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South Korea Information Technology Report Q4 2011
Business Monitor International, Nov 2011, Pages: 62
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 should record single-digit growth in 2011, consolidating an upturn in IT demand in 2010. BMI expects South Korean IT spending to increase from US$17.8bn in 2011 to US$25.1bn in 2015. There will be a number of key drivers and growth trends including cloud computing, IT outsourcing, and industry-specific software applications.
In 2011, consumer segment IT demand should be solid thanks to rising income level as the Korean economy posts continued growth. Growing broadband penetration and demand for tablets and other new form factors will continue to be PC market growth drivers.
New cloud computing offerings should fuel further demand from companies to utilise this technology and drive investment in data centres. Korean financial services institutions are investing more in customeroriented strategies and to streamline complex operating environments.
Industry Developments In August 2011, the South Korean government unveiled a new initiative to develop national mobile and desktop operating systems. One aim is to reduce local dominance of operating systems from foreign vendors such as Apple and Google. The government said that it would hope to estabish what it called a 'habitat' where users would be encouraged to choose the local operating system over foreign alternatives.
South Korea announced that it was to spend US$224.5mn to launch fully-fledged cloud computing services in 2010. Around 73% of the funds were to 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.
A particular government focus is on encouraging small businesses to utilise cloud computing. In 2011, the Korea Technology and Information Promotion Agency for SMEs (TIPA) will launch an SME programme, under which between 50%-70% of the costs of cloud services are eligible for subsidy. A pilot project was run in 2010 and many leading telecoms and IT service providers are expected to participate in the tender.
Competitive Landscape
Korean telecoms companies are moving aggressively into the IT services space. In H111, Korean telecoms giant KT announced that it will make the transition to an information technology convergence group from a telecoms service firm, with plans to have non-telecoms businesses take up 45% of overall sales by 2015. Non-telecoms sales made up 27% of revenues in 2010. The company is targeting global ales of US$5.5bn from IT services and media by 2015.
Meanwhile in January 2011, Samsung upwardly revised its forecast for sales of its Galaxy tab tablet to 2mn units. However September 2011, rival vendor Lenovo claimed that Samsung had sold only 200,000 tablets in 2010, compared with its own reported sales of 1mn tablet units. Meanwhile, Samsung also faces the irritant of a legal challenge from Apple, which has taken out a series of injunctions to prevent Samsung from selling its Galaxy Pad in markets such as Australia and Germany.
Computer Sales
According to BMI projections, sales in South Korea's PC market will be worth around US$3.7bn in 2011, with single-digit growth from 2010. Total PC revenues including notebooks and desktops are forecast to rise to US$4.5bn in 2015 at a compound annual growth rate (CAGR) of 5%.
New PC form factors such as tablet computers will drive demand in 2011, boosted by telecoms operator subsidies, and 3G wireless network expansion will also drive sales. Laptops already dominate the consumer PC market, accounting for more than 60% of household PC sales.
Software
Software is forecast to report high single-digit growth in 2011, accounting for about 35% of total 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 autos, pharmaceuticals, healthcare and financial services. 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 are projected to account for about 40% of the domestic IT market in 2011, with spending of US$7.1bn. The CAGR for the segment is estimated at 11% over the 2011-2015 period, with cloud computing, mobile computing and social networking applications among the main trends driving growth. The cloud computing market has yet to fully take-off, but vendors and service providers are investing heavily in preparation.
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).
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 and LG Telecom, as well as increased marketing for 3G services by KTF, BMI expects 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 did not regard their networks as IMT-2000 until they upgraded to CDMA2000 1x EV-DO in 2002. Both SK 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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