Philippines Information Technology Report Q4 2009

Market Overview

BMI expects the Philippine IT market to be a regional outperformer over the next few years, with spending increasing from a projected US$2.4bn this year to around US$3.6bn in 2013. The Philippines has a lower PC penetration than many other Asian countries and offers correspondingly high growth potential over the forecast period, particularly with support from government digital divide and other information and communication technology (ICT) programmes. There were signs of consumer and business segment IT spending retrenchment in H109, due to the current economic uncertainty. Real private consumption growth is forecast to dip to just 1.2% this year, as Filipino consumers curb spending in anticipation of hard times ahead. Meanwhile, enterprise IT spending has also been affected by the credit crunch and lower demand in export markets, with reports of budgets being cut and hardware replacement cycles lengthening. In H109, however, these negative factors were in part offset by a number of positive market drivers. In particular the business process outsourcing (BPO) industry, which accounts for around 30% of IT spending, continued to grow. BMI projects IT spending compound annual growth rate (CAGR) at 11% for 2008-2013, reflecting the fundamental market equation of rising incomes and low PC penetration. Per capita IT spend was estimated at just US$25 in 2008, far lower than in other Asian countries such as Malaysia, and even China. It is forecast to rise to US$36 by 2013.

Industry Developments

In July 2009, the Commission on Information and Communications Technology (CIFT) unveiled a new low-cost desktop that it described as integral to the government's ICT programmes. The Nettop ng Bayan, developed in co-operation with Intel, comes with a widescreen LCD monitor, but no bundled internet connection or software. The new computer is to be affordably priced at around PHP10,800, and it is hoped that this will attract price-sensitive consumers. In H109, despite the economic crisis, various government organisations proceeded with projects designed to facilitate delivery of e-services. The Bureau of Customs announced in September 2009 that its Electronic-to-Mobile (e2m) project, to introduce paperless transactions for processing imports documents, will have been implemented in nine ports by the end of the year. The e2m project is just one part of the PHP500mn computerisation programme being undertaken by the Bureau, which accounts for around 25% of the government's tax revenues. One of the biggest challenges for the government is to continue to ensure a supply of HR with appropriate IT skills. In a policy address in August 2009, President Arroyo cited the provision of low-cost desktops to public high school teachers and students as one of six priority areas for her cabinet. The Department of Education, under Chief Jesli Lapus, has unveiled a plan to provide computers in an additional two hundred schools, split evenly between elementary and high schools.

Company News

HP and Acer remain the leading PC brands in a market where 'white boxes' dominate. In H109, multinational PC vendors were generally optimistic about the Philippine market, despite the slowdown. Acer claimed to have largely escaped any local market impact from the global economic crisis and expanded its presence across desktop and notebook segments with more product releases. Meanwhile, Lenovo said in mid-2009 that signs of recovery were now in sight and was focused on opportunities in the small and medium-sized enterprise (SME) sector, which is anticipated to become a fierce battleground for vendors. Meanwhile, software vendors see the SME segment as one of the most promising segments going forward. In 2009, Microsoft said that SMEs, which comprise over 90% of registered businesses in the country, were its fastest-growing segment. The company recently launched a scaled-down version of the Windows Server 2008 operating system for businesses. IBM Philippines has also said that SMEs will be a major focus for it in the country, commenting that they have found 'huge potential'. A key part of IBM's strategy for the sector is to provide financial assistance through IBM Global Financing (IFG). Meanwhile, Oracle is also marketing e-business suite applications for SMEs with the selling point that the applications are platform independent.

Computer Sales

BMI forecasts 2009 Philippines computer hardware spending of around US$1.5bn, which is expected to rise to US$2.3bn by 2013. Consumer demand exceeded expectations in H109, but the economic uncertainty, and expected slowdown in remittances due to a weaker global economy, is still projected to dampen retail spending in H209. Meanwhile, the slowdown, and credit tightening, has also had an impact on hardware spending in the enterprise sector, with the computer replacement cycle stretching for some companies. These negative growth factors should be at least partly compensated for by developments elsewhere. Jobs in the IT industry, particularly the BPO sector, are projected to grow by 20-25% this year, thus driving demand for hardware. Government procurements are also providing relief, with a number of egovernment and public sector computerisation programmes. Education initiatives such as the Department of Education's new Laptop for Teachers programme will help to sustain spending in this segment.

Software

BMI expects software spending to stay in positive growth territory in 2009, with revenues of around US$260mn. Growth should be maintained over the next few years, as BMI projects a CAGR for the software sector over 2009-2013 of around 11%. Software accounted for about 11% of IT spending in 2008 by BMI estimates, and sales will grow as higher PC ownership and internet penetration fuel demand for software. Meanwhile, vendors are exploring new channels to reach the SME segment, such as Saleforce.com and Intel's current co-operation with telecoms company PLDT. Much will depend on success in combating the software piracy rate, which was put by the Business Software Association at 69% in 2008. Open source software is on the rise and is being preinstalled in the PCs to be sold under the new PC4ALL programme.

Services

Growth in the IT services sector continues to be driven by the IT-enabled services sector, particularly BPO and call centre services. BMI forecasts a value of US$614mn in 2009, up from US$596mn in 2008. Due to evolving demand, vendors have to pay more attention to value-added services such as technical support and product troubleshooting, or basic IT and hardware consulting. Call centres are, unsurprisingly, projected to be the biggest single source of earnings for IT service providers, accounting for around 25% of revenues. After call centres, telecommunications, financial services and manufacturing are the next most important sectors

E-Readiness

The overall number of local internet users has grown steadily over the last five years. Falling prices of PCs and internet subscription rates, partly as a result of greater market competition, have driven this growth. However, low PC and internet penetration rates, along with low telephone density and security concerns, still hold back the development of e-commerce.