IDC Predicts 10% Growth for Asia/Pacific (excluding Japan) IT Market in 2007 with Disruption and Hyper Competition Driving Innovation in the Market Place

December 12, 2006

Singapore and Hong Kong, December 12, 2006 – In its annual look at the year ahead, IDC predicts that the Information and Communications Technology (ICT) spending and growth for the Asia Pacific (excluding Japan) region will be fuelled largely by continued economic growth and increasing market demand across the region, with China and India, predicted to have having another outstanding year.

“The region’s astounding rates of economic and IT market growth have resulted in dynamic and rapidly evolving corporate and consumer markets. This is a role the region has gradually accepted, but the growth is now taking off explosively,” says Eva Au, Managing Director for IDC Asia/Pacific. “The region’s economic empowerment has created more discerning and demanding IT users who now require technology which is sensitive to the region’s unique demands and are increasingly responsive to the needs of mobile communications, converged devices, and results-oriented IT projects."

IDC predicts the IT market in Asia Pacific excluding Japan (APEJ) to reach US$132 billion in 2007, a 10% rate of growth over 2006. Together, China and India will make up more than 43% region’s IT spend, with China remaining the largest IT market consisting 32% of the region’s IT spending and India growing at a remarkable 23%. While the major economies are expected to continue to deliver strong results, both China and India will begin a more serious look internally, focusing on bridging urban/rural divides and developing infrastructure. "These changes will require specific knowledge of domestic markets for companies to successfully compete within these major markets,” notes Eva Au.

IDC believes there will be three major areas of focus in 2007 in relation to the ICT market in the region:

• Innovative and useful services : With the wireless internet experience becoming a reality for businesses and consumers, this will provide added impetus for companies to roll out mobility services to help us work and play.
• Standardization to simplify and reduce costs: Asian enterprises will simplify and adopt a service orientation in IT architectures by standardizing on components. System Integration vendors will look at reducing risk for project delivery by standardizing their service offerings.
• Smarter approaches to markets : Software vendors in APEJ are responding to the need for competitive offerings, particularly for Small and Medium-sized Businesses (SMB), as larger firms lag with practical and straightforward SMB offerings; Business Process Outsourcing (BPO) vendors are seeking to build longer term relationships with Asian firms, which have been slow to take advantage of the BPO phenomenon.

The following are the top 10 key IDC predictions that will shape the ICT industry in APEJ in 2007:

1. China and India continues to lead the pack as the next opportunity - emerging Asia - approaches BRIC-like growth rates

GDP growth in China and India are predicted to hit 8.3% and 7.7%, respectively. As economic growth rates cool slightly, these countries will be pushed to look at domestic markets as recent years of prosperity drive IT infrastructure build-out and the closing of domestic urban/rural gaps. These developments will require vendors to have very deep sub-regional local knowledge to extract big wins in these markets. Further, Emerging Asian Countries (EACs) - Bangladesh, Pakistan, Sri Lanka, and Vietnam will see spending power and IT infrastructure budgets accelerate to approach similar growth rates of Brazil Russia India and China (BRIC).

2. Eastern heroes emerge to capture regional and global software markets

The rise of “Eastern Heroes” includes the likes of UFSoft, Kingdee, Mincom, Ahnlab, and Rising to take the lead will give more established global vendors a run for their money. These firms have regional and even global ambitions, particularly in the underserved SMB markets. They are bolstered by their belief that they have far more practical experience to integrate into their solutions and hence able to build applications that are simple to roll out and easy to manage.

3. SOA momentum gathers with new entry points

Nearly two-thirds of midsize and large corporate firms in APEJ will commit to early stage service oriented architecture (SOA) adoption in 2007, with initial projects concluding in 2008. The appeal of SOA has to be tempered with caution regarding internal process assessments and re-engineering. As many corporations in the region are still struggling with managing business processes, a near-term opportunity may lie with vendors and systems integrators to aid with both re-engineering and roll-out.

4. Consulting and Systems Integration vendors refine delivery models to improve profitability

As vendors have been forced to over-commit with extra services to meet tight delivery timelines, profitability has often taken a beating. Consulting and systems integration (C&SI) firms will, in 2007, take a more discreet service approach to counter the erosion of their profitability through “standardization” of these services. These services will have standard prices, fixed service level agreements and pre-defined deliverables.

5. BPO customers test drive before making long-term commitments.

New BPO projects will be won from Asian customers through the provision of short term pilot projects first, then followed by long-term contracts after the BPO vendor proves capable of meeting the Asian customer’s needs. This is a different model from the typical one to serve Western clients, who are more willing to transit to BPO based on compelling economics. The vendor-customer relationship is key to Asian clients, and BPOs will deliver this through service innovation in 2007.

6. Vendors chase the long tail in the SMB market

2007 will be marked by an aggressive focus from all major vendors to broaden and deepen their coverage of the SMB sector in the APEJ region. The region’s SMB market has seen growth rates in recent years approaching 10%, with the SMB market breaking US$52 billion in 2007.

7. Services get caught in the wireless mesh

After much hype, 2007 will finally be the year where wireless mesh services will emerge in Asia. Existing deployments in Taipei will push Malaysia, Singapore, and others to champion their own metropolitan and regional networks, offering wide-area coverage and limited mobile voice over IP (VoIP) capability. IDC expects the wide-area metropolitan WiFi market to double in 2007 to US$250 million.

8. Fixed-Mobile-Convergence enables mass-market consumer mobility

IDC predicts that telecom network operators will begin initial deployments of fixed-mobile convergence (FMC) services in 2007. Technologies such as WiMAX, mesh networking, peer-to-peer computing, software-defined radio equipment, USB-based HSDPA modems, and IPv6 upgrades to Internet equipment have helped push the capability and desirability of FMC services and networks.

9. The evolution of laptops take over both mature and emerging markets in Asia by storm

Notebooks will be the fastest-growing PC form factor in the APEJ region with over 25% unit growth in 2007, driven by low prices and growing awareness that help to create more multiple PC households and increased migration away from desktops. While notebook growth is aggressive, IDC predicts the 3G-enabled notebook segment will disappoint in 2007, with bottlenecks at the network operators causing delayed demand.

10. Content is king as HDTV and IPTV emerge in Asia/Pacific

Both high-definition television (HDTV) and IPTV have seen significant growth in recent years. For HDTV, the adoption of high-dollar HD-capable TV sets is expected to pick up as viewers adopt equipment in preparation for HD broadcasts of the 2008 Beijing games. IPTV has seen astonishing growth rates, which will continue in 2007 and 2008 at 76% and 168% respectively. In both cases, however, the lack of content, due largely to regulatory lags with HDTV and geographic exclusivity with IPTV, currently inhibits large scale levels of uptake.

IDC Predictions 2007 for the ICT markets in APEJ draws upon latest IDC research and a worldwide brainstorming exercise among IDC's 850+ analysts . This was followed by an extensive regional review to weigh in on key industry events, user trends, and vendor strategies that promise to uniquely define the ICT market in APEJ in 2007.

Webcast on IDC's Asia/Pacific Predictions 2007

To find out more about IDC's Asia/Pacific Predictions for 2007, for press members, please register at http://www.idc.com.sg/webcast/WCASIN-070115_press.asp and for clients, please register at http://www.idc.com.sg/webcast/WCASIN-070115.asp to listen to the Webcast presented by Eva Au, Managing Director for IDC Asia/Pacific, which will be available from Jan 15 onwards. Log in details will be sent to you closer to the date.

For more information about purchasing the research, please contact Selina Ang at +65-6228-7717 or sang@idc.com . For press inquiries, please contact Holly Fung at +852-2905-4225 or hfung@idc.com.

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