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South Korea Information Technology Report Q4 2010
Business Monitor International, Oct 2010, Pages: 54
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 this year, after signs of a continued upturn in consumer demand in the first half of 2010. 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 growth areas including notebook PCs, IT outsourcing, hosted applications and industry-specific software applications. Going into 2010, the consumer segment continued to drive IT market growth due largely to increased consumer sales of notebooks. Corporate IT spending should also pick up, however, as business confidence improves following a resurgence of orders in the wake of the economic slowdown. New cloud computing offerings are expected to fuel further demand from end-users to utilise this technology and drive investment in data centres.
In the consumer segment, growing broadband penetration and rising demand for notebooks will continue to be growth drivers. 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
South Korea has announced that it is to spend US$224.5mn to prepare to launch fully fledged cloud computing services in 2010. Around 73% of the funds will come from the state, with the money being used to develop technology and build infrastructure required to support the service. The government will also move to reform potential administrative and legal barriers to cloud computing, which it aims to complete by 2013.
In Q210, the South Korean communications regulatory lifted a briefly imposed ban on imports of the Apple iPad for personal use. The ban had been in place because the iPad's wireless networking features had not yet certified, but the local media had delighted in exposing South Korean celebrities who had the gadget.
South Korea plans to invest KRW400bn (US$341.1mn) by 2013 to help develop the domestic software industry. In March, the government announced that it would spend US$27.4mn in 2010 on support for a software training programme that will aim to produce more software entrepreneurs. The government's ambition is for South Korea to become a global software power as well as a leading hardware producer.
Competitive Landscape
In July, South Korea's biggest wireless operator SK Telecom was reported to be in talks with Apple to offer the iPad. SK's main rival, KT Corp, has exclusively offered Apple's iPhone, but the US technology firm reportedly preferred to work with multiple vendors in South Korea. Meanwhile, in August, KT Corp said that it would release an Android-powered tablet PC made by South Korean manufacturer Enspert. The banking and financial services sector is a key target for vendors. In May, US consulting company Accenture signed an eight-year collaboration agreement with local company Hanhwa S&C to jointly market IT solutions and services to insurers, securities firms and banks in South Korea. Hanhwa will help Accenture tailor its financial services solutions to the South Korean market. For its part, IBM announced in April that it won a seven-year contract to provide technology and services to Dongbu Insurance, South Korea's second largest non-life insurer.
Computer Sales
According to BMI projections, sales in South Korea's PC market will be worth around US$3.4bn in 2010, with single-digit growth from 2009. Total PC revenues including notebooks and desktops are forecast to rise to US$4.0bn in 2014 at a compound annual growth rate (CAGR) of 4%.
The main driver in 2010 will remain notebooks, with shipments driven by demand for slimmer, lighter and more attractive models with multimedia and entertainment features as well as wireless connectivity. 3G wireless network expansion will also help to drive sales. Laptops already dominate the consumer PC market, accounting for more than 60% of household PC sales in some quarters of 2009.
Software
Software spending is forecast at US$5.6bn in 2010 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 South Korean software market is towards specialised vertical-specific application packages for industries such as auto, pharmaceuticals, financial services and healthcare. 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$6.3bn. 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 internet data centres (IDCs). South Korea's IDC sector has been expanding at a 20% rate thanks to aggressive investments in capacity.
In July, Microsoft announced that it was partnering LG Uplus to launch cloud computing services in South Korea. The two companies said that they would first form teams to study technical and business feasibilities. The partners hoped to help South Korean businesses improve productivity through delivery of cost-effective, easy-to-use services and applications such as enterprise resource planning (ERP), human resource (HR), customer relationship management (CRM) and other business solutions on demand.
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, SK Telecom and LG Telecom as well as 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 International Telecommunication Union 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 W-CDMA-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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