The IT industry in Southeast Asia will remain in a slump for the rest of this year, but selected countries and well-positioned vendors will see an improvement in 1999, according to predictions from research company IDC.
Total IT spending in ASEAN countries will contract by around 20% this year in US dollar terms, according to IDC. Even in local currency terms, Thailand, the Philippines, and Indonesia will post negative or near zero growth. Only Malaysia and Singapore will show spending growth in local currencies of above 10% in 1998.
The forecasts were voiced by IDC officials speaking at the company's Directions '98 briefing held here late last week.
For the period to 2002, IDC has cut its annual IT spending growth estimate from 17% to 9% in the ASEAN region, representing a sales loss of $US30 billion over the five year period.
IT budget cuts are being noticed by nearly all the vendors active in Southeast Asia markets.
"People who say they haven't been impacted by this crisis are misleading themselves," says Rob Squires, managing director of high-end applications software vendor PeopleSoft Asia. "There has definitely been a slowdown. The demand is still there for products and services -- but end-user companies' ability to execute those plans in terms of financing has been hit."
Squires says PeopleSoft began conducting high-level corporate meetings last December in order to plan the company's response to the regional crisis.
In fact, IDC believes that software and service companies are liable to fare better than their hardware counterparts given the current market situation, with end-users going ahead with projects, but trimming their budgets. In many cases that means staying with older hardware, or increasingly turning to lower-end PCs.
"Corporates are still buying, but they have scaled back their purchases," says Frank Fong, business manager for Singapore-based videoconferencing software vendor Remote Vision. "They are now buying only the essentials. Whereas before they might have just gone ahead and bought a PC if they thought they needed it, now they will ask why it is necessary, and whether they can get away with a smaller upgrade."
"There is a strong move in the region to sub-$US1,000 PCs, and this is a permanent shift," says Dennis Philbin, managing director of IDC Asia-Pacific. "Local players that lack scale, and smaller clone vendors are the likely losers in this environment."
Philbin says hardware sales into the consumer market will be especially hard hit, and vendors relying on that market would be strongly impacted.
The slowdown in IT spending mirrored the depth of the financial crisis in the different ASEAN countries, according to IDC figures. Spending in dollar terms will be down more than 50 percent in Indonesia, down more than 40% in Thailand, and down more than 20% in Malaysia and the Philippines. The spending drop in Singapore will be around 5% in dollar terms, IDC said.
"Our business is still growing in Singapore, while things are not so good in Malaysia, Thailand, or Indonesia," says George Lau, business development manager for Asia-Pacific at Canadian networking company Hummingbird Communications. "The government here (in Singapore) has been able to shield industry from the worst of the adverse effects. And a number of large projects initiated last year are going ahead because they are mission-critical."
IDC predicts that there will be a return to IT spending growth in Southeast Asia in 1999, when the companies which have survived the crisis will begin to prosper again.
"The likely winners are global IT vendors who have patience, and follow persistent, aggressive strategies," says Philbin. "They will be best positioned to get back on the growth curve when IT spending recovers in 1999."
But Squires at PeopleSoft remains cautious about predictions of recovery.
"An important point to note is that no one has been through this before, so no one can say exactly what is going to happen," he says. "Some people say it will be over in six months, others say it may take three years."