Saudi Arabia Information Technology Report Q4 2009

Saudi Arabia has the biggest IT market in the Gulf region, with a forecast value of US$3.5bn in 2009 expected to rise to US$4.8bn by 2013. Despite the current economic slowdown, the Kingdom will continue to be a lucrative market for technology products and services over the forecast period as it invests to upgrade IT and communications infrastructure.

Saudi Arabia appears better placed than some other markets in the region to withstand the current global economic headwinds, but market growth is still projected to decelerate sharply in 2009, before picking up in 2010. There have been vendor reports of projects being scaled back, and many companies were looking to cut costs and letting replacement cycles stretch another year. However, Saudi Arabia's IT market has a number of positive factors that should help it avoid stagnation, including a growing population and government projects.

BMI predicts that per capita IT spend will reach US$180 by 2013, with PC penetration rising to nearly 30%. Youthful population demographics, and specific factors such as the growing popularity of e-banking, will all support consumer demand. Oil and gas will continue to be a key vertical, with sector giants such as Saudi Aramco spending on improving dataflow.

Industry Developments

In August 2009 the Saudi Council of Ministers approved the establishment of a new joint stock company called Saudi Electronic Information Exchange Company (Tabadul). The new company, which is owned by the state-run Public Investment Fund, has been created to take advantage of opportunities generated by government-driven e-projects. Major activities of the company will include installation and maintenance of IT and communications systems, as well as development, ownership and operation of such systems. In 2009, despite the economic downturn, Saudi Arabian government bodies were pressing ahead with ambitious e-government and IT projects. Among major projects, the Medical Services Division (MSD) of the Ministry of Defence and Aviation (MODA) was implementing a nationwide unified medical system. The system aimed to link all 26 MSD hospital and 68 medical centres and clinics across six of the Kingdom's regions. The Saudi Arabian State Budget 2008 placed 'special emphasis' on e-government. Spending on eadministration in Saudi Arabia is set to be worth hundreds of millions of dollars a year, as both government organisations become more aware of the potential efficiencies from applying information technology.

Competitive Landscape

In August 2009, Lenovo appointed Asbis as a new distribution partner for Saudi Arabia, saying that the move was designed to raise Lenovo's profile in the Kingdom and increase market share. Notebook segment leader Acer, which has more than 20% of the market, has also aggressively strengthened its channel infrastructure in the Kingdom, signing up new distributors such as Hasoub, Optimiza and Samir Technologies and Commercial Suppliers (SAMIR 2). Another current focus for PC vendors in the Saudi market is services infrastructure. In June 2009 Dell opened its first local distribution centre, in Riyadh, enabling a four-hour delivery service to customers. Meanwhile, in Q109 Acer reported that its new call centre had seen 100% success in its first three months of operation, with all calls to the centre answered within thirty seconds. Competition has intensified in the enterprise software market. In September 2009 SAP won a contract from Saudi's Arabia's first private power plant, NOMAC, to implement an enterprise resource planning (ERP) solution at its headquarters in Jeddah and two newly built plants. Oracle also continued to expand its client base in 2009 with recent new clients including Saudi's GO telecoms company, the newest operator in the Kingdom.

Computer Sales

Computer hardware sales including PCs, notebooks and accessories are expected to attain a value of US$1.9bn in 2009, with the segment growing at a compound annual growth rate (CAGR) of 7% between 2009 and 2013. PC sales growth in H109 remained relatively strong, despite the global economic slowdown. In 2009, consumer spending will receive support from government stimulus packages, while Saudi Arabia's growing population will also be a positive market driver. Stronger demand in the notebook sector is the main growth area, as consumer sales feel the benefits of aggressive channel promotions. Despite the economic slowdown, notebook sales grew by around 50% across the Gulf region last year, and growth in 2009 has been boosted by strong sales of netbooks. Demand for notebooks should be buoyant for several years, with the availability of wireless access technologies driving demand among small and medium businesses.

Software

The report forecasts a software market value of US$590mn in 2009, up from US$570mn in 2008. The software segment is projected to grow at a CAGR of 10% over the forecast period. Some vendors reported cutbacks in commercial purchases of software in H109, but manufacturing and trading firms continue to seek efficiencies by transitioning from manual environments to full automation of back-office systems. Oil and gas is the largest software vertical purchasing sector, followed by government and telecoms, but there is a growing interest in vertical solution in industries like retail, construction and engineering. Some large contracts have also been seen in some non-oil manufacturing sectors such as chemicals and automotive.

IT Services

The Saudi Arabian IT services market was estimated at around US$1bn in 2009 and is expected to grow at a CAGR of 9% over the 2009-2013 forecast period. The economic slowdown has inevitably had an effect on demand in some of the key IT spending verticals. These include not only oil and gas but government, education, construction and healthcare. In the near term, budgets had often already been commissioned, and so the effects were more likely to be felt in the second half of 2009 and in 2010. In H109 organisations that continued to roll out strategic IT projects included Saudi Post, private power plant NOMAC, and the Damman Chamber of Commerce.

E-Readiness

Increased public awareness of the internet, the growth of broadband services, the decreasing cost of internet access and computers (both PCs and laptops) and a wider range of internet services have all been cited as reasons for the strong internet usage growth. The widespread deployment of wireless broadband networks by the three new national fixed-line consortiums will help to drive increased broadband take-up. Although ADSL connections will play a crucial role in the development of the market, we predict that much of the new growth over the next few years will come from wireless services such as WiMAX. Investment in broadband and government initiatives has seen an improvement in e-services development and utilisation, which was reflected in the UN's most recent e-government rankings, in which Saudi Arabia rose 10 places. Meanwhile, a report released in July 2009 by consulting firm Arab Advisors Group ranked Saudi Arabia first among Arab countries for e-commerce growth. The report valued e-commerce transactions in Saudi Arabia at SAR12bn with 14.26% of the population engaging in such transactions. The report identified government support and growing internet penetration as key factors behind the growth.