IT Forecasting: Directions ’98

The annual IT briefing session conducted by
International Data Corporation (India) was held in July this year. The session focused on
various gamuts of the domestic IT industry. These included the cyber space dynamics,
hardware markets, ERP and package software, comparison of the IT scenario in India and
China, the India home PC market, internet growth in the country and channel issues and
strategies. We consider some of the significant trends reported by this consulting
organization.

Na1.jpg (64448 bytes)Projections for the IT Industry in 1998-99:
The domestic IT industry will continue to experience a slowdown in IT spending by the
large and medium corporate organizations and the government. This will affect capital
expenditures in hardware, leading to the moderate growth of 13%. Within hardware, growth
will be driven by desktop sales to the home and small office segments. Also driving the
hardware segment are inkjets and laser printer sales. The datacom market is also
continuing to experience moderate growth levels despite the regulatory environment
inhibiting VSAT, internet and value added services. Part of the reason for these growth
levels is the small base for datacom revenue and the increasing penetration of LANs and
WANs. The maximum growth levels are being exhibited in IT services involving consultancy,
project management, customized development and implementation. The training segment of the
industry is also witnessing high growth levels with the drivers being the need to maintain
and develop IT skills by both corporate and individuals.

Na2.jpg (42352 bytes)Domestic PC market outlook: With
the value of the PC market constituting more than 50% of the domestic IT industry, factors
affecting the PC market are also instrumental in deciding the overall trend of the IT
industry. Keeping this in mind, IDC (India) has forecast a pessimistic and optimistic
range for PC shipments. The pessimistic range is built by taking a larger number of
inhibitors in the forecast and the optimistic range is built by taking a larger number of
facilitators. Under both the circumstances, PC shipments would reach the million-mark only
in 1999-00. However, with the recent acceptance of the recommendations of the IT Task
Force, it is quite possible that the million mark may be reached before the IDC forecast
span.

Na3.jpg (58894 bytes)PC market segmentation: With low
investments by corporate organizations and the government, the growth in desktop shipments
to this segment is expected to reduce in comparison to the previous years. The cumulative
average growth rate (CAGR) of desktop shipments to this segment is only expected to be
27%. In comparison, shipments to the small office segment are expected to grow at a faster
CAGR of 33%. However, the fastest growing market segment for desktop shipments is the home
segment. Desktop shipments to this segment are being driven by the need for work at home,
high visibility of computers in secondary level education, aspiration levels of the middle
class and edutainment. Due to the high CAGR of 57%, the share of this segment is also
expected to increase significantly in the coming years.

Na4.jpg (40945 bytes)Printer forecast: This segment of
the domestic IT industry continues to be driven by inkjet sales. The CAGR forecast for
inkjet sales is above 60% and has almost no comparison basis with the almost saturated
growth levels of the DMP segment. However, contrary to initial conclusions, the DMP
technology is not a dead technology, but it may be unable to make fresh inroads into
emerging market segments. The DMP usage will continue to be limited to high-volume,
low-cost printing and application- specific printing. The latter includes devices like
retail and POS printers, which have only the dot matrix printer heads and more compact
transfer mechanisms. The inkjet printer sales continue to be strongly influenced by
channel strategies and pricing.

Na5.jpg (53346 bytes)Internet subscriber forecast: IDC
(India) has built various scenarios about the possible take-off directions for internet
subscribers in the country. The pessimistic outlook envisages the lack of internet
privatization, with VSNL the monopolistic player. The optimistic outlook forecasts the
spurt in internet subscribers with the existence of a number of internet service
providers. Under optimistic circumstances, the million mark is forecast only in the next
decade. However, with the recent acceptance of the IT Task Force recommendations,
including availability of multiple gateway providers, clearance for ISP implementation,
focus on schools for internet connectivity, this mark may be achieved earlier than
forecast by IDC.

Comparative of PC and internet
installed base:
The table lists comparisons of PC and internet installed base and
PC and telephone penetration across some Asia Pacific countries. The most significant fact
which appears is that internet penetration and absolute number of subscribers are related
to the telephone density. In other words, the telecom infrastructure is a critical success
factor for internet adoption and penetration. An exception is China, where because of
government regulations, the number of internet connections are controlled. An interesting
comparison is between USA and S Korea, where both countries have the same percentage of
internet penetration in the PC installed base, but different PC and telephone densities.
In spite of a weaker telecom infrastructure, S Korea has still been to achieve a
comparable internet penetration in the PC installed base.

Comparative of PC & Internet Installed base, 1997

 PC
Installed base
Internet
Users (‘000)
%
of PC Installed base
PC/1000Tel/1000
China 6.9 M2854645
Hong Kong1.2 M16514195667
India1.9 M90*5*215
Malaysia0.9 M1371547164
Singapore1.0 M13113319500
S Korea6.5 M159125144476
Taiwan2.5 M48019118345
US117.9 M2920025443769
*Subscribers
M=Million

The IT industry in 1998-99 is likely to
witness a further slowdown in corporate spending as far as capital expenditure is
concerned. However, as part of the IT Task Force recommendations, the government has
accepted the need for it to invest in IT on a continuous basis from this year itself.
Additional investments levels, upward from Rs 700 crore, are expected from the government.
With the recent emphasis on fast-track clearances for power, roads, ports and
transportation, additional IT investments are expected in the next year.

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