2009 Malaysia IT Spending Will Hit Negative Growth For First Time In A Decade But Recovery Could Be Imminent, says IDC

Kuala Lumpur, 06 May 2009 – Despite the downward adjustment in forecast for 2009, IDC expects to see initial signs of recovery on IT spending in Malaysia as early as 2010, with investments rebounding to its pre-crisis1 level by 2011. Based on 1Q09 research results of various IT spending segments, current economic indicators, historical trends, and assumptions, IDC foresees 2009 IT spending growth to be at –1.8%. The Insight report, Economic Crisis Response: Economic Impact in Malaysia IT Spending (Doc #MY202116S), also indicates that if the economy does not pick up by 3Q09 according to assumptions done, IT spending growth for 2009 could fall to -3%.

Bright spots that still exist in various sub-sectors will cushion the overall IT investment in Malaysia although the major contributors – the consumer and manufacturing sectors, are likely to remain cautious in spending. “Taking into consideration IDC’s key economic assumptions and scenarios, several different developments could unfold in Malaysian IT investments. Depending on the levels of fiscal improvements seen in the economy, how the overall stimulus package "kicks-in", as well as the Southeast Asian regional efforts to combat the current world economy downturn, IDC sees Malaysia riding out this crisis with signs of an upswing in IT investments within 12-18 months,” says Maggie Tan, Associate Research Director of IDC South East Asia.

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1 IDC defines pre-crisis as the period prior to the Sep 15, 2008 collapse of Lehman Brothers and Merrill Lynch

Hardware spending in 2009 will drop compared to 2008. The exception to this will be in network and infrastructure spending by national telecom operators and the government for broadband and mobile services infrastructure rollout. Investments in package software will also dip in 2009 as the enterprise markets have shown signs of gradual slowdown since 2H08, while the small and medium-sized businesses (SMBs) are likely to be affected in 1H09. The IT services market, on the other hand, will enjoy the limelight during this downturn. This is a result of the private sector being likely to prolong replacement lifecycles and increase emphasis on maintenance and support of its existing hardware investment in order to channel CAPEX towards priorities areas and having a preplanned budget on OPEX for IT infrastructure support in the next 12–18 months.

Within the consumer space, IDC is expecting consumers in the mid-to-high income group to continue contributing to the overall IT spending, particularly on new technologies or services such as WiFi access and broadband. Consumer spending will most likely take a hit in 3Q09 if job losses and closure of SMBs continue to be pervasive in the country. Sizeable job cuts in the manufacturing, financial, and services industry will result in lower household income expenditure. If the trend spreads to major metropolitan areas such as the Klang Valley, IDC expects the consumer spending on IT to drop significantly in 3Q09.

Drawing on historical trends in IT spending, IDC sees IT investments having a direct correlation to real GDP growth and private consumption growth. IT spending generally picks up faster than both GDP and private consumption growth and drops more significantly than the two. “With the current slowdown, IDC expects IT spending to take off strongly when the economy begins to pick up, possibly at double the GDP rate prompting companies and governments to continue investing strategically in IT to be better prepared for the new challenges once the economies stabilize. South East Asian governments, such as in Thailand, are adopting a similar strategy as in the United States by investing in broadband that is expected to create more job opportunities in the short term, while building up strong IT infrastructure throughout the country for long-term benefits. The Malaysian government and telecom operators are similarly committed in rolling out high-speed broadband despite the economic conditions,” Maggie added.

The worst probable outcome could happen if certain key assumptions do not materialize, particularly with delays in the government’s stimulus package trickling into the market. Hardware will take a deeper fall as consumer spending in 2H09 will be impacted given that the mid-to-high income earners will likely cut back on unnecessary spending and focus on the big-ticket expenditures such as home and car loans.

-ENDS

Note to editor
IDC’s IT investment scenarios for this report are built based on several assumptions and fiscal factors:

• Exchange rate will remain stable, hovering between RM3.3 and RM3.8 to the US dollar.
• If exchange rate fluctuates significantly and weakens, prices of IT imports and exports will drastically affect consumer and commercial spending as seen in the Asian Financial Crisis in 1998.
• Inflation will reduce to a safety level of 3% on an annual basis while Malaysia does not go into "deflation". Oil price will stay below the US$100 mark throughout the forecast period. Continuous increase in price will force vendors/channels to pass on the cost to users, thus, investment on ICT products will fall.
• Public investment or more stimulus packages will be rolled out immediately to counter the unexpected economic downfall that can further deteriorate the current domestic demand (private consumption and investment). IDC expects the downturn to not drag on for more than two years, meaning that recovery will start sometime in 2010 and IT investment should be able to rebound to pre-crisis level by 2011. In addition, financing should loosen up to roll out more schemes for private companies within these two years in order to encourage continuous investment in operational effectiveness.
• Despite the overall cost-cutting strategy, particularly from the large and very large companies, investment decisions should be made based on long-term gains rather than short-term immediate cost savings. This will ensure that the commercial companies will continue to spend on key ICT initiatives while cutting down on unnecessary expenses.
• Changes in the government will further stabilize the economic situation and bring in new investments into the country. The new government will also help to stimulate the economy by rolling out more funding for economic development that creates an indirect stimulus to IT investment, although companies will still be careful in their spending.

About the report

This IDC Insight report provides analysis on how the economic performance will impact the IT spending in Malaysia. IDC looks at the historical trend of IT spending in correlation to the economic performance such as GDP and private spending from 1997 to 2008. Also, probable scenarios with assumptions were developed to gauge how IT spending will perform in light of the economic performance.

About IDC

IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 1,000 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 100 countries. For more than 44 years IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting http://www.idc.com/.

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