Colombia Information Technology Report Q2 2008

Market Overview Colombian consumers' demand for computers appears robust, and the total value of spending on IT products and services is projected to pass US$2bn in 2009 and US$2.5bn by 2012. Colombia's IT market is projected to grow at a compound annual growth rate (CAGR) of 11% over the 2007-2012 period. The consumer-driven economic boom of recent years is expected to moderate over the next few years, but will remain in the 4%-5% range, providing a framework for growing spending on IT products and services.

The Colombian IT market is one of the least developed in the Latin America region. This is likely to change however, with programmes like Zona Clic which uses computers as a tool to reintegrate disaffected groups. Government programmes also provide an important context for market development.

Investor confidence is gradually returning and the government sees increased ICT spending as a key means to advance its central strategic goals.

While the majority of demand, around 75%, still comes from the large company sector, smaller companies will become a more significant focus for vendors. Consumer demand also remains strong, despite the increasing cost of borrowing. A PC penetration rate of around 10% is one of the lowest in the region and indicates plenty of potential for organic growth. Retail segment growth will, however, likely be slower than in 2007 when there was a boost from the introduction of a tax exemption for PCs.

Industry Developments The first quarter of 2008 saw significant IT projects get underway in both public and private sectors. The Colombian government's Department of the Public Function (DAFP) launched a major project to roll out a new HR system covering the whole government. The new system will provide advanced payroll and workforce administration to all of the Colombian government's 10,000 offices.

Meanwhile, the banking sector was also an important source of spending. In Q108 it was revealed that Colombian clearing houses have spent a total of COP5.8bn on a new clearing system. The new system replaces the legacy Seguro system and will be able to accommodate 2.3mn users.

Local governments are also active in promoting their own ICT programmes. In Q108 the city of Manizales announced an agreement with Colombia's Universidad Nacional, and various other partners, to launch a software development hub in the city.

Competitive Landscape The fast growth of Colombia's mobile communications subscriber base is also creating opportunities for IT vendors. Microsoft recently announced a partnership with regional mobile communications service provider Movistar to deploy Windows Live in Colombia over a mobile platform. Microsoft expects the new unified communications platform to drive at lest 20% revenues growth for its relevant business unit in fiscal year 2008.

The fastest growing segment of the IT market is expected to be IT services, with regional and global players looking for ways to increase their local presence. In Q108 Chilean IT services giant Sonda paid US$13.6mn to acquire 80% of Colombian IT services provider Red Colombia. Sonda is expected to acquire the remaining 20% over the next 12 months.

Computer Sales BMI is projecting that Colombia's computer and accessories market will have a CAGR of around 6% over the 2007-2012 period. For 2007, computer sales were put at US$676mn, and should pass the US$900mn mark by 2012. Sales should rise some 6% in US dollar terms in 2008 to reach US$727mn.

The fastest growing segment is notebooks, which enjoyed triple-digit growth in 2007 compared with the previous year and accounted for around 30% of unit sales in some quarters. The introduction in December 2006 of a tax exemption for PCs costing under COP1mn (US$850) led to fast PC sales in the first half of 2007.

Software Colombia's software market is estimated to have been worth US$283bn in 2007, and the figure for 2008 is expected to come out at around US$304bn. Software has opportunities for growth over the next few years, despite a relatively high software piracy rate. Software piracy was estimated to account for 69% of software in 2006, but last year the government mounted a more sustained campaign to reduce this. The software sector's growth will be sustained in the short term by continuing demand for basic solutions such as ERM and supply chain management systems.

IT Services Colombia's IT services market is estimated to have grown around 10% in 2007 to a value just above US$680mn, with growth of around 9% expected in 2008. For a developing market, the percentage of IT market revenues generated by services is currently around 39%, high by emerging market standards and above the regional average. Most demand, around 75%, still comes from the large company sector, but smaller companies are also now becoming more sophisticated. In the last year or two there has been a trend towards bigger managed service and outsourcing deals.

E-Readiness According to BMI estimates, the number of Colombian internet users reached 8.5mn in 2007, representing 18% of the population. The percentage of broadband subscribers in the general population, however, was only 2.4 % with just over 1mn subscribers.

In 2008, Colombia's High Council for Reintegration (ACR) is continuing its initiative to widen digital inclusion and bring internet connections to 10mn Colombians in 55 cities and towns. The ACR was set up in 2006 to focus on building social cohesion by helping to heal the wounds left by civil war, and the organisation sees ICT as a tool for reintegration of the disaffected. The organisation's new programme, called Zona Clic, aims to bring 90,000 computers with printers to public access areas such as pharmacies, libraries, and barber shops. The target is to install 2,500 modules a month and the programme will be present in 55 cities with more than 100,000 inhabitants. The ACR is working in partnership with IT companies such as HP, Intel and Microsoft.