UAE IT spending is forecast to start to recover in 2010, although significant uncertainty still surrounds the economic situation. UAE spending on IT products and services is now projected to reach US$3.0bn in 2010, with single-digit growth from last year, when there was a steep decline expected in hardware sales. The UAE IT market has received a double hit from the current economic uncertainty, which has impacted both domestic and export demand. WE expected demand to pick up in the second half of 2009, however. A seasonal upturn in the fourth quarter should be reinforced in 2010 by a revival of business procurement, delayed from earlier last year. PC vendors reported improved sales in Q309 compared with the first half of the year.

UAE economic growth is projected to be positive in 2010, but the property price slump and financial upheavals of late 2009 were likely to reinforce business and consumer caution. A number of fundamental drivers of IT spending, including local and federal government initiatives, significant population growth and development of non-oil sectors, should help to prevent market stagnation.

Industry Developments
In September the Jordan-headquartered Arab Bank announced that it had relocated its Gulf and Yemen back-office operations to the Dubai Outsourcing Zone, with the operation estimated to employ 300 staff. The Dubai Outsourcing Zone initiative was expected to attract more outsourcing business to the UAE, with attractions including 100% exemption from taxes.

In April 2009 the UAE Ministry of Education announced an AED79mn allocation for 2009 for an initiative to supply computers and internet to state schools. Concerns had been growing that state schools were lagging behind private schools in terms of utilisation of IT and internet. The government will collaborate in this initiative with Netgear.

Another key area for federal IT spending will be healthcare. The federal government's Wareed healthcare IT initiative aims to establish a completely integrated electronic platform linking 13 state-run hospitals and their 67 affiliated clinics across the country. Starting from July 2009, two new hospitals are expected to be added to the system on a quarterly basis.

Competitive Landscape
Despite the challenging trading conditions in 2009, HP said that it expected a slight increase in year-onyear (y-o-y) shipments and planned to boost sales in H209 with new releases of notebooks at sub- US$1,000 price points. Korean giant LG said that it had performed positively in the UAE market, which was one of its best markets in the region in 2009. The company expected to ride out the slowdown to achieve 5% y-o-y growth in the UAE market in 2009 and has set a target for 2010 of 20%. In 2010, software market leader Microsoft hopes that sales of its Windows 7 operating system, launched in October 2009, will boost its sales in the UAE market. The home version of Windows 7 was released in the UAE at the price of 477 dirhams. The product received strong promotion at the Gitex Shopper 2009 fair, and PC vendors including Lenovo reported interest.

Software vendors are focused on opportunities in the fast-expanding retail segment. In September 2009, SAP signed a deal to supply major retail group EMKE Group with its BusinessObjects solution. The software will allow EMKE to collate products data from its chain stores. Meanwhile, Microsoft won a contract from Aswaaq, the UAE's largest chain of supermarkets, to implement Microsoft's Dynamics Navision enterprise resource planning (ERP) solution.

Hardware
UEA computer sales including PCs, notebooks and accessories are projected at around US$1.6bn in 2010, with a return to positive growth following a contraction in 2009. The segment is forecast to grow at a CAGR of 9% between 2009 and 2013. The UAE computer hardware market has been among the hardest hit in the region by the global recession.

PC shipments were down in 2009, but despite the global economic slowdown, more than 440,000 units were expected to be sold last year. In the second half of 2009, there were some signs of the market picking up. Leading electronics retailers Sharaf and Jacky's Electronics reported that sales had stabilised in July in terms of volume sale and were achieving solid growth. Stronger demand in the notebook sector will remain the main factor driving retail segment growth, as consumer sales feel the benefits of aggressive channel promotions.

Software
We forecast that the UAE's software spending will be around US$548mn in 2010. The UAE is one of the region's fastest-growing ERP markets, as more businesses realise the benefits of efficient management of resources within their internal processes. Manufacturing and trading firms are both seeking efficiencies by transitioning from manual environments to full automation of back-office systems. Customer relationship management (CRM) is another growth area, with fewer than 2% of SMEs in the Middle East region having a specialised CRM application in place.

In the short term, the economic slowdown represents a challenge to software vendors, as enterprises are tempted to focus more on the bottom line. Oil and gas is one sector that has been hit particularly hard by the precipitous fall in oil prices since mid-2008, but we predict plenty of room for growth in the forecast period as numerous untapped sub-sectors still exist, and there is growing demand for industry specific solutions.

IT Services
We predict that IT services growth will remain in positive territory during the 2010-2014 period. Spending will rise from a forecast US$892mn in 2010 to around US$1.4bn in 2014. IT services revenues' compound annual growth rate (CAGR) over the 2010-2014 period is expected to be 12%. Services have become an increasingly important component of many deployment contracts, as evidenced by recent projects by leading UAE corporations such as Emirates Airlines and Etisalat.

In early 2009 there were reports of IT managers in various sectors looking to cut costs. However, in some cases the emphasis was often more on scaling back projects by 10-20% rather than cancellation. In the government sector, budgets have often already been commissioned, and so the effects were more likely to be felt in the second half of 2009 and in 2010. Much will depend on the speed of global economic recovery and the future trend of oil prices.

E-Readiness
The Emirates benefits from a good regulatory environment and clear government leadership in IT and promoting its use. Although both dial-up and broadband internet connections are expected to continue growing over the next five years, broadband growth is expected to outpace the growth of dial-up connections and will likely cause the dial-up sector to enter a period of gradual decline. Price cuts by both Etisalat and du have helped to drive growth forward by making broadband services more affordable – particularly for residential customers. In January 2008, Etisalat announced that it had completed the first phase of deployment of its fibre-to-the-home (FTTH) network. Looking ahead, local telecoms companies du and Etisalat both plan to launch WiMAX wireless services, and we expect this to give the market another major boost.