, the percentage of Brazil IT market revenues generated by services is high at around 38%, which corresponds more to developed market levels.

IBM has already estimated that 54% of its country revenues come from IT services, slightly more than its global average. Brazil has an ambitious plan to become one of the world’s top IT outsourcing destinations by 2010, but will have to overcome a number of challenges to achieve this.

E-Readiness

The World Economic Forum’s latest IT report ranked Brazil 53rd in the world in the area of ‘degree of preparation to participate in and benefit from information and communications technology’, placing Brazil fourth in the region behind Chile, Barbados and Mexico. The government recently said that 37mn elementary school children in Brazil should have access to broadband by 2010.