INDONESIAN INFORMATION TECHNOLOGY REPORT

Market Overview

The Indonesian IT market is projected by BMI to be worth nearly US$5bn by 2012, as the country witnesses significant but uneven expansion on the IT front. The huge population, combined with PC penetration of around 2% and falling prices, provides strong fundamentals for growth, despite current global macro-economic headwinds. However, although IT plays an increasingly significant role in a wider range of industries, the financial and telecoms sectors still account for around 50% of spending. Moreover, ICT development is still largely restricted to richer areas such as Java, and the digital divide could be exacerbated by a slowing economy.

Indonesia’s expected IT spending CAGR of 11% for the 2007-2012 period means that Indonesia will grow faster than most of its ASEAN neighbours. The market faces structural constraints, notably low incomes and poor telecommunications infrastructure. Despite this, PC sales were strong in 2007 and early 2008, driven by growing affordability, especially of notebooks. A key question is how the global economic climate will impact on consumer behaviour, with the retail sector now more important for IT vendors. Some evidence suggests that households were beginning to reign in their spending in H108 amid higher prices for essential commodities and lower disposable incomes.

A more active approach by the government, including the establishment of a new committee headed by President Susilo, should stimulate IT spending. The government is pushing for more integrated EGovernment development, and promoting a series of infrastructure and education initiatives. Government spending remains relatively small compared with regional neighbours such as Singapore and India. However, small and medium-sized (SMEs) businesses are likely to be a focus area as computer use is currently low.

Industry Developments

The government is currently rolling out new e-learning initiatives, which could see Education’s share of the local IT spending rise from its estimated level of around 4%. The current ratio of PCs to students in public schools is around 1:3200 and the government wants to increase this to 1:20. As there are 53mn students in Indonesia’s schools system, this would require at least 2.5mn computers.

There has been some progress in e-government in recent years, but a lack of interoperability among institutions has been identified as a weakness. The national government has promoted a policy of adopting open source software to save costs, and distributed some software for free. In addition, there have been a number of pan-departmental initiatives.

In 2008 Indonesia’s state enterprises ministry is to launch an e-procurement system which will standardise procurement in 25 state-owned companies. The companies include some of the largest in Indonesia, such as oil and gas company PT Pentamina and electricity firm PT PLN. The new system is expected to be live by the end of the year.

Competitive Landscape

International vendors dominate the Indonesian brand PC market, with Acer the leader in the notebook segment and HP the overall leader. In addition to HP and Acer, other top tier vendors include Dell, Lenovo and Zyrex. While locally assembled ‘white boxes’ still claim up to 60% of the local PC market, a number of local PC and notebooks brands are also enjoying increasing success, including Zyrex and Ion.

Vendors are stepping up initiatives to reach out to reach consumers and SMEs, which make up more than 90% of businesses. HP is to intensify its focus on SMEs in 2008 by launching several new computer portfolios. Meanwhile, IBM Philippines recently launched a local version of its SME-targeted Express IT package, and Microsoft is offering SMEs an up to 25% discount on Windows Starter Edition.

Turning to IT services, Oracle recently signed an agreement with local IT solutions provider PT Sigma Cipta Caraka (Sigma) to provide outsourcing services. Sigma is targeting a 40% growth in its managed services business in 2008. Earlier in 2008, Telkom Indonesia acquired an 80% stake in Sigma.

Computer Sales

Hardware accounts for more than 70% of Indonesia IT spending. Computer sales (including notebooks and peripherals) will be worth an estimated US$1.9bn in full year 2008, according to BMI estimates, up from US$1.7bn in 2007. The main drivers are growing affordability and more credit availability. Prices of both notebooks and desktops are falling, with desktop prices now as low as US$400 while notebooks start from around US$700. Notebooks are now growing faster than the PC market as a whole. The local hardware market remains dominated by key verticals such as government, enterprises and banking. The consumer market is only around one quarter of the whole, but it has become a growing focus of attention for some vendors. While the consumer market is growing, the enterprise sector looks set to continue to account for more than 70% of sales opportunities during the forecast period.

Software

For 2008, legal software sales are forecast by BMI at US$361mn, up from an estimated US$310mn in 2007, despite the continuing piracy problem. One the key functions of the new Information and Communications Technologies Council founded last year (see Industry Developments) is to address the piracy issue, with Indonesia having one of the worst records in the world in terms of its failure to significantly reduce the software piracy rate, which was estimated at 84% in 2007 by the Business Software Association. The piracy issue lay behind the MoU signed last year between the government and Microsoft. Under the agreement, the government reportedly agreed to purchase 35,496 licensed copies of the MS Windows operating system and 117,480 copies of the MS Office package for a total price of around US$41.9mn. Over the 2007-2012 period, overall software sector CAGR is forecast at 15%.

IT Services

Indonesia’s IT services market is expected to be worth US$500mn in 2009, recording year-on-year (y-oy) growth of 14% from US$439 in 2007, based on BMI estimates. Hardware deployment services remain the largest Indonesian IT services category, with approximately a 20% share. Currently, opportunities are mainly in fundamental services such as system integration, support systems, training, professional services, outsourcing and internet services. Sector CAGR over the 2005-2010 period is expected to be around 13%.

E-Readiness

Only about 14% of Indonesians have internet access currently, translating into around 32mn users. Low telephone line density, high charges and low PC penetration are all significant obstacles. Moreover, research last year indicated that only 42% of those Indonesians with internet access have ever made purchases through the internet.

However, the picture is not all bad, as there are signs of faster growth in user numbers, and recent surveys have shown that among a very small elite, there is fast adoption (by regional standards) of broadband and a willingness to pay for video conferencing, security and other additional features. BMI estimated that there were just under 1mn broadband users in 2007, representing a 0.4% penetration rate. The government is encouraging fixed wireless deployments, including WiMax, to bring internet to more remote areas.

The government is rolling out an internet-based National Education Network, which involves 1,000 network points in five clusters nationwide and is designed to facilitate the use of internet in schools. Despite some advances in e-education, constraints remain due to poor infrastructure and lack of public awareness in a country where only 20mn people own fixed-line telephones.

ref: indonesia information