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Hong Kong Information Technology Report Q4 2010
Business Monitor International, Oct 2010, Pages: 58
Hong Kong 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 Hong Kong's information technology industry.
Market Overview
BMI forecasts the Hong Kong IT market will grow from around US$4.7bn in 2010 to US$5.8bn in 2014. Computer sales were on an upwards trend in H110, with retail demand leading the way as the economy recorded positive growth following a contraction in 2009. The government sector is expected to be a key driver, along with stronger demand from the corporate and small and medium-sized enterprise (SME) segments.
IT market growth is forecast at 7% in 2010, but much will depend on continued business and consumer confidence in the economic recovery. In 2010, consumer spending is expected to remain strong, as evidenced by strong demand for Apple's iPad. Loan advances continued to grow strongly into May, while imports also increased.
The IT market will be supported by initiatives encouraging the integration of Hong Kong's economy with mainland China and the abolition of taxes on cross-border trade. Recent integration of PCs with wireless networking technologies, as well as the roll-out of 3G mobile networks and popular converged services such as internet protocol television (IPTV), are also drivers.
Industry Developments
In February 2010, Hong Kong Financial Secretary John Tsang's maiden budget was broadly positive for local IT market growth, as the government looked to strengthen the economic recovery. The HKD317.2bn (US$40.82bn) budget was composed of higher expenditure and one-off relief measures to support domestic demand and lower-income households. Government fiscal stimulus, including tax relief, was aimed at boosting consumer confidence. In 2009, projects being implemented by Hong Kong public sector organisations included development of a city-wide system for sharing electronic health records and an e-procurement system for the office of the Chief Information Officer.
Beijing made it easier for mainland Chinese residents to apply for visas, increasing the number of visitors and boosting the Hong Kong computer market during the economic slowdown. Many mainlanders visit Hong Kong to purchase notebook computers, digital cameras and other devices. The visa reform was widely perceived as a gesture to help Hong Kong fight the economic crisis.
Competitive Landscape
2010 is projected to be the year of tablet notebooks, spearheaded by Apple's iPad. In July 2010, official versions of the iPad became available from mobile telecom service provider 3, as well as authorised Hong Kong resellers and the online Apple store. The iPad is relatively high priced, but seems likely to appeal to fashion-conscious early adopter Hong Kong consumers. Meanwhile the device has also won some corporate customers, including the InterContinental chain of hotels.
Also in July 2010, HP Enterprise Services announced it had signed a 10-year contract with the HKSAR government to help Hong Kong public libraries implement and provide ongoing support for a new integrated library system (ILS). The Virtual ILS system is scheduled to be implemented at Hong Kong Public Library in 2011, and will include a radio frequency identification (RFID) technology to enable automated management of book borrowing rights.
One feature of the IT services competitive landscape is the increasingly aggressive move of telecoms service providers into the IT services space. In May 2010, PCCW Solutions launched its own cloud computing service. Local telecoms company PCCW has forecast the service will break even within one year, and the banking and retailing fields are seen as key areas of potential. Meanwhile in January, Hong Kong Broadband Network, the broadband subsidiary of local telecoms company City Telecom, announced it had formed a partnership with I-Consulting Group to introduce managed services.
Computer Sales
BMI forecasts the Hong Kong computer hardware market will be worth US$2.2bn in 2010, 9% growth from 2009. In H110 the market rebounded as consumer spending remained strong, building on an impressive recovery in H209. However, the most popular area of the computer market was netbooks, which were estimated to have accounted for 20-25% of Hong Kong notebook sales in 2009.
Computer sales are expected to maintain an upward trajectory in 2010, with robust consumer demand support by a revival in corporate and SME investment. The Closer Economic Partnership Agreement with mainland China is continuing to expand horizons for smaller enterprises and encourage IT investments.
Software
Software sales are forecast at US$1.1bn in 2010 and are expected to reach around US$1.4bn by 2014. Hong Kong boasts one of the most advanced software markets in the region and software accounts for around 25% of IT revenues. Indeed, the territory has long been an important market for new launches of packaged software products.
The release of Microsoft's Windows 7 operating system has the potential to stimulate the market. Beyond basic enterprise resource planning (ERP) applications, business segment growth opportunities include customer relationship management (CRM) and business intelligence. As vendors' attention turns to smaller companies, the software-as-a-service (SaaS) model is enjoying increasing popularity in Hong Kong.
IT Services
In 2010, the IT services sector is forecast at around US$1.4bn, up from US$1.3bn the previous year. IT services revenues are then projected to grow at a 2010-2014 CAGR of 5%. The market is expected to build on a trend towards larger outsourcing projects evident in both the public and private sectors over the past couple of years: IBM and HP are among those to have won large deals.
The government's Digital 21 initiative will continue to generate a number of projects, while one of the highest IT spending verticals should be the financial sector, where IT systems and processes still generally lag some way behind Hong Kong's status as a leading global financial centre. The IT services industry benefits from Hong Kong's excellent telecoms infrastructure, with Hong Kong being the first city to fully digitise its fixed-line telecoms networks.
Cyberport
The Cyberport was designed to provide the city with a major regional hub that would attract leading IT companies and professionals. The first phase of the HKD13bn project, developed by PCCW, was inaugurated in November 2001. After the science park opened in June 2003, it came under criticism for failing to attract enough tenants to fill the 38,000m2 of office space. This was mitigated slightly when the Dutch electronics firm Philips agreed to rent a floor and Microsoft announced it was moving its 250 Hong Kong-based employees there. However, high-tech blue chip companies seem to have lost interest, with commentators pointing to the lack of a mature venture capitalist community, favourable egovernment policy or even 'entrepreneurial spirit'. As the Cyberport does enjoy some advantages, including a favourable location and proximity to the vast mainland market, there is increasing demand for the government to revive the project.
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