South Korea Information Technology Report Q4 2009

Market Overview South Korea's IT market will continue to provide opportunities in 2009, despite current strong economic headwinds. The total size of the South Korean IT market is expected by BMI to increase from US$15.1bn in 2009 to around US$19.8bn in 2013, Growth is forecast to ease further in 2009 however, with some businesses delaying new IT projects, and consumers cutting back on their spending.

Despite the negative macroeconomic outlook, there are a number of factors which will to some extent immunise against slowdown in demand. In the consumer segment, growing broadband penetration and the popularity of netbooks will be a bulwark against slowing demand. 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 The Ministry of Public Administration and Security (MOPAS) has 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.

In early 2009 there were signs that a turning point may have been reached for memory chips, particularly for NAND prices, and that a rebound could be possible later this year. This would largely be due to supply side restructurings, with leading manufacturers such as Hynix cutting production significantly. In the supply-driven semiconductor market, such actions have offset demand weakness.

Competitive Landscape Local vendors Samsung and LG are the leading players in the Korean PC market with a combined market share in the region of around 80%, leaving rivals such as Dell and Taiwanese company Asustek trailing. Samsung is the overall market leader, with around 40% of the total PC and accessories segment.

Microsoft has disclosed plans to invest about US$60mn (75.6bn won) in South Korea over the next three years. In the Korean market, the company is continuing to invest widely in many fields. Recently Microsoft teamed up with Hyundai motor company in opening a research centre to develop new IT products and services for automotive applications.

The South Korean IT services market is highly competitive, thanks to the presence of strong local market players such as Samsung and LG, as well as the major MNC providers such as IBM and HP. In recent South Korea Information Technology Report Q4 2009

?(C) Business Monitor International Ltd Page 6 times, traditional IT services providers have faced strong competition for a share of the outsourcing market from IDCs (internet data centres) such as Korea Telecom (KT), LG Telecom and Hanaro Telecom.

Computer Sales According to BMI figures, sales in South Korea's PC market will be worth around US$3.3bn in 2009, up from an estimated US$3.2bn in 2008, with sale of notebooks growing while the desktop market shrinks as a share of overall sales. Total PC revenues including notebooks and desktops are expected to rise to US$3.4bn in 2013 at a CAGR of 1.4%.

The main driver of the market will be notebooks, with notebook sales projected to reach US$3.1bn by 2013, driven by demand for slimmer, lighter and more attractive models with multimedia and entertainment features and wireless connectivity. 3G wireless network expansion will help drive sales.

Software Software spending was estimated at US$4.9bn in 2008 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 current economic crisis may lead some companies to cut IT budgets or look to defer systems updates.

Other companies, however, will see IT as a way of bringing greater efficiencies and increasing competitiveness in difficult times. The trend in the industry is towards specialised vertical specific applications for industries such as auto, pharma, financial services and health.

IT services IT services accounted for about 40% of the domestic IT market in 2008, with spending of US$5.8bn, up from US$5.2bn in 2007. CAGR for the segment is estimated at 8% over the 2009-2013 period. The fastest growing segment of the market in the past few years has been IT outsourcing, which is expected to continue to grow throughout the forecast period.

The economic situation, and credit tightening, is likely to have an impact on projects in some market segments. However, sectors such as government, telecoms, healthcare and banking should continue to supply demand for implementation, consulting and managed services.

E-Readiness Narrowband internet penetration in South Korea was estimated at around 74.1% in 2008, and is expected to decline to 69.7% by 2013 as it is replacement by broadband technologies. Broadband penetration, estimated at 33.2% this year, is projected at 35.9% by 2013. South Korea has one 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 did it commercially launch a CDMA2000 1x EV-DO Revision A network and start offering '3G' services. By 2012 we expect 85% of the mobile market to be 3G, representing around 44.6mn subscribers.