United Arab Emirates Information Technology Report Q3 2008

Market Overview The UAE's IT market is projected by BMI to reach a value of more than US$4bn by 2012, on the back of the ongoing investment boom. Total spending on IT products and services should grow at a CAGR of around 11% over the forecast period, as the country witnesses rapid expansion on the IT front. Despite an anticipated slight slow down in the growth of the non-oil economy in 2008, local and federal government initiatives and a generally strong economy will underpin growth. The federal government has stepped up the pace on e-government. Meanwhile, Dubai and Abu Dhabi continue to lead the way on their own ambitious projects.

The UAE is unusual in the region in that 80% of its GDP is derived from the non-oil sector. Key non-oil sectors driving the economy include Banking, which is likely to be the single largest industry vertical in terms of IT investments over the forecast period. Real Estate has also experienced massive investment in the past five years, and this is set to continue. SMBs will provide much of the growth opportunity for hardware vendors. The retail segment will continue to grow fuelled by an economy generating high disposable income among its citizens.

Services will be the fastest growing segment of the IT market over the next few years, and is becoming an increasingly important component of many deployment contracts. Banking is likely to be the single largest industry vertical in terms of IT investments over the forecast period.

Industry Developments The UAE federal government continues to make progress in deploying new e-services. According to the UAE's prime minister and ruler of Dubai, Sheik Mohammed Bin Rashid Al Maktoum, in 2007 about 90% of e-services completion and 50% of services transactions were achieved online. The UAE Strategic Plan, launched towards the end of 2007, provides a framework for implementation of e-government programmes at federal government level.

Local government continues to account for around 20% of all IT services spending, with Dubai continuing to lead the way and roll out new services. In Q208 the Dubai Department of Islamic Affairs and Charitable Activities became the 16th government department to join the AskDubai service. The Dubai e-government initiative provides a single point of contact to facilitate interaction between government and the public.

Competitive Landscape In 2007 vendors and channels profited from growing demand for PCs across many segments of the UAE market. The market remains dominated by international players such as Acer, HP and Dell, with the top five brands accounting for more than 50% of the market. Acer, which was ranked second in the UAE PC market last year, reported 30% growth in sales.

Vendors and distributors are positioning themselves to take advantage of expected growth conditions.

Dell has taken steps to enhance its regional logistics by establishing a new central regional distribution hub in Jebel Ali.

IT services are set to be the fastest growing area of the market over the next few years, with the top IT services vendors including EDS as well as local companies Emirates Computers and Injazat. With new e-government programmes being rolled out, vendors are focused on opportunities in the government sector, which accounts for as much as 40% of national IT spending Hardware The UAE's hardware market is one of the largest in the region, estimated at about US$1.4bn in 2007, up 12% from US$1.2bn in 2006. Much of the growth is being driven by small and medium enterprise spending, particular on mobile computers, which are expected to account for around 60% of sales over the forecast period. Notebooks are also proving popular with the consumer segment, particularly with the introduction of features such as wireless internet PC cards and entertainment features such as HD DVD.

Sales of PC notebooks and accessories are expected to reach more than US$1.2bn in 2008, while the compound annual growth rate (CAGR) for the 2007-2012 period as a whole is expected to be in the region of 9%. Investment in education and e-government, fuelled by new oil revenues, will lead to desktop rollouts in schools, colleges and government offices across the Emirates.

Software BMI estimates that the UAE's software spending will reach aroundUS$477mn in 2008, representing around 17% of the IT spend. CAGR for spending on packaged software is put at 12% over the 2007-2012 period, with the UAE being of the region's fastest-growing ERP markets. CRM is also set to be a growing area of opportunity. The UAE has one of the region's lowest software piracy rates at just 35%, according to the Business Software Association (BSA). In 2008, the Ministry of the Economy launched a new antipiracy media campaign, and Abu Dhabi authorities also recently co-operated with Microsoft in raids on resellers retailing unlicensed software. BMI predicts plenty of room for growth in the forecast period as numerous untapped sub-sectors still exist. Key verticals include process manufacturing (mainly oil and gas), followed by the finance sector. Other key segments are telecoms and the public sector. During the next five years, in addition to CRM and enterprise resource planning (ERP), high-growth categories will likely include business intelligence, storage and security products.

IT Services BMI expects that the IT services market will reach a value of nearly US$1.2bn by 2012, with outsourcing accounting for an increasingly large portion of up to one-quarter. IT services revenues compound annual growth rate (CAGR) over the 2007-2012 period is expected to be 13%, encouraging vendors to shift their focus away from simply shifting boxes. Services are becoming an increasingly important component of many deployment contracts, as evidenced by recent projects by leading UAE corporations such as Emirates Airlines and Etisalat. Outsourcing is also predicted to be a growing trend, with recent landmark outsourcing deals awarded by entities such as the Abu Dhabi Water and Electricity Authority and civil service departments. Global vendors such as IBM Global Services are competing for this business with local companies such as Injazat Data Systems, which with its good government connections has grown to be a major force in the market, reporting BPO deals with 13 leading private and public organisations.

E-Readiness The UAE is implementing an ID card project which will be a key element underpinning future information society development. The project, supervised by the Emirates Identity Authority (EIDA), aims to and issue the whole UAE population with electronic ID cards. EIDA is creating a population register database and recently opened its 18th registration centre.

Government initiatives, particularly in the area of e-government, have helped to make the UAE leader on many e-society indicators. This was reflected in the most recent World Economic Forum e-readiness rankings, which gave the UAE the highest ranking (29th out of 127 countries) in the region. The country ranked even higher (10th) for e-government.

Overall internet penetration in the UAE was estimated at 43% by the end of 2007, far above the Middle East and North Africa (MENA) average, reflecting the Emirates' status as one of the most advanced IT countries in the region. Broadband penetration is around 10.5% and is expected to rise to 17.5% over the forecast period. The Emirates benefits from a good regulatory environment, and clear government leadership in leverage IT and promoting its use. In terms of e-government development, several new projects are to be launched this year (see Industry Developments).