Peru Information Technology Report Q2 2008

Market Overview The Peruvian IT market remains one of the smaller in the Latin America region, but is projected to grow at a compound annual growth rate (CAGR) of 8% over the 2007-2012 period. The Free Trade Agreement (FTA) with the United States, and other similar trade agreements, will encourage many companies, particularly larger ones in the public sector, to invest in optimising systems. Recent data from the Colombian Statistics Institute INEI reveals the market's significant digital divide however, with PC penetration of 30.75% in metro Lima, compared with just 0.75% in rural areas.

The total value of spending on IT products and services is expected to pass US$880mn in 2008 and US$1bn by 2010. Despite strong enterprise and retail demand for IT hardware in 2007, an overall PC penetration rate of around 15% indicates plenty of room for growth. The overall economic outlook is constructive for growth in IT spending, with consumption remaining high and fixed investment at record levels, despite the deteriorating external environment.

The retail sector should register solid growth in PC sales due to a greater range of tariff reductions, rising incomes, and more flexible terms from retailers. Corporate IT spending is likely to receive a boost from the FTA as enterprises invest to compete, but it is uncertain as to how fast e-government programmes will progress. Government spending is around 10% of total IT spending, however, and the government will remain a support to the market with a number of programmes to drive PC penetration.

Industry Developments The Free trade agreement (FTA) with the US is likely to create many new opportunities for software vendors as larger state owned companies in particular look to improve their information systems. The corporate segment is expected to grow 20-30% over the next few years. However, the government wants to make sure that local software firms get their share of profits. A number of initiatives are being taken to develop the Peruvian software segment and the government is targeting US$100mn annual software exports by 2012, from US$25mn last year.

Meanwhile, the government is maintaining its focus on the key issue of computers in schools. In January 2008, the Argentine software and IT services industry association, Cessi, signed an agreement with Buenos Aires municipality to promote IT use in schools. The new initiative follows the launch, in November 2007, of a national programme called 'Teachers of the 21st Century'. The programme gives teachers the opportunity to purchase laptops at reduced prices.

Competitive Landscape US software giant Oracle has announced a partnership with Peruvian telecoms operator Telefnica. The agreement will see Telefnica's Peruvian outsourcing subsidiary tgestiona use Oracle platforms to develop technology and offer a series of outsourcing services to clients. Meanwhile, enterprise software segment market leader SAP's main target sectors in Colombia this year include agribusiness, government, and SMEs.

Peru's status as one of the Latin American region's faster growing PC and notebook markets in 2007 is providing opportunities for international vendors. Strong sales in Peru in 2007 helped to drive Dell's recovery in the Latin America region in 2007, with the company taking around a 7% share in the region.

Meanwhile, Lenovo received a boost in 2007 when it was selected as one of the vendors for the Peruvian government's laptops for teachers programme.

Computer Sales BMI is projecting that Peru's computer and accessories market will have a CAGR of at least 7% over the 2007-2012 period. National computer penetration was 15.4% of homes in Q307 according to government figures, up 3.4% from the same quarter a year before, but suggesting plenty of potential. For 2007, computer sales were put at US$381mn, and should pass the US$500mn mark by 2012. Annual computer sales including notebooks are currently more than 500,000 units a year, and increasing at around 20% a year. Indeed, 2007 was a particularly strong year for hardware sales with demand up from both retail and enterprise segments. The main market driver is, however, the retail sector which accounts for around 45% of PC sales and recorded 50% year-on-year (y-o-y) growth in some quarters of 2007.

Software Peru's software market is estimated to have been worth US$98mn in 2007, and the figure for 2008 is expected to come out at around US$106mn. Software CAGR for 2007-2012 is projected to be in the region of 8%. Software demand is starting to pick up, with the use of pirated software in the public sector dropping significantly in 2006 to around 40% of all software from 73% in 2003. The main driver of this trend is a regulation passed in 2003 obliging all public entities to use legitimate software and setting up a watchdog Indecopu to oblige public entities to audit applications running on their employee PCs.

IT Services Peru's IT services market is estimated to have grown around 12% in 2007 to a value of around US$269mn. Some 10% growth is projected by BMI for 2008. For a developing market, the percentage of IT market revenues generated by services is high at around 32%, although in line with the region and lower than for Brazil. In Peru, the growing level of investment in recent years in corporate management solutions is translating into demand for support and maintenance as well as more sophisticated IT services.

E-Readiness The World Economic Forum ranked Peru 78th in the world in its most recent survey of 'e-readiness', some 25 places behind Brazil. However, Peru had risen seven places and the report cited improvements in some institutions including Judicial, Police and Education. According to BMI estimates, the number of Peruvian internet users reached 6.2mn in 2007, representing 22% of the population. The percentage of broadband subscribers in the general population, however, was only 2.1%.

Recent data from Peru's Statistics Institute, IENI, suggests that nearly 75% of internet users use a public access point. This compared with just 18.8% of users who use internet at home, and 12.1% at work.

Mobile telephony penetration is continuing to increase significantly, and was up to 45.02% in Q307, from 31.3% a year earlier.