In H109, the economic slowdown had a significant impact on Brazilian market PC sales, which were down by around 14%, according to local industry figures. However, Brazil's IT spending is expected to remain in borderline positive territory in 2009 and to grow at a compound annual growth rate (CAGR) of 14% over the forecast period. This makes Brazil one of the fastest growing global IT markets. BMI expects spending to pick up in Q308 with the possibility of a strong fourth quarter as a seasonal upturn is reinforced by business and government procurements delayed from H109.

Government IT procurements could be particularly significant, as there is evidence that only around 21% of 2009 IT budgets were spent in the first half of the year. Much will depend, however, on business and consumer confidence in a sustained economic recovery. After 2010, the fundamentals of low computer penetration and growing affordability should return the market to an upwards path. Despite current economic uncertainty in Brazil, a PC penetration rate of less than 25% indicates plenty of room for market growth. The overall economic outlook remains constructive for growth in IT spending, with an expanding economic lifting millions into a middle class for whom computers are no longer beyond reach.

Industry Developments

Information and Communication Technology (ICT) investment remains a key priority of the government. Among major public sector tenders in 2009 to date has been a BRL14.6mn project by the Cities Ministry to supply and install a new computer system. Meanwhile, Brazil's army issued a BRL14.6mn tender to provide update its IT infrastructure. Among other recently announced projects, Rio Grande do Sul data processing agency Procergs said that it would invest BRL30mn (US$14.7mn) this year in e-government projects. Despite substantial announced spending plans however, there is evidence that as of mid-2009, only a relatively small part of many departmental IT budgets had been spent. Government register Diario Oficial da Uniao suggested that in H109, Brazil's 68 public companies and agencies had spent only 21% of their BRL3bn IT budget. Public sector organisations appeared to be conserving resources due to the economic slowdown. In H109, the government continued to roll out its one-computer-per-student programme. The programme received a boost when Brazil's central bank authorised BRL100mn in funding for national development bank BNDES to purchase PCs through the programme. The funds will be made available to public schools for the purchase of low-cost portable computers and will also cover networking infrastructure costs.

Competitive Landscape

PC vendors negotiated with telecoms network operators on distribution deals for their portable PC products in H109. Mobile network operators TIM, Claro and Vivo have all announced partnerships with vendors to bundle netbooks with mobile data plans. Vivo has partnered with LG and Positivo to sell netbooks with 3G modems. Meanwhile, TIM offered subsidised HP netbooks. The board of Brazilian PC market leader Positivo Informatica has authorised the company to obtain a BRL200mn loan from development bank BNDES (if required) to fulfil a major PC order from the Ministry of Education. The board also approved a BRL10mn investment to expand capacity until the end of 2009. Positivo's fastest growing product segment in H109 was netbooks, with 49,600 units sold - an increase of 330% on the same period of 2008. Meanwhile, US giant HP announced that it had signed a seven-year technology and services contact with Brazilian mining company Vale SA. The value of the project was estimated at around US$1bn, although the exact value was not disclosed. Under the terms of the contract, HP will help Vale consolidate 43 data centres into three primary global centres and the company will also manage Vale's global communications network. Computer Sales Brazilian sales of computer hardware are projected to dip into negative growth territory in 2009 as a result of a continuation of unfavourable trends in H109. PC sales are projected at around US$7.8bn in 2009, with a single-digit decline from last year. According to data from the Brazilian electrical and electronics industry association, Abinee, PC sales in H109 reached 4.88mn units compared with 5.68mn in the same period of 2008. There remains considerable growth potential as the current low level of computerisation is low, with PC penetration estimated at below 25% and expected to increase to 36% by 2013. Greater affordability combined with more credit options, lower interest rates and tax concessions have driven sales. There is a sizable grey market, although evidence suggests that this has been falling in recent quarters to below 40% of unit sales. Software Brazil's software market is projected to be worth US$3.6bn in 2009, only slightly up on the 2008 figure. Software CAGR for 2009-2013 is projected at around 14%, however. The current economic crisis is leading some companies to review IT budgets or look to defer systems updates, but other companies will see IT as a means of achieving greater efficiencies in difficult times. The software sector's current growth is being driven partly by stronger demand for enterprise resource planning (ERP) solutions from small and medium-sized enterprises (SMEs). In the current economic climate, business software vendors will look to pitch efficiency gains, as declining margins encourage companies to focus on cost reductions. Meanwhile, the current environment may also provide a boost to adoption of open source software, particularly in the government sector. The government recently claimed that it had saved US$168mn in the last 12 months by using open source software in several state bodies. IT Services Brazil's IT services market is expected to continue to provide opportunities in 2009, despite slower growth, with projected total spending of around US$8.9bn. The economic situation is likely to have an impact on projects in some key verticals that have been driving IT spending. In early 2009, there were reports of IT managers in various sectors cutting or reviewing spending, particularly in less tangible services such as consulting. In the near term, budgets have often already been commissioned and government departments were proceeding to roll out a number of complex, multi-year projects despite the bad economy. Much will depend on the timing of global economic recovery, and the likelihood of IT budgets being cut will increase the longer the slowdown lasts. Brazil has an ambitious plan to become one of the world's top IT outsourcing destinations by 2010, but will have to overcome a number of challenges to achieve this. E-Readiness The World Economic Forum ranked Brazil 53rd in the world in its most recent survey of 'degree of preparation to participate in and benefit from information and communications technology', ranking Brazil fourth in the region behind Chile, Barbados and Mexico. The government recently said that 37mn elementary school children in Brazil should have access to broadband by 2010.