Chile Information Technology Report Q1 2009

Market Overview

The Chilean IT market is one of the most developed in the Latin America region and despite a problematic economic outlook is projected to grow at a compound annual growth rate (CAGR) of 10% over the 2008-2013 period. The overall economic outlook for 2009 presents some risks to investors, with signs of a sharp decline in economic Activity and falling demand for Chile’s commodity exports. However, BMI’s view is that the fundamentals of growing affordability and low PC penetration will support market expansion over the forecast period.


While only around one-tenth the size of Brazil’s IT market, the total value of Chilean domestic spending on IT products and services should pass US$2.2bn in 2009 and US$3.4bn by 2013. A PC penetration rate of around 18% indicates plenty of room for organic growth. Government programmes provide an important context for market development. The government’s Digital Agenda 2.0 (for 2007-2010) groups together multiple initiatives to promote technology use in areas ranging from e-government to education and businesses.

Despite an anticipated contraction in consumer spending in 2009, the retail sector should continue to contribute in terms of PC sales growth due to more financing options for consumers, and more outlets. The enterprise sector represents an evolving opportunity in the forecast period, with relatively low levels of investment currently relative to some countries in the region. The economic slowdown in the US should increase demand from US companies for Latin America-based outsourcing solutions.

Industry Developments

In 2008 the Chilean government launched a major programme to promote IT use among small-to medium-sized enterprises (SMEs). The programme, backed by the Economy Ministry, was budgeted at CLP3bn, with CLP1.8bn coming from the government and the remainder from regional governments. The programme is particularly targeted at SMEs which operate in the food, agriculture and tourism industries. The government hopes that the programme will assist SMEs to raise their productivity levels and compete in export markets.

The Chilean government, led by Chile’s economic development agency, CORFO, also planned to invest US$11.7mn in 2008 to help establish Chile as an offshoring services location. In November 2007 the Chilean government established a new council to lead this campaign. The government’s National Innovation Council had identified the offshore industry as one area with high growth potential for the next decade. The government has a target for export of IT services to reach US$1bn by 2010.

Chile is likely to see changes to its intellectual property framework. Changes to Chile’s IP laws were made as recently as January 2007, but were widely considered insufficient. There is general agreement on the need for further reform, but new anti-piracy proposals which are currently under discussion have attracted criticism from IT companies for being too lenient.

Competitive Landscape

Chile’s status as one of the fastest growing PC and notebook markets in Latin America means new strategies from vendors. In 2008 Dell pursued an aggressive expansion in the retail segment, implemented through new partnerships with retail chains, and an expansion of its distribution agreement with local retailer Ripley. Meanwhile, Lenovo was also looking to expand its retail sector presence through new channel partnerships.

Turning to software, European giant SAP saw Chilean market growth in 2008 driven by SMEs, which it was targeting with a new online delivery solution ‘Business All-in-One Fast-Start’. Regionally, SAP expected a 30% growth in sales in its new Multi-Country Latin America division (MCLA) in 2008, and reported 104% growth year-on-year (y-o-y) in the SME market. SAP expected MCLA’s revenues to be lower in 2009, although not stagnant.

Global vendors continued to win major contracts in the Chilean IT services market. In 2008, IBM won a five-year contract from Chile Universidad de Los Andes valued at around US$30mn, to provide IT architecture implementation services, including a data centre and systems built on an SAP platform. IBM also expanded its contract with telecoms operator Telefónica Chile to operate and provide technical support, back-up and disaster recovery until 2011.

Hardware

BMI projects that Chile’s computer and accessories market will have a CAGR of around 8% over the 2008–2013 period. Computer sales in 2008 were put at US$775mn, and despite an anticipated slowdown in consumer demand in 2009, should pass the US$1bn mark by 2012. The main long-term drivers of growth in the PC segment are lower prices and greater affordability. Sales should reach around US$819mn in 2009. The fastest-growing segment is notebooks, which were around 600,000 units in 2007 and already account for 50% of the market by value. Government announcements of new funding to subsidise internet coverage expansion in 2008-2009 should help avert stagnation in the PC market. Meanwhile, demand for ‘Green IT’ is being fuelled by high power costs faced by businesses.

Software

Chile’s software market is estimated to have been worth US$166mn in 2008, and the figure for 2009 is expected to come out at close to US$164mn. Software CAGR for 2008-2013 is projected at around 11%. A slowdown in export markets and tighter credit conditions will lead some companies to cut IT budgets or look to defer systems updates. Other companies, however, will see IT as a way of bringing greater efficiencies and increasing competitiveness in difficult times. Piracy was estimated to account for 69% of software in 2006, but since 2007 the government has mounted a more sustained campaign to reduce this.

IT Services

Chile’s IT services market is estimated to have grown around 15% in 2008, to a value of about US$828mn, with somewhat slower growth expected in 2009. The percentage of IT market revenues generated by services is currently around 37%, high by emerging market standards, but similar to other countries in the region such as Brazil. The majority of demand, around 75%, still comes from the large company sector, but smaller companies are also now becoming more sophisticated in their demand. Led by the financial, telecoms and retail sectors in particular, there is a trend towards bigger managed service and outsourcing deals in the local market. Due to the financial crisis, financial services organisations’ IT budgets could be expected to be cut. However, the global economic slowdown could increase demand for outsourcing from some US financial organisations.

E-Readiness

According to BMI estimates, internet penetration reached 35.5% in 2008 and was expected to pass 40% by 2013. Broadband penetration is rather lower at around 10.2% for 2008. The government is planning to increase options by auctioning 3G mobile and fixed wireless (WiMAX). For 2008-2009 the government has allocated US$80mn to support projects aimed at boosting internet coverage. The telecommunications regulator Subtel also planned to launch a new universal access fund in 2008.

In general, Chile enjoys some of the best telecommunications infrastructure in South America. The World Economic Forum ranked Chile 31st in the world in its most recent survey of ‘degree of preparation to participate in and benefit from information and communications technology’; the highest ranking in the Latin America region. However, the report concluded that Chile’s e-development was held back by some familiar failings including an inefficient government bureaucracy and over-regulation.