Argentina Information Technology Report Q2 2008

Market Overview The Argentine IT market is projected to grow at a compound annual growth rate (CAGR) of 9% over the 2007-2012 period against the background of a consumer boom continuing to exceed expectations. The IT market is the second largest in the Latin America region and the total value of spending on IT products and services should be approaching US$4bn by 2012. The government is continuing efforts to expand computer penetration to under-served segments of the population The overall economic outlook is constructive for growth in IT spending with the new administration's priority likely to maintain the high rate of economic expansion, while containing any risks of overheating.

All the signs point to double-digit PC sales growth in 2007, with resellers and retailers planning further investments this year. Falling prices and better availability of credit are driving growth, and a PC penetration rate of around 22% currently indicates plenty of room for growth. Growing penetration of mobile and broadband services also create opportunities.

Government spending will also remain a key support to the market, with new spending by the social security and other agencies. However, a number of risks pertain to our forecast scenario. The market is characterised by significant income and geographical disparities, and the financial turmoil surrounding the US credit woes could have a negative impact on Argentina's economic growth outlook.

Industry Developments Argentina's social security agency Anses has said that it expects to save more than ARS2mn (US$636,000) in 2008 by using open source software. The agency's decision to migrate its PC stock to open source resulted mainly from a desire to not pay proprietary software licence fees. So far the transition has reportedly involved around 8,000 computers which connect with the systems' mainframe.

Meanwhile, Argentina's customs agency is hoping this year to launch a tender to replace its legacy IT platform. The project, if it receives the go-ahead from the government, would be worth an estimated US$90-100mn. The legacy system dates back to 1993 during the Menem administration, but has experienced problems in recent years.

Competitive Landscape Availability of credit is an important driver for consumer PC demand, and Lenovo has recently launched a credit programme for resellers. The programme, launched in conjunction with local bank Comafi, makes up to US$15000 credit available, repayable in 6-24 monthly instalments at a fixed interest rate.

The credit is made available through Lenovo's local wholesalers, Air Computers, Microglobal, Stylus, and Tallard. Consumer PC sales are expected to grow as much as 80% in 2008, faster than corporate segment sales.

Meanwhile, Microsoft reported 2007 Windows Vista sales of 1.04mn licences, amounting to 57% of all local Windows sales. The figure was also more than 10% of all Latin American sales of the Vista operating system, launched last year. In 2008 Microsoft is hoping it will sell more than 1.5mn licences.

Computer Sales BMI is projecting that Argentina's computer and accessories market will have a CAGR of at least 8% over the 2007-2012 period. For 2007, market revenues were put at US$1.29bn, and should be approaching the US$1.8bn mark by 2012. Annual computer sales were around 1.8mn units in 2007, and should increase to more than 2mn units in 2008. As elsewhere in Latin America, the main drivers of growth include the fall in the value of the US dollar as well economic growth and rising incomes. The average price of a PC fell 2% last year. Affordability has also been boosted by a greater availability of financing options from retailers and vendors with government encouragement. Sales of notebooks have risen much faster than that of desktops, and accounted for more than 20% of unit sales in 2007.

Software Argentina's software market is estimated to have been worth US$422mn in 2007, and the figure for 2008 is expected to come out at a little more than US$464bn. Software CAGR for 2007-2012 is projected at around 10%, despite high annual software piracy losses. Enterprise software accounts for around half of total software revenues. The main functional category currently remains ERP solutions, estimated to account for more than 80% of the enterprise software total. Demand will remain strong in the near-term due to the large potential market represented by SMEs in many parts of the country.

IT Services Argentina's IT services market is estimated to have grown around 11% in 2007 to a value of just short of US$700mn, with similar growth expected in 2008. For a developing market, the percentage of IT market revenues generated by services is fairly typical at around 25%, but lower than some other countries in the region where the services share is already above 30%. However, services revenues are expected to grow faster than for the market as a whole, with CAGR for the 2007-2012 period in the low double-digit range.

E-Readiness Argentina possesses one of the most dynamic telecoms markets in the region, with a dramatic expansion in the number of mobile subscribers over the past years. Fixed line penetration is also among the highest in the region, providing a good platform for strong growth in broadband services adoption. According to BMI estimates, the number of Argentine internet users reached 12.2mn in 2007, representing 31% of the population. The percentage of broadband subscribers in the general population was 5.6%, compared with 2.2% in Brazil.