Q3 2011 www.businessmonitor.com INDoNeSIa information technology Report INCLUDES BMI'S FORECASTS ISSN 1750-5070 Published by Business Monitor International Ltd. INDONESIA INFORMATION TECHNOLOGY REPORT Q3 2011 INCLUDES 5-YEAR FORECASTS TO 2015 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: July 2011 Business Monitor International 85 Queen Victoria Street London, EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2011 Business Monitor International. All rights reserved. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Indonesia Information Technology Report Q3 2011 © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2011 CONTENTS Executive Summary . SWOT Analysis . Indonesia IT SWOT Indonesia Telecoms SWOT Indonesia Political SWOT 10 Indonesia Economic SWOT . 11 Indonesia Business Environment SWOT 12 IT Business Environment Ratings 13 Asia 13 Table: Regional IT Business Environment Ratings 13 Asia IT Markets Overview 17 IT Penetration 17 Sectors And Verticals . 20 Indonesia Market Overview . 24 Table: Key Ministers And Departments . 24 Background 25 Hardware . 26 Software . 28 Services 30 Industry Developments 32 Industry Forecast Scenario . 35 Table: Indonesian IT Industry, 2006-2015 (US$mn Unless Otherwise Stated) 37 Country Context . 38 Table: Consumer Expenditure, 2000-2010 (US$) 38 Table: Rural & Urban Breakdown, 2005-2030 38 Internet . 39 Table: Telecoms Sector -- Internet -- Historical Data And Forecasts 39 Macroeconomic Forecast 41 Table: Indonesia – Economic Activity 43 Competitive Landscape . 44 Hardware . 44 Software . 46 IT Services . 47 Internet Competitive Landscape 48 Company Profiles . 49 IBM Indonesia . 49 Oracle 50 Sigma . 51 HP 52 BMI Methodology . 53 How We Generate Our Industry Forecasts 53 © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2011 IT Industry . 53 IT Ratings – Methodology 54 Table: IT Business Environment Indicators . 55 Weighting . 56 Table: Weighting Of Components 56 Sources 56 © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2011 Executive Summary The Indonesian IT market is forecast to grow at a compound annual growth rate (CAGR) of 18% over the 2011-2015 period. with a revival in business spending building on momentum from consumer spending. In 2010, computers sales grew strongly, and double-digit growth is expected again in 2011. Indonesia is forecast to be one of the best regional IT market growth prospects over BMI's five-year forecast period. IT spending is forecast to increase to US$5.4bn in 2011, up from US$4.7bn in 2010. Some fundamental drivers, including rising computer penetration and growing affordability, should ensure that the market remains firmly in positive growth territory. Growing investment in datacentres and other ICT infrastructure will support more demand for outsourcing and cloud computing. By 2015, IT spending is projected to reach a value of US$10.2bn. With information and communication technology (ICT) penetration of around just 20% and development restricted to richer areas such as Java, the market has much growth potential. However, the country's uneven development and digital divide are major barriers to faster growth in this potentially huge IT market. Industry Developments In 2010, Indonesia's information society development received a boost when the government said that it would start to introduce e-passports. Indonesia will thus follow in the footsteps of other South East Asian countries such as Singapore, Malaysia and Thailand. The immigration department plans to distribute 10,000 e-passports in the first phase, with these being mainly available in immigration offices in Jakarta, Semarang and Surabaya. The government is also rolling out e-learning initiatives, which could cause education's share of local IT spending to rise from its estimated level of around 4%. The ratio of PCs to students in public schools is around 1:3,200. The government wants to increase this to 1:20. As there are 53mn students in the Indonesian schools system, this would require at least 2.5mn computers. Competitive Landscape In May 2011, Lenovo, the bestselling computer vendor in the Asian region, announced plans to achieve a double-digit Indonesia PC market share in its current fiscal year. According to company data, the company currently has a share of around 7.6%. The consumer segment is the one that Lenovo has targeted for most growth in 2011, building on moves last year to create a stronger logistics and service infrastructure in Indonesia. In the enterprise applications segment, leading global vendor SAP has said it was optimistic that it could maintain its recent 60% annual growth momentum in Indonesia. Meanwhile, US rival Oracle is also © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2011 active in the Indonesian market, with new clients in H111 including Acuatico Air Indonesia, one of the main players in water distribution in the South East Asian region. Cloud computing will be a key focus for vendors in 2011. In 2010, Telkom partnered with Microsoft to launch cloud computing services, including platform-as-a-service (PaaS), infrastructure-as-a-service (IaaS) and software-as-a-service (SaaS). Meanwhile in March 2011, InstaCompute, a subsidiary of Indian IT giant Tata Communications, launched cloud computing services in Indonesia. Hardware BMI forecasts 2011 Indonesian computer hardware spending of US$3.9bn, up from US$3.2bn in 2010. The market is forecast to rise to a value of US$7.1bn by 2015. In 2010, consumer demand was reinforced by a revival in business IT hardware spending, which could account for about two-thirds of sales opportunities during the forecast period, with sales value doubling by 2015. Hardware accounts for more than 70% of Indonesian IT spending. The main drivers are growing affordability and more credit availability in a country where only about 20% of the population have access to a PC, compared with more than 40% in some other South East Asian countries such as Malaysia or Thailand. Software Indonesia's software sales are forecast by BMI to reach US$599mn in 2011, up from an estimated US$535mn in 2010. During BMI's five-year forecast period to 2015, the software sector CAGR is forecast at 22%. In 2011, migrations to Microsoft's new Windows operating system should remain a driver, although much will depend on consumer and business confidence. One market inhibitor is the continuing software piracy problem, which, according to the government's own figures, loses Indonesian software companies more than US$100mn per year. Over the forecast period, enterprise resource planning (ERP) software should continue to be of most interest to small- and medium-sized enterprises (SMEs) as only around 20% of Indonesian SMEs are estimated to make use of IT. In addition to cost savings, businesses will look to boost efficiency and increase the flexibility of responses to customer needs. IT Services Indonesia's IT services market is forecast to be worth US$880mn in 2011, recording double-digit growth from US$769mn in 2010, based on BMI estimates. IT services account for 17% of Indonesia's hardwarecentric IT market sales. Hardware deployment services remain the largest Indonesian IT services category with a 20% market share. © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2011 Improvements in Indonesia's telecoms and ICT infrastructure are expected to drive long-term growth in the Indonesian IT services market. Commercial datacentres are being built, linked to growing rollout by public sector and commercial organisations of e-government or e-commerce services. However, most opportunities are in fundamental service areas such as system integration, support systems, training, professional services, outsourcing and internet services. E-Readiness Low telephone line density, high charges and low PC penetration are all significant obstacles to higher internet penetration. However, the situation is not all bad, with signs of faster growth in user numbers and recent surveys showing that, among a very small elite, there is fast adoption (by regional standards) of broadband and a willingness to pay for video conferencing, security and other additional features. The government is encouraging fixed wireless deployments, including WiMAX, to bring the internet to more remote areas. The government is also rolling out an internet-based National Education Network, which involves 1,000 network points in five clusters nationwide, designed to facilitate the use of the internet in schools. Despite some advances in e-education, constraints remain due to poor infrastructure and a lack of public awareness in a country where only 20mn people own fixed-line telephones. © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2011 SWOT Analysis Indonesia IT SWOT Strengths Weaknesses Opportunities Threats ƒ Large potential market. ƒ The market may be entering a faster growth stage. It is forecast to grow quicker than most other Association of South East Asian Nations (ASEAN) markets over the forecast period to 2014 due to its underdeveloped nature. ƒ Computer penetration is among the lowest in South East Asia, estimated at only 1.5%. ƒ Underdeveloped telecommunications infrastructure due to years of government control and slow progress in deregulation. ƒ Lack of government support, and there is still no unified ICT ministry. ƒ History of recent political instability. ƒ Legal concerns, such as intellectual property rights, are a deterrent to foreign direct investment. ƒ Some positive trends: computer ownership and internet access are on the rise, and the government is showing signs of taking intellectual property more seriously. ƒ Per capita IT spending to increase by 50% over 2010-2014. ƒ Opportunities exist in services such as system integration, support systems, training, professional services, outsourcing and internet services. ƒ Computer sales are predicted to grow faster than almost anywhere else in the ASEAN over the next few years, although from a lower base. ƒ Continuing lack of government action to support increased PC penetration and internet access, or drive ICT sector development. ƒ The global economic slowdown may hit key demand segments. © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2011 Indonesia Telecoms SWOT Strengths Weaknesses Opportunities Threats ƒ A rapidly growing mobile sector due to the emergence of greater competition. ƒ The presence of key strategic investors, including SingTel, ST Telemedia of Singapore, Telekom Malaysia, Maxis of Malaysia, Hong Kong's Hutchison and the UAE's Etisalat. ƒ Security and corruption issues still make Indonesia a risky investment climate. ƒ Limited mobile spectrum due to overcrowding in the sector following the government decision to open the market to greater competition. ƒ Mobile broadband spectrum fees remain high for operators, reducing the implementation and variety of tariffs. ƒ Operators struggling with raised costs after the government forced companies to charge a fee based on cost rather than share part of their revenues. ƒ The mobile market expected to surge over the coming years, reaching nearly 431mn people over the forecast period. ƒ The popularity of mobile value-added/data services offers potential to international content providers. ƒ The growth of 3G will lead to investment opportunities for content providers and distributors. ƒ A government registration scheme could lead to short-term fall in fixed wireless and mobile users as non-registrants are deactivated. ƒ The dominance of the prepaid market leading to falling average revenue per user rates. ƒ Mobile operators could put too much emphasis on 3G mobile network expansion when consumer demand is unproven at the expense of 2G growth. © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2011 CPI dipping down from a peak of 7.0% y-o-y in January to 6.2% y-o-y in April. We are not unduly concerned about rising core inflation (which ticked up to 4.6% y-o-y in April) and view it as a sign of a healthy economy. Beyond the coming quarters, we believe that the accumulation of capital through an investment boom will raise productivity and wages, supporting private consumption growth over the longer term. Net Exports Becoming A Smaller Driver Of Growth Indonesia's net exports rose by 2.8% y-o-y in Q111, down from 6.1% in the preceding quarter. The sharp narrowing in net export surplus was due to a 15.6% surge in imports compared to a 12.3% increase in exports. In our view, the narrowing net export surplus trend is set to continue over the longer term with the country starting to register a deficit position by 2016. With high capital needs from investment and a stronger rupiah, we believe that imports of both capital and consumption goods will outpace that of export growth. We forecast net exports to contribute 0.8pp to headline growth this year and project the figure to continue declining to 0.5pp in 2012. That said, although net exports will play a smaller role in contributing to headline growth, we believe that the domestic economy will be more than able to make up for the shortfall. Broad-Based Growth Across Sectors Due to the resource boom, there have been fears that Indonesia may suffer from the 'Dutch' disease as non-resource related sectors become marginalised. We not see this happening. Indeed, an analysis by sectors within Indonesia reveals that growth has been broad-based and there has not been any strong skew towards resources. By our calculations, average growth in the tertiary sector has been the strongest (averaging 8.4% y-o-y on a quarterly basis since Q108), followed by the secondary sector (6.8%) and the primary sector (3.4%). For the most recent quarter, the 'manufacturing', 'trade, hotels and restaurants' and 'transportation and communication' sectors were the top three contributors to headline growth. Slow Reforms Still Holding Back Growth Indonesia's growth has been held back by the government's inability to enact reforms on several key issues. Of utmost importance is the land acquisition bill, which has constrained infrastructure development. According to the secretary to the planning ministry, Syahrial Loetan, the bill should be finished by mid-2011. However, given the numerous delays this bill has faced, we are not particularly optimistic about the deadline. Should the bill be successfully passed in mid-2011, we would have to revise up our Indonesia's growth on account of better investment prospects. © Business Monitor International Ltd Page 42 Indonesia Information Technology Report Q3 2011 Table: Indonesia – Economic Activity 2008 2009 2010 2011e 2012f 2013f 2014f 2015f Nominal GDP, IDRbn 4,948,688 5,603,871 6,422,918 7,212,213 8,090,119 9,109,714 10,266,216 11,577,696 Nominal GDP, US$bn 507.2 541.1 707.1 819.6 929.9 1,078.1 1,236.9 1,420.6 6.0 4.6 6.1 5.9 5.8 6.2 6.3 6.4 GDP per capita, US$ 2,231 2,353 3,041 3,477 3,894 4,459 5,055 5,739 Population, mn 227.3 229.9 232.5 235.7 238.8 241.8 244.7 247.5 Industrial production index, % y-o-y, ave 3.1 1.5 4.3 4.2 5.0 5.3 5.8 6.0 Unemployment, % of labour force, eop 8.4 7.9 7.2 6.6 6.2 6.0 6.0 6.0 Real GDP growth, % change y-o-y 1,2 e/f = BMI estimate/forecast. Base Year = 2000; Sources: BMI/IMF. World Bank/BMI calculation/BMI. © Business Monitor International Ltd Page 43 Indonesia Information Technology Report Q3 2011 Competitive Landscape Hardware The fast growth of the Indonesian computer hardware sector has forced vendors to focus more on a market that was previously overshadowed by larger ones in the Asia Pacific region. The market has attracted many vendors to establish a presence in the country. Having at first concentrated more on the corporate segment, large vendors are starting to pay particular attention to consumers. Multinational vendors dominate the Indonesian brand PC market. Acer and HP are the brand PC market leaders, with Acer having the edge in the notebook segment. According to market research firm IDC, Acer claimed a 25% total PC market share in 2009, and 38% share of the notebook segment for that year. In 2010, Acer announced its target of increasing its share of the Indonesian PC market, and has also said that it expects its sales to double. Indonesia has already become Acer's largest South East Asian PC market, surpassing Thailand and Malaysia. Acer continued to release new netbook models in the Indonesian market in 2010, aiming to take advantage of the growing number of internet users in the country. The company says it expects netbooks to comprise around 30% of its total PC sales in Indonesia in 2011. The other the top five comprised in Indonesia are Dell, Lenovo and Zyrex. While locally assembled 'white boxes' still account for up to 60% of the local PC market, a number of local PC and notebooks brands also enjoy increasing success, including Zyrex and Ion. Acer continued to expand its presence in 2009 across the notebook and desktop segments with more product releases. However, HP fought back and set a target of reclaiming the top spot in the Indonesian market in H110. HP, estimating the market share gap between itself and Acer at about 10%, has been aggressive in launching a new notebook and netbook series. The company was optimistic that it could lead the Indonesian PC market in 2010 as its products achieved greater penetration. In 2009, HP's flagship products included the HP Mini, which was targeted at the entry level segment. Notebooks have already surpassed sales of desktops in some segments in recent quarters, and vendors are responding by targeting more segments, with a wider range of products selling at different price points. Global vendors such as HP, Acer and Lenovo offer products that sell at US$500-2,000. In 2011, vendor focus is expected to focus increasingly on lighter and slimmer notebooks that offer consumers more features than netbooks. In November 2009, Acer launched its Ferrari One model, which has an 11.6" screen and a dual processor, while HP's Envy line has a 13.1" screen and a dual processor. Both are lighter than a mainstream notebook but have more processing power than most netbooks. © Business Monitor International Ltd Page 44 Indonesia Information Technology Report Q3 2011 At the lower end of the market, prices have come down, although they are still relatively expensive compared with some other markets. Regional vendors have also been attracted by Indonesia's growth potential, as Singaporean company Axioo International targeted a 10% share of the Indonesia notebook market in 2010. The fast growth of the Indonesian market, fuelled by cheap computer initiatives, has made computers affordable to lower income tiers. This has become the major focus for many multinational vendors, which previously preferred to target high- and medium-end consumer segments. The economic downturn may have accelerated this trend, but fuelling it has been the surge in sales of netbooks, which grew by a threedigit factor in 2009. Dell and HP were among vendors that expected further growth in this segment in 2010. South Korean multinational Samsung hopes to become one of the top three netbook brands in the Indonesian market. A late entrant to the market, Samsung has been focusing on Jakarta, Bandung and major cities in Java, with around 40 outlets to date. The company is expanding rapidly and, by the end of 2010, expected to have reached all the major cities in Indonesia. In November 2010, Samsung said that it had targeted sales of 2,000-3,000 units from its recently launched Shark notebooks and netbook series. In May 2011, Lenovo, the bestselling computer vendor in the Asian region,announced plans to achieve a double-digit Indonesia PC market share in its current fiscal year. According to company data, the company currently has a share of around 7.6%. Lenovo's strongest position is in the large enterprise segment, where its share is 15.8%, followed by 9.8% for small and medium enterprises. Meanwhile Lenovo's share of the key consumer segment, which is the fastest-growing, is only 5.1%. The consumer segment is the one that Lenovo has targeted for most growth in 2011. Lenovo has previously failed to establish dominance in Indonesia, despite intense marketing efforts. Like other vendors, Lenovo has attempted to ride the popularity of lower priced small-form factor netbooks, having attributed much of its recent local market growth to the consumer segment. In an attempt to improve its position, in 2010 Lenovo announced plans to set up a new subsidiary in Indonesia. Lenovo has also strengthened its logistics and service infrastructure in Indonesia and opened new stores. However, Lenovo also sees potential in government and SME segments. In Q110, the company launched a new series of notebooks for SMEs called Thinkpad Edge. The series reflected the opportunity that Lenovo saw in the SME segment in 2010. Dell is another vendor that is targeting the SME segment this year. The US vendor is also striving to meet market demand by moving away from simply providing SMEs with hardware by offering services. Dell's IT Pro Support and Fast Track Dispatch services provide certification of expertise to the IT staff of SMEs in remote areas of Indonesia. © Business Monitor International Ltd Page 45 Indonesia Information Technology Report Q3 2011 Toshiba plans to use low-end notebooks as its mainstay products in the Indonesian market. The company defines low-end as notebooks sold for less than IDR8mn. Toshiba's Indonesian notebook distributor, PT Techking Enterprises, said Toshiba aimed for low-end notebooks to account for 70% of sales in 2009, an exact reverse of the situation in 2008, when high-end products accounted for 70% of sales. In the Indonesian market as a whole, the low-end price tier accounts for about 70% of sales. Toshiba reported that Indonesia contributed to 35% of the company's total ASEAN and Indian revenues in 2008 and was the largest contributor in Q109. In 2008, Dell, the leading desktop supplier in the government and big corporate segments, with a 12% share, rolled out a new strategy to target Indonesia's consumers. Dell introduced new products and added new channel partners such as its partnership with retail network Metrodata. The company launched a new range of Inspiron-series laptops and slim-build desktops, which were available in major cities. Indonesia accounted for 7% of Dell's Asia Pacific revenues in 2007, up from 3% the year before, and Dell includes the country on a list of 14 priority emerging markets. The company expected the consumer segment to contribute around 20% of the company's Indonesian income. In contrast to Dell, Lenovo's strategy was already to focus on the consumer market with its own products, while supplying IBM legacy products for the commercial market. Lenovo's desktop computers cost US$490-1,100 and its notebooks are priced at US$700-2,000. Dell's overall commitment to Indonesia was demonstrated when it moved its South East Asia regional headquarters from Singapore to Jakarta. It has also set up 10 service centres in nine major cities in the country. Vendors are stepping up initiatives to reach out to SMEs. Enterprises account for 70-80% of all sales in Indonesia, while SMEs make up more than 90% of businesses. HP intensified its focus on SMEs in 2008 by launching several new computer portfolios specifically targeted at SMEs. IBM launched a local version of its Express IT package, which offers a range of hardware, software and related services, to SMEs. Prices ranged from US$1,000 to US$150,000 and the scheme offers various backup features. IBM Indonesia serves around 2,500 SME clients in various industries. Microsoft offered up to a 25% discount to SMEs that purchased the Windows Starter Edition. Software In 2010, Microsoft hoped the launch of its Windows operating system would boost local sales. Microsoft has more than 3,500 business partners in Indonesia and has been active in IT for education initiatives. It works in cooperation with telecoms company PT Telkom and local software company PT Pesona Edukasi on an educational software development programme. Microsoft founder Bill Gates visited Indonesia in May 2008 and discussed supporting the government's programme to provide low-cost computers and software to schools. However, the government's proposed cooperation with Microsoft and Intel on an affordable PC programme has been criticised by some parties in Indonesia. © Business Monitor International Ltd Page 46 Indonesia Information Technology Report Q3 2011 Over the years, the government has made a number of attempts to promote OSS. In 2005 it launched the Indonesia Goes Open-Source initiative, hoping to counter software piracy, reduce dependency on proprietary software and encourage local manufacturers. The government has also launched many, largely unsuccessful, campaigns to convince consumers to shift to OSS. In 2009, the government issued a decree calling for all local governments to adopt OSS by 2011 and in July 2009 a pilot project was launched in Surabaya. Back in 2004, five ministries signed a declaration to use open-source. However, only the Department of Research and Technology really acted on the declaration, with 92% of its computers running on OSS. The barrier appears to be the reluctance of civil servants to invest time in learning how to use the open source applications. The government has said it is drafting 'new kinds of cooperation agreements' that could be made with Microsoft. In the enterprise applications segment, leading global vendor SAP has said it was optimistic that it could maintain its recent 60% annual growth momentum in Indonesia, despite the global economic slowdown. In 2008, the company predicted that it would surpass the 90 contracts secured in 2007. However, it said that most growth potential would come from up-selling to existing customers. Overall, SAP has 350 enterprise clients in the country spread across different segments. The company has been targeting the financial sector, with Bank Ekonomo among the customers implementing SAP's Human Capital Management solution. Meanwhile, US rival Oracle is also active in the Indonesian market. In H111, the company's new clients included Acuatico Air Indonesia, one of the main players in water distribution in the South East Asian region. Acuatico selected Oracle's Customer Care and Billing and Business Intelligence software to support its Indonesian operations. The next few years should feature a shift away from packaged proprietary software towards other models, such as cloud computing. Microsoft Indonesia reported that cloud computing accounts for around 20% of its local revenues and has been growing at about 50% per year. IT Services Major IT services vendors have reported growing demand in the telecoms, manufacturing and banking sectors. Oracle has an agreement with Indonesian IT solutions provider Sigma to provide outsourcing services. The arrangement focuses on providing large companies with business-related software that ensures security, performance and business continuity, as well as manpower. IBM won a contract from Excelcomindo to supply the telecoms company with a network fault and performance management system. E-government programmes are also seen by vendors as a potential growth driver. TCS said that it has targeted the government as a future growth driver in the Indonesian market. TCS' 15 Indonesian clients are mainly from sectors such as banking, financial services, telecoms and media. HP, which is promoting © Business Monitor International Ltd Page 47 Indonesia Information Technology Report Q3 2011 the idea of business technology in Indonesia, is to intensify its IT infrastructure recovery service. IBM has a partnership with local firm PT Mitra Integrasi Informatika to introduce its technology and consolidate servers at branch offices across the country. Indonesian companies are looking to leverage their advantages in the market. Sigma targeted a 40% growth in its managed services business in 2008. To achieve this, the company expanded operations and spent US$7mn on a new IT disaster recovery centre in Surabaya. Managed services accounted for around 42% of Sigma's total revenues and the company plans to expand across a number of verticals, including autos and manufacturing, as well as in its core area of finance. In 2008 Telkom Indonesia acquired an 80% stake in Sigma as part of its move into the IT services market. The telecoms company is hoping for synergies between Sigma's core customer base of 170, mainly banks. Telkom Indonesia said it regarded the move as the beginning of the Telkom Group's entry into Indonesia's IT services market. It was one of the largest IT services acquisitions in Indonesia's history. Cloud computing will be a key focus for vendors in 2011. In 2010, Telkom partnered with Microsoft to launch cloud computing services, including platform-as-a-service (PaaS), infrastructure-as-a-service (IaaS) and software-as-a-service (SaaS). The partners will target the growing number of SMEs that hope to use ICT solutions to support their business activities. Telkom will offer companies applications in areas such as tax and finance. Meanwhile in March 2011, InstaCompute, a subsidiary of Indian IT giant Tata Communications, launched cloud computing services in Indonesia. The computing and storage services will be delivered by InstaCompute's unit in Singapore and be delviered via the intrnet backbone of Tata Communications. Internet Competitive Landscape The government has licensed more than 150 internet service providers, although only about 40 are operating. The number of broadband users in Indonesia was estimated at around 2.26mn in 2009, giving it a penetration rate of 1.0%. This has been a due to a lack of PCs, and service take-up has generally been restricted to Java, resulting in uneven development. The PC market has been growing and this, together with liberalisation in the sector, should enable Indonesia's broadband market to develop. © Business Monitor International Ltd Page 48 Indonesia Information Technology Report Q3 2011 Company Profiles IBM Indonesia Services Manufacturer, distributor and provider of advanced IT solutions, including hardware, software, peripherals and data processing equipment. Recent Developments In response to the tougher economic conditions faced by businesses, IBM has been promoting energy saving technologies and consolidation for datacentres. IBM Indonesia also launched a local version of its Express IT package, which offers a range of hardware, software and related services to SMEs. The price range is US$1,000-150,000 and the scheme offers various backup features. IBM Indonesia says it serves around 2,500 SME clients in various industries. The IBM Express programme for SMEs includes integrated solutions such as Linux-based suites for banking and the finance industries, ERP solutions for manufacturing industry inventory, supply chain management for retail and services industry, and web-based applications for hospitals, health centres, drug stores and universities. Future Plans IBM's Indonesian business consultancy services focused on three objectives: ERP system development, IT strategy design and application of a human capital management system. Performance In the first quarter of 2010, IBM reported a 5% year-on-year rise in income to US$22.9bn. In Indonesia, IBM has already won a number of customers in the SME segment, including Surabaya-based Bank Antar Daerah and the Bogor-based frozen food company PT Belfood Indonesia. Presence Fully owned subsidiary. Sectors Government, SMEs and enterprise. © Business Monitor International Ltd Page 49 Indonesia Information Technology Report Q3 2011 Oracle Services Wholesaler of computer equipment and provider of IT services. Oracle reported strong customer momentum and an increase in total GAAP (generally accepted accounting principles) revenues of 24% to US$2.50bn in the Asia Pacific and Japan in FY07. Recent Developments Oracle has an agreement with local IT solutions provider Sigma to provide outsourcing services. The arrangement focuses on helping large companies to focus on core business while the IT partners optimise and maintain IT units. The services provided include businessrelated software that ensures security, performance and business continuity as well as manpower to operate the system. Oracle Indonesia is the vendor and Sigma is the local implementation partner. Future Plans Oracle is already an active participant in the Indonesian market, where its strategic focus is on capturing 30-35% of the sizeable SME market. To achieve this ambitious target, despite many other vendors competing for the same segment, Oracle has established close business cooperation contacts with local organisations and institutions. Performance In the 2010 fiscal year, Oracle Asia Pacific, which includes Indonesia, reported new software licence revenues of US$1,366mn. Database and Middleware was the second largest regional revenues category, with reported earnings of US$1,082mn. Applications revenues were US$284mn, while earnings from Hardware Systems Products were US$274mn. Presence Oracle Indonesia is part of Oracle's South Asia region and wider Asia Pacific division, based in Singapore. Oracle has about 1,700 customers across the Asia Pacific region, of which 50% are from South Asia, including from Indonesia. Sectors Oracle has followed a similar path to other competitors by targeting the SME sector through introducing its Database Standard Edition-1 on the Indonesian market. The company said the product is comparable in performance and security with its corporate level product but is more affordable, enabling SMEs to build a business information infrastructure rapidly and economically. © Business Monitor International Ltd Page 50 Indonesia Information Technology Report Q3 2011 Sigma Services Sigma Cipta Caraka is a leading Indonesian IT company specialising in the banking sector, offering services such as software development and customisation, network and systems integration, managed resources and internet access. Sigma is one of IBM's major channels to sell hardware to local banks. In 2008, leading telecoms company Telkom Indonesia acquired an 80% stake in Sigma. The company is hoping for synergies between its 6,000 corporate customers and 170 of Sigma's customers, mainly banks. Telkom said that it saw the move as the beginning of Telkom Group's entry into Indonesia's IT services market. It is one of the largest IT services acquisitions in Indonesia's history. Recent Developments Following its acquisition by Telkom Indonesia, Sigma expanded its operations and spent US$7mn on a new IT disaster recovery centre in Surabaya. It has signed an agreement with Oracle to provide outsourcing services focusing on large companies, particularly in banking and telecoms. The arrangement centres on helping large companies to focus on core business while the IT partners optimise and maintain IT units. Among the recent wins for the partnership is a tender from Bussan Auto Finance, one of the leading multi-finance companies in Indonesia, to implement various Oracle applications. Sigma has been an innovator in the Islamic banking sector, as an increasing number of Indonesian individuals and companies choose to business with banking institutions that comply with shari'a principles. Sigma has capitalised on this, with its shari'a core banking system designed to follow the principles of Islamic banking. Future Plans Sigma management has said the company will be strengthening its core role as an IT provider for the whole banking sector. Performance Following the acquisition by Telkom, Sigma targeted revenues of US$40mn in 2008, a 50% increase. Presence More than 500 employees. Sectors Sigma targeted 40% growth in its managed services business in 2008. Managed services account for around 42% of SCC's revenues, and it is planning to expand across a number of verticals including auto and manufacturing, as well as its core area of finance. Sigma's flagship product is AlphaBITS, the software initially developed in 1989. It is a core banking system for day-to-day operations, connecting aspects such as delivery channels (teller and customer services) and back-office activities (accounting and general affairs). Developed as an industry-standard banking application, AlphaBITS offers integrated functionality with six main modules (kernel and security, CIF, retail, deposit, loan and general ledger). Using integrated design architecture, AlphaBITS can be incorporated with third-party applications. © Business Monitor International Ltd Page 51 Indonesia Information Technology Report Q3 2011 HP Services Technology services, consulting and integration. Recent Developments HP was estimated by market research firm IDC in Q309 to have a 26.5% share of the notebook market, behind market leader Acer. HP has intensified its focus on SMEs by launching several computer portfolios specifically targeted at these companies. The company is the market leader in the SME segment in Indonesia. HP is expanding its presence in South Sulawesi and Yogyakarta. HP has also strengthened its IT infrastructure recovery service. The main demand driver has been the banking industry, with major sector players such as the central bank of Indonesia becoming highly concerned with disaster recovery services. HP has also won disaster recovery contracts from telecoms operators. th HP opened its 11 Indonesian outlet in Bandung in 2006. The company said it expected the new store to help achieve its target of doubling its sales in the city, which accounted for about 5% of nationwide sales. Future Plans HP aimed to reclaim the top spot in the Indonesian PC market from Acer in H110. HP, which estimates the market share gap between itself and Acer at about 10%, has launched new notebook and netbook series. New notebook products introduced to the regional market include the HP Probook 5130 M, HP Pavilion dm1-dm3 and the HP Mini 110-311. Revenues For the quarter ending January 31 2010, HP reported revenues of US$5.4bn for its Asia Pacific region, which includes Australia. This represented growth of 26% on the same period of 2009, almost triple that of other regions. HP Asia Pacific reported 40% growth in its fiscal year ending October 31 2009. HP's Asia Pacific revenues had declined by 1% y-o-y in Q409 to US$5.4bn. While HP does not release detailed regional figures, the company sells upwards of US$300mn worth of products in Indonesia annually, including printers, desktops, notebooks and PDAs. Presence Fully owned subsidiary. Sectors Investing in manufacturing and the public sector. © Business Monitor International Ltd Page 52 Indonesia Information Technology Report Q3 2011 BMI Methodology How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Our approach varies from industry to industry. Common to our analysis of every industry, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all of our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. IT Industry Forecasts There are a number of criteria that drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. © Business Monitor International Ltd Page 53 Indonesia Information Technology Report Q3 2011 Within best-practice techniques of time-series modelling, BMI’s quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ƒ Overall economic context, and GDP and demographic trends; ƒ Underlying ‘information society’ trends; ƒ Projected GDP share of industry; ƒ Maturity of market structure; ƒ Regulatory developments and government policies; ƒ Developments in key client sectors such as telecommunications, banking and e-government; ƒ Technological developments, and diffusion rates; ƒ Exogenous events. Estimates are calculated using BMI’s own macroeconomic and demographic forecasts. IT Ratings – Methodology Our approach in BMI’s IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI’s proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas: Limits of potential returns: Evaluation of sector’s size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from the state’s political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. © Business Monitor International Ltd Page 54 Indonesia Information Technology Report Q3 2011 Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Sector value growth, % year-onyear (y-o-y) Denotes breadth of IT market. Large markets score higher than smaller ones Denotes sector dynamism. Scores based on annual average growth over five-year forecast period Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales – compared to services/software – indicates that the overall IT market is immature Country structure Urban-rural split GDP per capita, US$ Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower A high GDP per capita supports long-term industry prospects. Overall score for country structure is also affected by the coverage of the power transmission network across the state Risks to potential returns Market risks Intellectual property (IP) laws ICT policy Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code Country risk Short-term external risk Rating from CRR evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment Short-term financial risk Rating from BMI’s CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding Trade bureaucracy Legal framework Bureaucracy Corruption Rating from CRR to denote ease of trading with the state Rating from CRR denotes the strength of legal institutions in each state – security of investment can be a key risk in some emerging markets Rating from CRR denotes ease of conducting business in the state Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies’ ability to compete Source: BMI © Business Monitor International Ltd Page 55 Indonesia Information Technology Report Q3 2011 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all subcomponents equal weight. Consequently, the following weight has been adopted. Table: Weighting Of Components Component Weighting Limits of potential returns 70% – IT market 65% – Country structure 35% Risks to realisation of potential returns 30% – Industry risks 40% – Country risk 60% Source: BMI Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Ltd Page 56 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Monitor International Ltd Page 25 Indonesia Information Technology Report Q3 2011 Hardware BMI forecasts 2011 Indonesian computer hardware spending of US$3.9bn, up from US$3.2bn in 2010 The market is forecast to rise to a value of US$7.1bn by 2015 PC shipments grew strongly in 2010 a deceleration in 2009 had been mitigated only by the popularity of low-cost netbooks In 2011, Indonesia is again expected to... software in use in Indonesia, including in the government sector, is sourced from foreign producers © Business Monitor International Ltd Page 29 Indonesia Information Technology Report Q3 2011 Services Indonesia' s IT services market is forecast to be worth US$880mn in 2011, recording double-digit growth from US$769mn in 2010, based on BMI estimates IT services account for only 17% of Indonesia' s hardware-centric... outsourcing projects in the public and private sectors Market Structure (% Of Total IT Market) 2011e 2015f e/f = estimate/forecast Source: BMI © Business Monitor International Ltd Page 23 Indonesia Information Technology Report Q3 2011 Indonesia Market Overview Government Authority The National ICT Council is chaired by the Indonesian president and is tasked with formulating IT policy The other main task for... Investment/Investment Coordinating Board Ministry for Research and Technology/ Agency for the Assessment and Application of Technology Department of Industry and Trade Department of Communications Page 24 Indonesia Information Technology Report Q3 2011 Background The government has a target of providing telephone and IT services to all rural areas in Indonesia by 2015 The programme is being promoted by the Ministry... incidents, including the Jakarta bombings of July 2009 The fact that Indonesia subsidises basic goods means that, when the government raises prices, there is a risk of public unrest, or at least a political backlash © Business Monitor International Ltd Page 10 Indonesia Information Technology Report Q3 2011 Indonesia Economic SWOT Strengths Indonesia' s strategic location between the Indian and Pacific Oceans... field in late 2009 may change this Indonesia is perceived as one of Asia's riskier destinations This leaves the economy vulnerable to sudden capital outflows at times of risk aversion, which can lead to sharp swings in the currency © Business Monitor International Ltd Page 11 Indonesia Information Technology Report Q3 2011 Indonesia Business Environment SWOT Strengths Indonesia is South East Asia's largest... Around 50% of Indonesian SMEs are start-ups or have less than five employees, but many are considering expansion This will be a driver for IT spending as firms look to connect branch offices There is also more interest in basic security solutions © Business Monitor International Ltd Page 31 Indonesia Information Technology Report Q3 2011 Industry Developments E-Passports In 2010, Indonesia' s information. .. entrepreneurs, the Telecom Technology Institute in Bandung is building an IT development centre The US$2.2mn centre will act as an incubator for small firms in the IT sector © Business Monitor International Ltd Page 34 Indonesia Information Technology Report Q3 2011 Industry Forecast Scenario The Indonesian IT market should grow at a compound annual growth rate (CAGR) of 18% over 20112 015, with a revival... 14 Indonesia Information Technology Report Q3 2011 Meanwhile, South Korea's government is encouraging the utilisation of cloud computing by small businesses New cloud computing offerings and increased competition in this segment are expected to fuel growing demand to utilise this technology IT outsourcing is also expected to show a strong demand trajectory Malaysia remains in fifth position in our Q31 1... Page 17 Indonesia Information Technology Report Q3 2011 helped to boost PC sales in areas where penetration was low In Australia in 2010, national and state governments continued to roll out new initiatives, with the Victoria government investing more than US$150mn in IT in schools In Indonesia, PC penetration of around 2% could double by 2013 if government initiatives are followed through The Indonesian . Copy deadline: July 2011 Indonesia Information Technology Report Q3 2011 © Business Monitor International Ltd Page 2 Indonesia Information Technology Report Q3 2011 © Business. growth momentum in Indonesia. Meanwhile, US rival Oracle is also Indonesia Information Technology Report Q3 2011 © Business Monitor International Ltd Page 6 active in the Indonesian market,. largest Indonesian IT services category with a 20% market share. Indonesia Information Technology Report Q3 2011 © Business Monitor International Ltd Page 7 Improvements in Indonesia& apos;s