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Chile Information Technology Report Q1 2010
Business Monitor International, Jan 2010, Pages: 53
The Chile Information Technology Report provides industry professionals and strategists, corporate analysts, information technology associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Chile's information technology industry.
Market Overview
Chilean IT spending is expected to return to positive growth territory in 2010 before growing to around U$3.2bn in 2014, from US$2.2bn in 2010. The Chilean IT market is one of the most developed in the Latin American region and, despite current economic headwinds, is projected to grow at a compound annual growth rate (CAGR) of 11% over the 2010-2014 period.
There were signs of an improvement in demand conditions in H209 due to restocking following a rundown of inventories. Chile retains some strong IT market fundamentals including consumer affluence and relatively favourable business environment. There could be a boost, particularly in the second half of 2010, from computer hardware tenders delayed from 2009 and the launch of Microsoft’s Windows 7 operating system.
Chile’s development as an offshoring location will attract more investment in IT services, with sectors like retail, distribution, financial services, telecoms and healthcare all offering opportunities. In H209, despite the global economic crisis, major multinationals such as General Electric and JP Morgan proceeded with plans to establish service centres in Chile.
Industry Developments
Government spending on information and communication technology (ICT) projects was trending upwards in H209, with project roll-outs delayed from earlier in the year and stimulus spending to revive a slowing economy. The government announced a number of flagship projects last year, but funds dispersement was often slow due to the political climate in an election year and economic headwinds. Among major projects launched in 2009 was the Enlaces programme to provide IT for schools. The programme, led by Chile’s education ministry, involved the set-up of a US$3.7mn fund to subsidise IT purchases for more than 2,000 schools throughout the country. Schools will be able to use the fund to acquire education software and devices, with standards and prices established by the ministry. According to government figures, around 130 companies support their global operations with services from Chile, with another 25 companies said to be in discussions with state development agency Corporación de Fomento de la Producción de Chile (CORFO) regarding an investment in Chile as of H209. Multinationals with global service centres in Chile include Evalueserve, Experian, Oracle and Tata Consulting Services (TCS).
Competitive Landscape
Telecoms service providers have emerged as a significant channel for PC sales in the Chilean market. HP has predicted double-digit growth in Chilean sales in the next few years. The company has an agreement with Chilean telecoms company Entel by which Entel will sell HP 3G laptops bundled with its own 3G services. HP hopes to sell 30,000 laptops through this channel in 2009. Meanwhile in December 2009, local telecoms company Claro launched a bundling offer of Packard Bell netbooks with the Windows 7 operating system and a 3G chip preinstalled.
In 2009, early signs were promising for local sales of Microsoft’s new Windows 7 operating system. Chilean market sales of Windows 7 during Q309 double Q308’s combined sales of XP and Vista, as retailers stocked up for the official launch. Microsoft dominates the Chilean operating system market segment, despite a piracy rate of 68%, and revenues from software licensing were estimated at US$129mn last year.
Chilean IT services provider Novis expects sales to the public sector to comprise 10% of its revenues in 2010, up from 5% last year. The company has projected an overall 20% rise in revenues on the estimated US$15mn achieved in 2009. In the long term, the public sector is expected to account for 20% of revenues for the company, which specialises in SAP solutions.
Hardware
BMI forecasts that Chile’s computer and accessories market will have a CAGR of around 8% over the 2010-2014 period. BMI has downwardly revised its market projections following a stream of negative data from H109. PC sales in 2010 are now forecast at US$781mn, up from US$712mn in 2009, when the market suffered a contraction. Despite currrently challenging trading conditions, spending should pass the US$1bn mark by 2013.
In Q209, there were signs of the contraction in the market slowing down, but H109 PC shipments were still estimated to be down by a low single-digit factor year-on-year (y-o-y). The main driver of the decline was desktop sales, which were down by around 30% in H109 as businesses deferred replacement purchases. Notebook sales continued to grow even in the difficult first quarter of the year; however, most of the growth was driven by low-cost netbooks, meaning that PC revenues contracted by more than unit shipments.
Software
Chile’s software market is projected to be worth US$338mn in 2010, with high single-figure growth compared with 2009. Software CAGR for 2010-2014 is projected at around 12%. The recession led some companies to review IT budgets or look to defer systems updates, but other companies viewed software investments as a means of achieving greater efficiencies in difficult times. Piracy was estimated to account for 68% of software in 2008, up 1% on the 2007 level, despite a sustained government campaign to reduce this.
IT Services
Chile’s IT services market is projected at around US$859mn in 2010 and is expected to grow at a 13% CAGR over the 2010-2014 forecast period.The percentage of IT market revenues generated by services is currently around 37%, high by emerging market standards but similar to other countries in the region, such as Brazil. The majority of demand, around 75%, still comes from the large company sector, but smaller companies are now becoming more sophisticated in their demand.
The economic situation is likely to have an impact this year on spending in some verticals, but in many cases spending will be viewed as strategic rather than operational. Led by the financial, telecoms and retail sectors in particular, there is a trend towards bigger managed service and outsourcing deals in the local market.
E-Readiness The government is planning to increase Chile’s broadband options by auctioning 3G mobile and WiMAX. For 2008-2009, the government allocated US$80mn to support projects aimed at boosting internet coverage. The telecommunications regulator Subtel also launched a new universal access fund in 2008.
In general, Chile enjoys some of the best telecommunications infrastructure in South America. In a recent survey, the World Economic Forum ranked Chile 31st in the world in the category of ‘degree of preparation to participate in and benefit from information and communications technology’, the highest ranking in the Latin American region. However, the report concluded that Chile’s e-development was held back by some familiar failings including an inefficient government bureaucracy and over-regulation.
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