Saudi Arabia Information Technology Report Q3 2008

Saudi Arabia will be a lucrative market for information technology over BMI's 2008-2012 forecast period, as the infrastructure boom fuels investments on the IT front. The IT market is expected to grow at a CAGR of 12%, from close to US$3bn in 2007 to nearly US$5bn by 2012. IT spending growth will be stronger than overall GDP growth. The buoyant economy is generating high disposable income, and the Kingdom's youthful population demographics should support a continued rapid rise in internet, PC and notebooks penetration.

BMI projects that annual non-oil growth will continue to outpace growth in the oil sector over the coming period. Saudi Arabia's petrodollar liquidity is fuelling rapid construction of new commercial complexes, which is driving demand for IT equipment and solutions. There will be significant opportunities in major verticals such as oil and gas, financial and telecoms, as well as retail and real estate. However, the Kingdom's economic prosperity remains highly dependent on oil, which still accounts for 89% of budgetary revenues.

Saudi Arabia accounted for at least 40% of IT spending in the Middle East region last year. Annual percapita expenditures on IT in Saudi Arabia reached an estimated US$330. Substantial budgets have been allocated for e-government infrastructure development, as well as information society development, and economic diversification. Meanwhile, in the enterprise segment, high liquidity is promoting investment, while improvements in the business environment and trade liberalisation attract new inflows of foreign direct investment (FDI).

Industry Developments Spending on e-administration in Saudi Arabia is set to be worth hundreds of millions of dollars a year over the forecast period as government organisations seek efficiencies. The Saudi Arabian State Budget 2008 places 'special emphasis on e-government' and provides for capital expenditures that will enhance economic activity. In 2007 a sum of US$800mn was assigned by the Saudi government for the roll-out of more e-government infrastructure.

In 2007 the Saudi Council of Ministers announced approval of a new national plan to guide the Kingdom's continued transformation into a knowledge-based society. The plan was described as having a number of short and long-term objectives. However, one of the major goals is the further development of domestic telecoms and IT sectors as part of the government's economic diversification strategy. The Saudi Cabinet also said it wished to make the sector 'one of the main sources of income'.

Competitive Landscape The Saudi Arabian PC market remains dominated by international players such as Acer, HP and Dell. A key segment driver is strong demand in the notebook segment, where prices have fallen driven by aggressive channel promotions. High consumer incomes mean that vendors such as HP and Acer are promoting high performance notebooks with entertainment features.

Following strong market growth in 2007, vendors are strengthening their local channel business models.

Leading notebooks player Acer recently announced that it has signed an agreement with Samir 2, one of Saudi Arabia's leading IT distributors. Acer has also formed a partnership agreement with Metra Computer, another leading Saudi Arabian IT distributor.

Meanwhile, IT services vendors are targeting key sectors. HP Services has announced a new strategic partnership with local SAP consultancy company Al-Bilad Arabia, which will target the oil and gas sector. HP Services sees a market for helping these companies improve business process innovation and flexibility. The healthcare vertical is another potentially lucrative one, and in 2008 GE Healthcare, the healthcare business of GE, announced the formation of a new joint venture, Computer Sales Sales of computers, including PCs, notebooks and accessories, are expected to top US$1.4bn in 2008, with the segment forecast to grow at a CAGR of 11% in 2007-2012. The number of personal computer users in Saudi Arabia should continue to rise steadily over the forecast, with penetration approaching 30%, led by programmes such as the 'Home Computing Initiative', which permits the purchase of computers at low prices and in easy instalment payment schemes. Telecoms liberalisation, with new licences in 2007, and a big push towards broadband penetration are also expected drivers of demand. Egovernment development and the rollout of WiMAX and wi-fi networks should also provide a boost to demand for computers.

Software BMI predicts a software market value of US$502mn in 2008, up from US$437mn in 2007. The sector should continue to grow at a CAGR of 13% over the forecast period. With the evolution of the regional economy, more innovative plans for expansion and development are being seen from many Saudi Arabian companies, driving more spending on software as companies adapt to a more e-enabled society. Saudi Arabia remains the largest market for software solutions in the region, ahead of the UAE. Oil and gas remains the largest software vertical purchasing sector, followed by telecoms, but large contracts are being seen in the non-oil manufacturing sector in areas such as chemicals and automotive.

IT Services The Saudi Arabian IT services market was worth around US$858mn in 2007, and is expected to grow at a CAGR of 12% over the 2007-2012 forecast period. In the past year demand for IT services, including outsourcing, has shown a strong growth trend in a number of sectors. However, support and maintenance account for around one third of spending on IT services. Sustained high oil prices have been driving spending on IT projects by government as well as in industries such as oil and gas, transport and utilities.

In particular, the government's US$800mn budget allocation for e-government development should create opportunities for services vendors.

E-Readiness Saudi Arabia's narrowband internet penetration was around 17% in 2007, and is projected to rise to 24% by 2012. However, the most dramatic growth will be in broadband penetration, which is projected to rise from 2.6% last year to 27.4% by 2012. By 2012 there will be an estimated 7.6mn broadband users in the Kingdom. Investment in broadband and government initiatives has seen an improvement in e-services development and utilisation, which was reflected in the UN's most recent e-government rankings, in which Saudi Arabia rose 10 places.