Indonesia Information Technology Report Q3 2012

BMI View: Indonesian IT spending is expected to reach US$6.0bn in 2012, up 12%, slightly higher than previously forecast, despite a weakening economic backdrop. BMI still expects the Indonesian market to be one of the region's fastest-growing IT markets over our five-year forecast period. In 2012, resilient private consumption and capital investment should support demand for IT products and services and PC penetration remains at around 6%, giving this huge market unrivalled long-term growth potential. Rising computer penetration and growing affordability should ensure that the market remains firmly in positive growth territory.

Headline Expenditure Projections Computer hardware sales: US$3.8bn in 2011 to US$4.3bn in 2012, +11.0% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst Adjustment, with growing affordability and credit availability driving sales in the consumer segment.

Software sales: US$599mn in 2011 to US$695mn in 2012, +16% in US dollar terms. Forecast in US dollar terms unchanged and progress will depend on the success in bringing down illegal software use.

IT services sales: US$880mn in 2011 to US$1.0bn in 2012, +14.0% in US dollar terms. Forecast in US dollar terms unchanged, with a key growth area being cloud services, which could be worth around US$100mn by 2016.

Risk/Reward Ratings: Indonesia's score was 42.8 out of 100.0. Indonesia ranked fifth from bottom of the Asia region in our latest RRR table, behind the Philippines and ahead of Vietnam, Sri Lanka, India and the Thailand.

Key Trends & Developments.

With ICT penetration of only 20% and development restricted to richer areas such as Java, the market has much growth potential. However, Indonesia's uneven development and digital divide are major barriers to faster growth within this potentially huge IT market.

Spending in some key IT verticals, such as financial services and banking should continue to be significant in 2012 as Bank Indonesia turns dovish. Government infrastructure investments should also provide a boost to the business sector. Government IT spending is expected to increase and could have accounted for as much as 25% of the IT market in 2011, with reports that the government was encouraging state companies to use more IT services.

An active approach by the government to encourage IT development, led by the National ICT Council, should stimulate spending through a series of infrastructure and education initiatives. Around 30-35mn Indonesian companies are estimated to lack any IT-based solutions and enterprise resource planning (ERP) and other e-business applications will find increasing popularity in the small and medium-sized enterprise (SME) market.