Market Overview

Malaysian IT spending is expected to dip into negative growth territory in 2009 before recovering to grow to around U$4.5bn in 2010, from US$4.3bn this year. Despite a difficult economic and political situation, the market has strong growth fundamentals, including low PC penetration, rising incomes and a hightech- focused national development plan. BMI expects a market upturn in H209 after continued signs in H109 of the market being affected by the global economic slowdown. The Malaysian IT market is now projected by BMI to grow at a compound annual growth rate (CAGR) of 9% over 2009-2013. Recovery may be boosted in H209 by faster distribution of stimulus money and possible IT-friendly 2010 budget measures, but much will depend on the extent of the economic downturn and speed of recovery. There are increasingly attractive opportunities in the IT services area as the government implements measures to grow Malaysia as a regional services hub. There are several potential PC market growth areas, including netbooks and entry-level servers for small businesses. The government has a number of long-term initiatives with favourable implications for demand for IT products and services, including investment in broadband infrastructure.

Industry Developments

In the run-up to the 2010 Malaysian budget, Malaysia's IT industry bodies lobbied the government for the inclusion of various measures to boost the IT industry. The Association of the Computer and Multimedia Industry in Malaysia (Pikom) called on the government to acknowledge that information and communication technology (ICT) accounts for more than 10% of national GDP and to implement measures to stimulate demand and support local IT companies. Among specific measures requested by Pikom were tax exemptions for purchases of hardware and software used in the delivery of IT services. Despite the economic crisis, the government has continued to make progress in some elements of its egovernment plan. In 2009, around 1.5mn e-tax returns were filed online ahead of the April 30 2009 deadline, up from around 189,000 in the first year that the services were available. The total cost of the system over the past three years was around MYR34.7mn, with all of the e-forms being developed inhouse. In 2009, the Malaysian government continued its efforts to promote adoption of open source software through government agencies, although the target for achieving this appears to have slipped. In April, the Malaysian Administrative Modernisation and Management Planning Unit (MAMPU) said that it expected all government agencies to have implemented open source software by end-2010.

Competitive Landscape

Despite the economic crisis, many computer vendors remained positive about their prospects in the Malaysian market. Acer Malaysia has said that it would target 20% revenues growth in 2009, similar to its performance in 2008. Meanwhile, Lenovo said in September 2009 that it saw significant potential in the Malaysian market, which it has targeted as a priority emerging market on account of projected growth in PC penetration. Microsoft claimed to be confident about the prospects for its new Windows 7 operating system in Malaysia as it prepared for the launch, scheduled for October 2009. As grounds for its optimism, Microsoft pointed to Malaysia's large installed base of around 10mn, mainly Vista users. The company expected this total to increase to 20mn within the next decade. Microsoft also anticipated that the release of Windows 7 would help to drive Malaysia's broadband penetration to 50% in 2010. Industry-specific applications are a 2009 vendor focus. In August 2009, SAS signed a deal with Bank Islam Malaysia to implement a risk-management system as part of the bank's five-year MYR100mn plan to overhaul its IT systems. Meanwhile, IBM's first software development lab in Malaysia will focus on solutions for communications service providers and was expected to employ around 150 staff by end- 2008.

Computer Sales

BMI forecasts that computer hardware sales, including notebooks and peripherals, have a value of US$2.27bn in 2009, down from US$2.33bn in 2008. Trading conditions were challenging in H109, but BMI expects conditions to improve towards the end of the year. Stimulus spending and a potentially ITfriendly 2010 budget could create the conditions for an upturn in Q409, which would be expected to grow stronger in 2010. Growing affordability of notebooks and netbooks has helped to counter shipments stagnation and provided an area of opportunity. PC sales will be supported by the government's push for greater broadband penetration, for which an optimistic target of 50% by 2010 has been sent. Other factors include ICT in education programmes and a number of e-government initiatives. The government is determined to tackle the digital gap beyond the Klang Valley area and is rolling out an extensive network of community PC centres. One of the targets of the plan is middle-income potential computer owners who have the ability to afford a PC. Such programmes, together with falling prices, are opening up the market to lower income tiers.

Software

Malaysia's software market revenues are expected to dip to US$709mn in 2009, down slightly year-onyear (y-o-y) due to the current economic headwinds. BMI expects a mild pick-up in sales in H209, but with longer sales cycles as businesses remain cautious and focused on return on investment (RoI). The launch of the Windows 7 operating system, scheduled for October 2009, also has the potential to impact positively, although much will depend on consumer and business confidence. By 2013 we see software spending rising healthily to US$1.1bn with a software CAGR for 2009-2013 in the region of 12%. E-business applications such as enterprise resource planning (ERP) and finance are finding increasing popularity with the business market as enterprises look to enhance productivity through automating accounting and other functions. Customer relationship management (CRM) is expected to be a double-digit growth opportunity despite the economic downturn.

IT Services

IT services spending, excluding telecommunications-related spending, is forecast to reach around US$1.3bn in 2009, up slightly from 2008. IT services are expected to be the one bright spot for the IT market this year, remaining in positive growth territory. However, the financial crisis and government retrenchment seems likely to have an impact this year, with a number of projects being cancelled or postponed. Over 2009-2013, the most potential for large projects is likely to be in key sectors such as financial services, oil and gas, telecoms and agriculture. The government has accounted for around 15% of IT spending in recent years. The upgrade of core banking systems will drive bank spending on application services. Meanwhile, the government continues to try and create a more competitive environment in the telecoms sector, pushing newly licensed WiMAX operators to roll out services.

E-Readiness

Malaysia is developing at a steady rate on most 'e-society' indicators. The government is pursuing programmes to reduce the digital divide between urban and rural areas. The Ministry of Rural and Regional Development is co-operating with the Ministry of Science, Technology and Innovation and Malaysia's IT industry association on plans to establish more community PC centres in the country this year. Nearly 2,000 such centres are already managed by the Economic Planning Unit (EPU). The programme recognises that many of those who do not own a PC at present are capable of ownership and are hoping to use the programme to draw them in. The growing popularity of broadband after a slow start is set to be an important drive of PC penetration over the next few years. To encourage faster penetration, the government has awarded WiMAX licences to a number of service providers, including ISP Jaring. Recently, Telekom Malaysia was awarded a MYR11.31bn contract to roll out a high-speed broadband network. The government will invest MYR2.4bn, and Telekom will foot the rest of the bill. This money is only for the first phase, and the project will be implemented over 10 years.