Singapore Information Technology Report Q4 2009

Market Overview

Singapore's IT market is projected to continue to provide opportunities in H209 despite the difficult economic climate. The total size of the domestic IT market is expected by BMI to increase from a projected US$5.0bn in 2009 to around US$6.1bn in 2013 as significant government information and communication technology (ICT) spending helps to compensate for deferred consumer and enterprise IT spending. The IT market is projected to remain in positive territory this year, although growth will be down on last year. There were signs in H109 that spending on IT and office equipment hardware was surprisingly robust despite the overall gloomy retail outlook, which saw private consumption dip by 5.1% year-on-year (y-oy) in Q109. Sales of computer hardware advanced by a low single-digit factor, according to industry estimates, driven principally by sales of low-cost notebooks. However, growth is still expected to remain subdued even as the economy makes a mild recovery in H209. Despite challenging trading conditions in 2009, there are a number of factors that will to some extent immunise against slowdown in demand. With the iN2015 plan placing IT at the heart of the government's strategy to improve competitiveness, complex government tenders will drive considerable spending in years to come in areas such as education, e-government, transport and healthcare.

Industry Developments

In 2009, the government continued to roll out its ambitious cross-governmental Standard Operating Environment (SOE) initiative, while also announcing boosts to IT spending in some key sectors, including healthcare and public sector construction. As of Q309, four agencies had begun actual implementation of SOEasy, while between 30% and 50% of public officials were estimated to have begun to utilise the centralised services. Public sector spending on ICT remained a significant source of IT market opportunity in 2009. The Singaporean government had previously revealed that it plans to invest around SGD1.73bn in ICT projects in the current financial year through March 2010. To be put out to tender were 392 new projects, with 40% of the planned projects expected to be worth more than SGD500,000. The 2009 budget pledged an additional US$4bn for healthcare, including US$200mn specifically earmarked to develop a better electronic health record system. The first phase of the electronic health record (EHR) system implementation was due to start in November 2010. The system, part of the government's IN2015 ICT masterplan, will cover hospitals and doctors in both the public and private sectors.

Company News

Against a backdrop of increased government ICT spending in 2009, IT vendors continued to compete for major tenders. As of mid-2009, the winning consortium in last year's massive SOE1 tender, One Meridian, led by HP unit EDS, had taken over the computer systems of 62 public sector agencies, although only about four had reportedly started the transformation. By the end of 2010, all 75 government agencies were scheduled to be connected to one common platform. Microsoft hopes that the launch of its Windows 7 operating system, scheduled for October 2009, will boost its local sales. However, the launch of Windows 7 was not in time for the roll-out of the latest phase of the SOEasy government project, which will be based on Windows Vista. Agencies due to implement SOEasy next year could potentially move directly onto the platform, if authorities were satisfied as to its stability. Significant opportunities for IT vendors exist in the healthcare sector. IBM Singapore is implementing a major contract from SingHealth, the nation's largest public healthcare group, to standardise hardware and software platforms. Meanwhile, New Zealand software company HSAGlobal, in co-operation with SingTel, was planning a multimillion dollar roll-out of its outpatient care solution across all SingHealth outpatient and GP clinics.

Computer Sales

Singapore's spending on IT hardware is projected at around US$2.2bn in 2009 from around US$2.1bn in 2008, with a deceleration evident as the global economic crisis impacts upon consumer and business confidence. In H109, spending remained in positive territory, even as spending on many other consumer products declined. Vendors cut prices, and there were signs in H109 that most demand in the notebook segment was being driven by sales of models, which retailed at prices of below US$1,000. According to the latest report from the IDA, 74% of Singaporean households now have a PC, and, following demand growth of close to 20% over 2001-2005, this level of saturation would be expected to act as a constraint. However, consumers have appeared willing to spend on upgrading their notebook computers, and there is a trend for households to own more than one unit. Given an expected 300% growth in broadband penetration by 2013, the increasing number of products and services available on the internet will be a major driver of demand for computer hardware.

Software

Spending on software is projected at around US$781mn in 2009 from around US$775mn in 2008. Software accounted for about 16% of the domestic IT market in 2008. The share of IT spending accounted for by software should rise to nearly 18% by 2013, with enterprises seeking greater leverage from their investments. Compliance with government and international regulations will also be a driver in financial, manufacturing and other sectors, as will the continued expansion of Singapore's e-government systems and e-commerce. Over the forecast period, enterprise resource planning (ERP), customer relationship management (CRM) and other e-business applications will find increasing popularity with the small and medium-sized enterprise (SME) market as enterprises look to enhance productivity through the automation of essential functions. Meanwhile, the launch of Microsoft's new Windows 7 operating system, scheduled for October 2009, has the potential to have an impact, although much will depend on consumer and business confidence.

IT Services

In 2009, the IT services sector is projected to be worth around US$2.0bn, with growth down compared with the previous year. IT services compound annual growth rate (CAGR) is expected to be 6% over 2009-2013. IT services accounted for around 40% of the domestic IT market in 2008 with spending of US$2.5bn forecast for 2013. Key IT spending sectors such as government, telecoms, healthcare and banking have continued to supply demand for implementation, consulting and managed services. The economic situation, and credit tightening, has had an impact on projects in some market segments, but government ICT tenders were worth an estimated US$1bn in 2008, and other verticals such as telecoms, healthcare and banking should offer areas of opportunity. In 2009, government ICT projects, such as SOE2, will again provide significant opportunities. In the last few years, there have been growing business process outsourcing (BPO)-related opportunities.

E-Readiness

The National Broadband Network (NBN) is at the core of the government's 'Intelligent Nation 2015' initiative. The contract for the first phase of the project, which will link businesses, schools, hospitals and homes, involves 45% of the network being rolled out within three years and the entire network by 2012. The IDA recently said that, within two years, 60% of homes and offices should have access to the network. The second phase of the project will place emphasis on pervasiveness and the provision of wireless access at affordable rates. The project is expected to lead to 68% broadband penetration by 2012. The NBN will be capable of offering high speeds of 1Gbps or more and aims to provide affordable broadband for 95% of all homes and businesses by 2012. Reviewing one year of the landmark Intelligent Nation 2015 (iN2015) plan in 2007, Minister for Information, Communications and the Arts Dr Lee Boon Yang said that much progress had been made but much remained to be done.

Key Issues For Investors

Further government-enforced reductions in labour costs and mandatory corporate contributions to pensions; Cuts to corporate and income taxes if the government sticks to its budgetary commitment to lower business costs; and Competitiveness is at risk of being eroded by cheap labour in China.