BMI's Executive Summary

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Market Overview

With the government's effort to drive IT adoption likely to lead to increased spending in several sectors, the value of the domestic IT market is projected by BMI to increase from US$3.9bn in 2007 to around US$6.3bn in 2012. Steady economic growth and greater affordability will support consumer demand for branded goods. At the same time, more flexible financing is encouraging spending on software and hardware by smaller companies. Tax breaks and other incentives will stimulate IT spending, which is expected to have an 8% CAGR over the 2007-2012 period. There are increasingly attractive opportunities in the IT services area, which is seeing increased investment by many vendors, and the government is also taking measures to grow Malaysia as a regional services hub. Spending will benefit from a relatively benign economic environment, as well as new funding for ICT in education.

However, Malaysia's IT market is distinguished by a marked digital divide which really makes for two separate markets. In the Klang Valley area around the capital Kuala Lumpur, a mature urban population surpasses even some developed nations in terms of IT adoption on some indicators. A recent twenty country 'Affluent Asians' survey by global market intelligence company Synovate found that Malaysians ranked first in notebook computer ownership with 50%, slightly ahead even of Singapore and Taipei. However, outside this metropolitan area, 20mn people still lack access to basic ICT infrastructure. This represents both a challenge and an opportunity in terms of future IT market development.

The government's Budget 2008 announced several initiatives with favourable implications for demand for IT products are services, including a drive to increase broadband penetration to 50% by 2010. More than a decade after the launch of the MSC project, which has established Malaysia as an important regional technology hub, the government is faced with the challenge of defending this status against increasing regional competition while at the same time responding to new technology trends.

Industry Developments

The Malaysian government's Budget 2008, which included measures to boost broadband penetration, has been broadly welcomed by the country's IT community. Among other measures, the Budget provides broadband service providers with discounts on consumer access devices including PCs. Meanwhile, there are also tax deductions for employers who buy new PCs and pay for their employees' broadband connections. The tax breaks will last until 2010.

Budget 2008 also included a number of other ICT-relevant incentives. The MCMC (Malaysian Communications and Multimedia Commission) pledged to spend MYR45mn on providing internet services to rural schools. Meanwhile, the Budget also includes measures to address potential shortages ofhuman capital within the ICT services industry. Meanwhile, the Budget proposed to simplify the issuance of work permits and entry visa for skilled workers, who will be a boon for the local ICT industry, especially SSO companies.

Competitive Landscape

Local PC brands are looking at new sales channels and strategies as they try to contend with the growing dominance of foreign brands particularly in the notebook market. Current markets leaders, including HP, Dell, Lenovo, Acer and Toshiba, increased their collective market share by about 6% in 2007 at the expense of local companies. In response, local vendors are fighting back. FTec Resources recently announced the launch of its 'Get IT' campaign aimed at lower-income consumers. The programme will offer PCs from as low as MYR9.99 per week and has been launched in collaboration with leading retail chain Courts Mammoth with 65 stores nationwide.

IT services vendors, anticipating strong growth in IT services spending in key verticals in Malaysia, are reinforcing their presence in the county accordingly. Global player Logica CMG recently announced that it is looking to use Malaysia as a base to expand its operations across Asia. Meanwhile, Indian giant Satyam has revealed that it is to make Malaysia its largest software development hub outside of India with staff capacity increasing significantly. Emerio Corporate, the Singapore based IT services provider, is to invest about US$12mn to set up a global delivery centre in Malaysia.

Computer Sales

Overall hardware spending was estimated at around US$2.3bn in 2007, and is expected to rise to more than US$2.5bn in 2008, with computer sales including notebooks and accessories more than US$1.7bn. Hardware CAGR is put at around 9% for 2006-2011. New government initiatives to drive broadband penetration to 50% by 2010 should have spill-over benefits for PC penetration and sales. Consumer demand is one of the major drivers of spending in the notebook segment at the moment with falling prices opening up new low–income tiers of the market. With household PC penetration in Malaysia still low, particularly in rural areas, the PC market should have plenty of room for growth over the forecast period, sustained by new funding for ICT in education and a number of e-government initiatives. The current high level of mergers and acquisitions activity is driving spending in the enterprise sector, where IT consolidation is still largely seen as being about hardware.

Software

For 2007, software sales were calculated by BMI at US$686mn, and with SMEs becoming more significant consumers of packaged software thanks in part to more flexible payment schemes, revenues are expected to grow to US$784mn in 2008. Software CAGR from 2007-2012 should be in the region of 11%. The Malaysia packaged software market is predominantly occupied by multinational softwarevendors; however, many local software vendors are also rapidly gaining market share, and benefiting from local stock market listings. Indeed, the software market is somewhat diffuse, with software vendors often establishing partnerships and alliances to provide end users with complete solutions. Basic ebusiness applications such as ERP and financial are finding increasing popularity with the business market, as enterprises look to enhance productivity through automating accounting and other functions. Managed hosting is growing in popularity according to vendors.

Special Focus: SMBs

Small and medium businesses (SMBs) are increasingly being seen as a key IT vertical demand sector in Malaysia, with vendors bringing forth propositions and solutions to meet their needs. Around 90% of Bursa Malaysia companies fall in the SMB category. While most remain cost conscious, as described elsewhere, there appears to be increasing appreciation of the value that IT can add in terms of winning and serving customers more effectively. Due to a decade–long focus on expansion, and increasingly open markets, many SMBs are now facing a more complex environment. In addition, as informatisation among smaller businesses rises, SMBs are becoming more comfortable at purchasing directly from manufacturers, not merely for hardware, but also services such as after-sales support. PC penetration is relatively high among Malaysian SMBs, by regional standards, creating potential demand for software and services. Despite all this, it is still the case that the majority of SMBs view ICT as 'a good thing', rather than a necessity. According to local market estimates, currently only around 30% of Malaysian SMBs have any form of enterprise level ICT solutions, with costs remaining the biggest barrier to further penetration.

IT Services

IT services spending, excluding telecommunications related spending, is forecast to pass US$1bn in 2008, up from US$886mn in 2007. Over the 2005-2010 period, IT services CAGR is expected to be around 12%, benefiting from overall improvements in business and consumer confidence. Project size is increasing, with more projects valued at more than US$1mn and some US$100mn plus deals, notably in the financial sector. Banks are looking to streamline and consolidate data centres, and in 2007 IBM signed a landmark US$121mn deal with Saffin Bank to modernise its IT infrastructure. Vendors are therefore anticipating strong growth, with Logica CMG expecting more than 35% revenues growth in Malaysia last year, and announcing new investments. Among other drivers, the government is determined to help Malaysia capture a greater share of the regional outsourcing and shared services market. The popularity of the MVNO (mobile virtual network operator) model in Malaysia is creating opportunities in that sector.

E-Readiness

Malaysia is developing at a steady rate on most 'e-society' indicators, with 44% of Malaysians having internet access in 2007, while PC penetration is now more than 20%. Malaysia's ICT sector took some positives from the National Budget 2007 which saw the Multimedia Development Corporation (MDeC) receive an enlarged MYR154mn budget. The 2007 budget followed a year of significant developments in 2006. These included the Ninth Malaysian Plan, under which some US$3.3bn has been assigned to develop the IT sector for 2006-2010.

In 2007 Telekom Malaysia has announced the one-millionth customer for its Streamyx broadband service, marking this with the launch of a 4.0 Mbps package. The growing popularity of broadband after a slow start is set to be an important drive of PC penetration over the next few years. The number of broadband subscribers is projected to increase to around 7.4mn by 2011, and to encourage faster penetration the government has awarded WiMax licences to a number of service providers including ISP Jaring.

Contents

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Chapter 1 - Executive Summary

Market Overview

Industry Developments

Competitive Landscape

Computer Sales

Software

Special Focus: SMBs

IT Services

E-Readiness

Chapter 2 - SWOT Analysis

Malaysia IT Sector SWOT

Malaysia Business Environment SWOT

Chapter 3 - Asia Regional IT Markets Overview

IT Penetration

Market Growth And Drivers

Sectors And Verticals

Chapter 4 - Market Overview

Government Authority

History And Market Structure

Multimedia Super Corridor

Key Issues For Investors:

Hardware

Software

Services

End-User Analysis

Industry Developments

Chapter 5 - Industry Forecast Scenario

Table: Malaysia IT Sector

Chapter 6 - Macroeconomic Forecasts

Table: GDP, Population & Output

Chapter 7 - Country Snapshot: Malaysia Demographic Data

Section 1: Population

Table: Demographic Indicators (2005)

Table: Rural/Urban Breakdown

Section 2: Education And Healthcare

Table: Education

Table: Healthcare: Vital Statistics

Table: Healthcare: Expenditure

Section 3: Labour Market And Spending Power

Table: Employment Indicators

Table: Consumption And Stratification

Table: Wages Per Annum

Chapter 8 - Competitive Landscape

Company Monitor

BMI Forecast Modelling

How we generate our industry forecasts

IT Industry

Chapter 9 - Appendix: Regional Demographic Data

Table- Manufacturing Wages (ave per annum), US$

Table - Population

Household Spending Per Capita, US$

Private Consumption Per Capita, US$ PPP

Market Size, GDP, US$bn

Competitive Landscape for Asia Information Technology: Sample of  
Companies Ranked

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Company profiles, including SWOT (strengths, weaknesses, opportunities and threats) analyses, business activity, leading products and services. BMI forecasts for all headline macroeconomic indicators, including real GDP growth, inflation, fiscal balance, trade balance, current account and external debt. Company profiles and SWOT analyses covering competitive positioning; leading products, services and brands; annual sales and share of domestic hardware, software and components markets; headline financials and M&A; pan-regional expansion strategies and strategic partners. Companies covered include:

Network of Information Technology Sources

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BMI's Asian Telecommunications Reports are based on an extensive network of multilateral organisations, government departments, IT industry associations, chambers of commerce and company reports. Information sources include: