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South Korea Information Technology Report Q1 2010
Business Monitor International, Jan 2010, Pages: 54
The South Korea 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 South Korea's information technology industry.
Market Overview
South Korea’s IT market is projected to continue to strengthen in 2010, after signs of an upturn in consumer demand in the second half of 2009. South Korean IT spending is expected by BMI to increase from US$16.1bn in 2010 to around US$20.3bn in 2014. There will be a number of key drivers and growth trends including notebook PCs, IT outsourcing and industry-specific software applications. BMI forecasts that Korean per capita IT spend will rise from US$750 in 2010 to US$921 in 2014. Going into 2010 the consumer segment was driving IT market growth due largely to increased consumer sales of notebooks. Corporate IT spending should also pick up in 2010, as business confidence improves following a resurgence of orders in the wake of the economic slowdown. In the consumer segment, growing broadband penetration and rising demand for notebooks will continue to be a growth driver. In the enterprise segment, the industry trend is towards specialised vertical-specific applications. Demand for advanced IT services such as outsourcing is expected to show a strong growth trajectory.
Industry Developments
In September 2009 the Korean Communications Commission approved distribution of Apple’s iPhone in the South Korean market, waiving the requirement that locally retailed handsets had to use locally developed location-based technology. The take-off of smartphones in Korea, where development of this segment has lagged behind many other markets, could have negative implications for demand for netbooks. In 2009 the growing popularity of small form factor netbooks was a computer market growth area.
In 2009 the Ministry of Public Administration and Security (MOPAS) announced the results of its latest process of designating software in terms of its fitness for use in the public sector. On February 2 2009, the ministry designated 28 out of 34 applicant software packages as ‘administrative software’. Software made by Korean developers accounted for fewer than 40% of the software designated as ‘administrative’, a lower portion than on previous occasions.
Competitive Landscape
The emergence of netbooks has created opportunities for foreign vendors in what had previously been one of the most closed computer markets in the world, due to the dominance of the Korean giants. Companies like Asus and MSI saw sales rise in the region of 50% in H109, compared with the same period of 2008. In August 2009, Acer announced that it was moving back into the Korean market after an absence of eight years.
Haansoft, Korea’s largest software vendor, launched new office products in 2009 to compete with Microsoft in the global market. The company said that it was focusing on the middle and lower market tiers. Prices of Haansoft products were promoted as being at least 50% lower than for their equivalent Microsoft products, with an upgraded version of Hangul Office 2007 to retail at KRW36,000 (US$31). US IT giant HP said that it will look to grow in every segment of the Korean market in 2010. The company will look to generate growth from large customers, as well as by acquisitions, R&D and infrastructure businesses. HP has set a target of increasing the number of its key customers in the Korean market from the current three to more than six: the current three are Samsung Group, SK Group, and Shinhan Financial Group
Computer Sales
According to BMI projections, sales in South Korea’s PC market will be worth around US$3.3bn in 2010, with single-digit growth from 2009. In 2009, notebook shipments were a growth area, while sales of desktops shrank. Total PC revenues including notebooks and desktops are forecast to rise to US$3.4bn in 2014 at a CAGR of 1.4%.
The main driver will be notebooks, with shipments driven by demand for slimmer, lighter and more attractive models with multimedia and entertainment features and wireless connectivity. 3G wireless network expansion will also help to drive sales. Laptops already dominate in the consumer PC market, accounting for more than 60% of household PC sales in some quarters of 2009.
Software
Software spending was estimated at US$5.3bn in 2009 and is expected to be the fastest-growing segment of IT spending. As the market focus moves from hardware to services and solutions, the share of the market accounted for by software should rise, with enterprises seeking greater leverage from their investments. However, software piracy in South Korea is above the global average and remains a problem.
The trend in the Korean software market is towards specialised vertical-specific application packages for industries such as auto, pharma, financial services and health. Vendors such as Microsoft and Oracle are trying to keep ahead of smaller competitors by targeting key client groups with industry-specific software. IT Services
IT services sector is projected to account for about 40% of the domestic IT market in 2010, with spending of US$6.4bn. CAGR for the segment is estimated at 7% over the 2010-2014 period. Sectors such as government, telecoms, healthcare and banking should continue to supply demand for implementation, consulting and managed services.
Outsourcing has become a significant factor and is estimated to account for up to 24% of IT services spending. In recent times, traditional IT services providers have faced strong competition for a share of the outsourcing market from IDCs (internet data centres). Korea’s IDC sector has been expanding at a 20% rate thanks to aggressive investments in capacity.
E-Readiness
South Korea has one of the most sophisticated mobile telephony markets in the world. Given the dramatic increase in 3G subscriber numbers seen by KTF, SKT and LG Telecom and the increased marketing for 3G services by KTF, BMI is expecting this healthy growth to continue.
There is some confusion as to what technologies South Korea’s operators regard as 3G. All three operators have had CDMA2000 1x networks since at least 2001, which the ITU defines as third generation. However, KTF and SK Telecom did not regard their networks as IMT-2000 until they upgraded to CDMA2000 1x EV-DO in 2002. Both SK Telecom and KTF have now upgraded to WCDMA- based HSDPA networks, launched in 2006, which are 3.5G. LG Telecom has lagged behind on the technological front and only in April 2009 did it commercially launch a CDMA2000 1x EV-DO Revision A network and start offering ‘3G’ services.
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