India Information Technology Report Q3 2009

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2009 is set to be a difficult year for India's potentially vast IT market, as the country is buffeted by strongeconomic headwinds. BMI has downwardly revised its five-year IT spending projections. The total sizeof the IT market is now projected to increase from US$14.5bn in 2009 to US$24.4bn by 2013. ITspending growth slowed significantly in Q408 and was estimated to be down year-on-year (y-o-y) inQ109, but a recovery is expected to begin in the second half of the year.Sales of both desktops and notebooks recovered somewhat in Q109 to record sequential quarterly growth,but sales were still down y-o-y. Multinational and domestic companies were deferring spending, and themalaise spread to the consumer segment, where layoffs and a negative wealth effect from lower assetvalues affected spending. BMI expects the Indian IT market to improve by the last quarter of 2009,but margins for sales of IT products and services will remain under pressure.The long-term potential of India's IT market is plain: less than 3% of people in India own a computer(about one-fifth of the level in China), meaning particular potential in the lower end productrange. However, realisation of this long-term growth potential depends on fundamental drivers such asraising India's low computer penetration, rising incomes, falling computer prices and the government'sambitions to connect the vast rural areas to the outside world.Industry DevelopmentsA key driver of informatisation in the government sector is likely to be the e-ID card programme, whichtook a step forward in June 2009 when the government announced a new head for the Unique IdentityAuthority of India. After repeated delays, the project is still at a very early stage. However, it has beenestimated that the total cost of the project could be at least INR1.5bn lakh crore. The project received aboost in January when a court suggested that national ID cards should be made mandatory for allcitizens.Faced with a sharp slowdown in global and domestic computer sales, in 2009 the India governmentannounced a series of measures to support the market. Service tax was cut from 12% to 10% and exciseduty from 10% to 8%.The measures were intended to provide relief to domestic consumers, while alsoproviding some support to IT exporters. However, there were questions about how much effect themeasures would have on both scores.Meanwhile, the Indian IT industry was calling for the 2009 Federal Budget to offer relief in variousforms. A key demand of the IT industry was for an extension of the tax exemption on software companiesoperating from special economic zones. The exemption is currently due to expire in March 2010, andindustry representatives had asked for the government to remove uncertainty by using the budget tosignal an extension.Competitive LandscapeIn early 2009 several brand PC vendors came under pressure as a result of the negative market trends.Dell and Lenovo were reportedly among vendors who saw market share slippage in Q1. Much of thegrowth is now being fuelled by notebooks, with notebook shipments now level or slightly surpassingdesktops. The popularity of netbooks has the potential to stimulate further evolution in the competitivelandscape in 2009.PC market leader HP announced plans that deepened its commitment to the Indian market, with anaggressive concentration on the retail segment, despite the economic slowdown. HP said that it wouldexpand its retail footprint across 650 cities this year, while growing its retail partner network to over10,000 by the end of 2009. HP also said that it was moving towards a different method of segmentation ofthe Indian PC market, based more on lifestyle and 'psychological' categories.Despite the economic slowdown, IT services vendors continued to find opportunities in key IT spendingverticals, particularly telecoms. In May 2009, Wipro signed a INR2,200 crore nine-year contract withUnitech Wireless. Wipro will integrate the company's enterprise resource planning (ERP) sys

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India Information Technology Report Q3 2009

  1. 1. Find Industry reports, Company profilesReportLinker and Market Statistics >> Get this Report Now by email!India Information Technology Report Q3 2009Published on May 2009 Report Summary2009 is set to be a difficult year for Indias potentially vast IT market, as the country is buffeted by strongeconomic headwinds. BMI has downwardly revised its five-year IT spending projections. The total sizeof the IT market is now projected to increase from US$14.5bn in 2009 to US$24.4bn by 2013. ITspending growth slowed significantly in Q408 and was estimated to be down year-on-year (y-o-y) inQ109, but a recovery is expected to begin in the second half of the year.Sales of both desktops and notebooks recovered somewhat in Q109 to record sequential quarterly growth,but sales were still down y-o-y. Multinational and domestic companies were deferring spending, and themalaise spread to the consumer segment, where layoffs and a negative wealth effect from lower assetvalues affected spending. BMI expects the Indian IT market to improve by the last quarter of 2009,but margins for sales of IT products and services will remain under pressure.The long-term potential of Indias IT market is plain: less than 3% of people in India own a computer(about one-fifth of the level in China), meaning particular potential in the lower end productrange. However, realisation of this long-term growth potential depends on fundamental drivers such asraising Indias low computer penetration, rising incomes, falling computer prices and the governmentsambitions to connect the vast rural areas to the outside world.Industry DevelopmentsA key driver of informatisation in the government sector is likely to be the e-ID card programme, whichtook a step forward in June 2009 when the government announced a new head for the Unique IdentityAuthority of India. After repeated delays, the project is still at a very early stage. However, it has beenestimated that the total cost of the project could be at least INR1.5bn lakh crore. The project received aboost in January when a court suggested that national ID cards should be made mandatory for allcitizens.Faced with a sharp slowdown in global and domestic computer sales, in 2009 the India governmentannounced a series of measures to support the market. Service tax was cut from 12% to 10% and exciseduty from 10% to 8%.The measures were intended to provide relief to domestic consumers, while alsoproviding some support to IT exporters. However, there were questions about how much effect themeasures would have on both scores.Meanwhile, the Indian IT industry was calling for the 2009 Federal Budget to offer relief in variousforms. A key demand of the IT industry was for an extension of the tax exemption on software companiesoperating from special economic zones. The exemption is currently due to expire in March 2010, andindustry representatives had asked for the government to remove uncertainty by using the budget tosignal an extension.Competitive LandscapeIn early 2009 several brand PC vendors came under pressure as a result of the negative market trends.Dell and Lenovo were reportedly among vendors who saw market share slippage in Q1. Much of thegrowth is now being fuelled by notebooks, with notebook shipments now level or slightly surpassingdesktops. The popularity of netbooks has the potential to stimulate further evolution in the competitivelandscape in 2009.PC market leader HP announced plans that deepened its commitment to the Indian market, with anaggressive concentration on the retail segment, despite the economic slowdown. HP said that it wouldIndia Information Technology Report Q3 2009 Page 1/6
  2. 2. Find Industry reports, Company profilesReportLinker and Market Statisticsexpand its retail footprint across 650 cities this year, while growing its retail partner network to over10,000 by the end of 2009. HP also said that it was moving towards a different method of segmentation ofthe Indian PC market, based more on lifestyle and psychological categories.Despite the economic slowdown, IT services vendors continued to find opportunities in key IT spendingverticals, particularly telecoms. In May 2009, Wipro signed a INR2,200 crore nine-year contract withUnitech Wireless. Wipro will integrate the companys enterprise resource planning (ERP) system andhost all its data centres. This win followed a INR3,000 crore contract that Wipro signed with Aircelearlier this year.Computer SalesAccording to BMI forecasts, computer sales (including notebooks) in Indias hardware market will beworth around US$6.0bn in 2009, up from an estimated US$5.8bn in 2008. BMI has downwardly revisedits computer hardware sales projections for 2009, to reflect negative business and consumer sentiment.Growth slowed significantly in H208, with negative sequential quarterly growth in Q408. In 2009,computer hardware sales growth is expected to ease further, but to remain in positive territory, beforeticking up again in 2010.The economic slowdown has had a particularly hard impact on business spending, with multinationalcorporations and local firms deferring investments. However, BMI predicts that the CAGR for thehardware sector as a whole will be 14% between 2009 and 2013, with unit sales expected to resumestrong growth. Only nine out of 1,000 people in India own a computer, one-fifth of the China level. Thegovernments ultimate goal is for 1bn internet-connected computers in India - equivalent to the totalestimated number of PCs in the world today.SoftwareThe software segment should continue to grow, with combined software and service CAGR for 2009-2013 projected at 13%. The tax-free status of software firms, which did much to fuel local sectorperformance, is due to end in 2010. However, the IT industry was lobbying for an extension of theexemption to be included in the 2009 budget. The local software industry is significant, with exportsworth around US$50bn annually.In recent years, the small and medium-sized enterprise (SME) market in India for hardware deploymenthas been growing, and this is now resulting in an increasing opportunity for applications. More demandfor solutions and hardware is now coming from second- and third-tier cities. Industry reforms andprivatisations, government regulations and new global competition have encouraged SMEs to use moretechnology. A second major software demand driver is the emergence of India as a global centre foroutsourcing, with the global recession encouraging large US and European companies to focus onoffshore software development to lower costs.ServicesIndias IT services market is projected to grow to around US$5.3bn in 2009. In Q109 there were vendorreports of IT managers in various sectors reviewing spending and focusing on immediate needs.However, by Q209 there were signs that fewer projects were being cancelled, although there wasincreased price sensitivity. In H209 there should continue to be opportunities in key IT verticals such asfinance, telecoms, retail and government. Much will depend on the timing of global economic recovery.Margins have traditionally been low in the domestic IT services market, with government contractsgenerally handed to the lowest bidder. There are signs that this is now starting to change, resulting inmore attention being paid to the market by Indian domestic IT services giants, as well as foreign vendors.In recent years domestic demand for IT services has grown rapidly, and average project size - typicallybelow the US$1mn mark - has also increased, resulting in several projects above the US$100mn mark.E-ReadinessBroadband subscriber numbers are consistently falling behind target in India, with only 5.5mn subscribersby the end of 2008, according to BMI estimates. The main reason for the slow uptake is thought to beinsufficient demand, although the government has taken some measures to reduce tariffs and encouragealternative forms of service provision. One brake on PC penetration is a poor dial-up internet home-userIndia Information Technology Report Q3 2009 Page 2/6
  3. 3. Find Industry reports, Company profilesReportLinker and Market Statisticsexperience, even in cities. If this is to change, the government must take the initiative in improvingbandwidth availability. Government plans to encourage WiMAX network deployment may have someimpact on penetration. Broadband subscribers are currently expected to reach 69.5mn by the end of 2013,while the number of internet subscribers is forecast to reach 497.5mn within the same period.Key Issues for InvestorsDespite a cheap and well-educated workforce, Indias business environment is impeded by excessivegovernment regulation. Foreign-equity holdings remain restricted in many sectors. Hiring-and-firingprocedures, meanwhile, are governed by rigid labour laws, under the terms of which companiesemploying more than 100 people need the permission of the local chief minister to lay off workers. Otherconcerns include the 670-odd industries reserved for small-scale producers; high import tariffs levied onforeign-made goods; failing infrastructure and, above all, poor power supplies; and a corrupt bureaucracyneeded to approve permits for even the most routine tasks. India is now fast-tracking the creation ofSouth East Asian-style special economic zones (SEZs) aimed at tackling some of these bottlenecks. Table of ContentExecutive Summary .5SWOT Analysis....8India IT Sector SWOT.8India Telecoms Business Environment SWOT9India Political SWOT10India Economic SWOT...11India Business Environment SWOT ...12Asia Regional IT Markets Overview13IT Penetration.13Market Growth & Drivers ..15Sectors & Verticals ...17Market Overview19Government Authority....19Hardware...20Software22Services.23End-User Analysis ....24Industry Developments....27Table: IT Industry Tax ...29IT Business Environment Ratings..31Table: Asia IT Business Environment Ratings ..33Industry Forecast ...34Annual Data....36Country Context...37Table: Rural/Urban Breakdown, 2005-2030 ....37Table: Consumer Expenditure, 2000-2012 (US$) ..37Internet .38Table: Telecoms Sector -- Internet -- Historical Data & Forecasts.38Macroeconomic Forecast ...40India Economic Activity...42Competitive Landscape...43Hardware...43India Information Technology Report Q3 2009 Page 3/6
  4. 4. Find Industry reports, Company profilesReportLinker and Market StatisticsSoftware And Services ...44Internet Competitive Landscape ...46Table: Regional Broadband Penetration Overview ....47Company Profiles...48IBM India...48Wipro (India) ..50Microsoft India ....52Tata Consultancy Services (TCS)..53BMI Forecast Modelling...55How We Generate Our Industry Forecasts ..55IT Industry .55IT Ratings Methodology...56Table: IT Business Environment Indicators .57Weighting...58Table: Weighting Of Components.58Sources .58India Information Technology Report Q3 2009 Page 4/6
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