KUALA LUMPUR, 11 MAY 2009 – Malaysian IT spend will hit negative growth in 2009 for the first time in a decade, but recovery could be imminent, says analyst firm IDC Malaysia.
“Despite the downward adjustment in forecast for 2009, IDC expects to see initial signs of recovery on IT spending in Malaysia as early as 2010,” said IDC Southeast Asia associate research director Maggie Tan.
Investments are expected to rebound to pre-crisis levels—pre-crisis as the period prior to the 15 September 2008 collapse of Lehman Brothers and Merrill Lynch—by 2011, said Tan. “Based on first-quarter 2009 research results of various IT spending segments, current economic indicators, historical trends and assumptions, IDC foresees 2009 IT spending growth to be at minus 1.8 per cent.”
“The Insight report, Economic Crisis Response: Economic Impact in Malaysia IT Spending also indicates that if the economy does not pick up by the third quarter of 2009, according to assumptions done, IT spending growth for 2009 could fall to minus three per cent,” she said.
The IDC Insight report provides analysis on how economic performance will impact IT spending in Malaysia. IDC looks at the historical trend of IT spending in correlation to the economic performance such as gross domestic product (GDP) and private spending from 1997 to 2008. Also, probable scenarios with assumptions were developed to gauge IT spending in the light of the economic performance.
Possible scenarios
Tan said that hardware spending in 2009 would drop compared to 2008. “The exception to this will be in network and infrastructure spending by national telecom operators and the government for broadband and mobile services infrastructure rollout.”
“Investments in package software will also dip in 2009 as the enterprise markets have shown signs of a gradual slowdown since the second half of 2008, while the small and medium-sized businesses [SMBs] are likely to be affected in the first half of 2009,” she said. “The IT services market, on the other hand, will enjoy the limelight during this downturn.”
“This is a result of the private sector being likely to prolong replacement lifecycles and increase emphasis on maintenance and support of its existing hardware investment in order to channel capital expenditure towards priorities areas and having a pre-planned budget on operating expenditure for IT infrastructure support in the next 12–18 months,” she said.
Consumer space
“Within the consumer space, IDC is expecting consumers in the mid-to-high income group to continue contributing to the overall IT spending, particularly on new technologies or services such as wi-fi access and broadband,” said Tan. “Consumer spending will most likely take a hit in quarter three of 2009 if job losses and closure of SMBs continue to be pervasive in the country.”
“Sizeable job cuts in the manufacturing, financial, and services industry will result in lower household income expenditure,” she said. “If the trend spreads to major metropolitan areas such as the Klang Valley, IDC expects the consumer spending on IT to drop significantly in quarter three of 2009.”
“Drawing on historical trends in IT spending, IDC sees IT investments having a direct correlation to real GDP growth and private consumption growth,” said Tan. “IT spending generally picks up faster than both GDP and private consumption growth and drops more significantly than the two.”
Bright spots within 12-18 months
Tan said bright spots that still exist in various sub-sectors would cushion the overall IT investment in Malaysia although the major contributors—the consumer and manufacturing sectors—are likely to remain cautious in spending.
“Taking into consideration IDC’s key economic assumptions and scenarios, several different developments could unfold in Malaysian IT investments,” she said. “Depending on the levels of fiscal improvements seen in the economy, how the overall stimulus package ‘kicks-in’, as well as the Southeast Asian regional efforts to combat the current world economy downturn, IDC sees Malaysia riding out this crisis with signs of an upswing in IT investments within 12-18 months.”
“With the current slowdown, IDC expects IT spending to take off strongly when the economy begins to pick up, possibly at double the GDP rate prompting companies and governments to continue investing strategically in IT to be better prepared for the new challenges once the economies stabilise,” said Tan.
“Southeast Asian governments, such as in Thailand, are adopting a similar strategy as in the United States by investing in broadband that is expected to create more job opportunities in the short term, while building up strong IT infrastructure throughout the country for long-term benefits,” she said. “The Malaysian government and telecom operators are similarly committed in rolling out high-speed broadband despite the economic conditions.”
