Information Technology Sector of Saudi Arabia
Information Technology Sector of Saudi Arabia
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  • 승인 2007.09.10 13:58
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Saudi Arabia remains both a strong driver and an exemplar of the wider regional IT market, with strong growth in both computer sales and associated services led by high oil prices and strong spending in such lead sectors as banking and telecommunications.

Smaller companies, however, are realizing the need to streamline business operations to achieve efficiencies in such areas as finance and logistics, as well as marketing and other functions. The context is a business environment that is becoming increasingly competitive and open.

In PC and notebook sales, the market is the largest in the region in volume sales, but in the past year demand for IT services has also shown a strong growth trend, including outsourcing. More and more companies in the telecoms and other sectors are looking to contract out functions that they would previously always have kept in-house. Overall, the value of the Saudi IT market is estimated to have reached US$2.5 billion in 2006 and is expected to rise to US$4 billion by 2010. This represents aboveaverage regional performance. As in much of the Gulf, the surge in oil prices during 2006 is encouraging a new wave of investment in infrastructure, the effects of which should continue to be felt for some time.

In 2006, Business Monitor

International (BMI) upwardly adjusted its oil price forecasts, and therefore predicts even stronger growth for the Saudi economy in the medium term. With annual per-capita expenditures on IT reaching US$330, and 40% of IT programs in the Middle East region in 2006 being purchased in Saudi Arabia, the market looms ever larger in the regional calculations of multinational IT companies.

Population demographics, a regional economic boom fuelled by high oil prices and a buoyant real estate sector, and specific factors such as the growing popularity of e-banking are all driving spending. The Saudi government has demonstrated a significantly increased financial commitment to egovernment strategies and initiatives across all ministries.

Government initiatives e-government services are becoming more widespread as the Saudi government proceeds with the third year of its five-year plan to provide at least 150 electronic services and 1000 sub-services from around 40 government bodies. According to reports, 6 new e-government services have begun in 2006, with around SAR 3 billion (US$799 million) allocated to cover both infrastructure projections and applications over the life of the program. The plan was launched in 2005 with the aim of not only building information networks but also enabling government employees to work in an information environment.

Competitive landscape

With the forecasting that spending on software will exceed US$700 million within the that period, intensifying competition is creating pricing pressure even as there is a sharp increase in demand from the SMB sector. Trade liberalization and the growing penetration of IT infrastructure has led to a greater awareness among even smaller companies of the advantages of enterprise software in providing a competitive edge. Smaller companies are now looking to achieve greater control of their budgets and improve tracking of marketing spending, and this has meant that despite the fact that the largest share of spending on enterprise applications still comes from large company segments such as oil, gas, and banks, the competitive battlefield has shifted to the smaller company sector.

Computer sales

Computer sales are expected to reach US$2 billion in 2007, up from US$1.4 billion in 2006. Overall, the computer market including notebooks and accessories is expected to grow at a rate of 9% between 2007 and 2010. The number of personal computer users in Saudi Arabia is rising impressively following the launch of the Home Computing Initiative, which set up a deal to import 1 million computers for distribution among Saudis having fixed telephone lines in an easy installment payment scheme. Backed by the Communications and Information Technology Commission (CITC), the scheme aims to spread computer literacy in the Kingdom. Telecoms liberalization in 2006 and a big push in broadband penetration are also expected drivers of demand going forward.

In terms of the general economic environment, strong economic growth and the high price of oil is fuelling spending by both public sector organizations and enterprises to bring their IT levels up to international standards. The World Trade Organization (WTO) entry and the elimination of customs duties within the Gulf Co-operation Council (GCC) also helped stimulate the market, as will growth in the non-oil private sector, and liberalization in certain key sectors such as telecoms.

Notebooks

Turning to the notebook sector, stronger demand is a key factor driving growth in the Kingdom's PC market, with consumer sales reaping the results of aggressive retail channel promotions. Prices are continuing to fall driving sales higher, but depressing actual growth in revenues. One factor in the intensified price competition is the increasing aggressive influence and market share of Asian players such as Acer, LG and Samsung. Aside from the consumer sector, small to medium sized enterprises (SMEs) are also showing a stronger tendency to favor mobility, accounting for a growing proportion of shipments. One of the government policies that vendors are capitalizing on is the well-known United Installment Scheme (USI) finance option, which makes high quality notebooks available to small and medium sized businesses, education and healthcare institutions and individuals.

Software

BMI predicts a software market value of US$500 million in 2007, up from US$460 million in 2006. With the evolution of the Saudi IT market, a stronger vendor focus on software spending is now being seen, especially as higher-than-expected oil revenues are fuelling spending on new systems. The domestic software market is therefore expected to grow significantly, driven by an increased Saudi enterprise focus on more sophisticated solutions that still offer value for money.

As across the region, security software is one of the in-demand categories. The forecast for overall software revenues is expected to be in the region of 11%. Oil and gas remains the largest software vertical purchasing customer followed by telecoms, but large contracts are being seen in the non-oil manufacturing sector such as chemicals and automotive.

IT Services

The Saudi IT services market is expected to reach US$1.5 billion in 2007, up from US$1 billion in 2006. Support and maintenance accounted for more than a third of the 2006 figure. Growth is expected to be at 12% for the 2007 to 2010 period. Global vendors are increasingly looking to enhance service infrastructure and offerings as a way of strengthening market position. Regional firms dominate the market, with Saudi Business Machines, the local partner of IBM, the market leader, and other top five players including local giant Al Alamiah and newly formed Ejada. One faster than expected trend in the past year has been more demand for outsourced solutions. To meet the new demand for broader and also more customized solutions packages, IT services providers have been consolidating operations through mergers or by expanding service portfolios.

e-Readiness

The number of Saudi internet users is expected to increase over the forecast period from 8.5 million in 2006 to 10.4 million in 2010. The Internet penetration rate will reach 32.3 % in 2010. With Saudi Telecommunications Company (STC) now committed to modernising its infrastructure, the number of broadband subscribers should increase from 250,000 to 2.3 million over the same forecast period.


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