Uncertainty slows Malaysia's IT industry growth

A recent report by Pikom, the Association of the Computer and Multimedia Industry, revealed that the ICT industry will grow less than 10 percent in 2005, down from 15 percent recorded last year.

Total ICT spending, which includes computer hardware, software, services and communications, is projected to reach RM32.25 billion (US$8.5 billion) this year, up from RM30 billion (US$7.89 billion) in 2004, said Pikom Deputy Chairman Lee Boon Kok, who presented the report at Pikom's Industry Dialogue 2005 last week.

He said buyers are more "cautious" in their spending on ICT products and services this year. "Many are worried about inflation," Lee noted.

Pikom, which represents the ICT industry in Malaysia, has 460 members which in total command 80 percent of the country's ICT trade. This is the first time Pikom has held an industry dialogue to discuss the state of the ICT industry and its future directions.

Breaking down the industry outlook by segments, Lee said: "2005 will be a challenging year for the software and services sub-sector. We expect a growth of between 5 percent and 10 percent."

Growth drivers for software and services include online gaming and games development, as well as business applications such as business intelligence, security, business continuity and storage management, Lee said. "Corporations and SMEs will continue to invest in contingency plans and subscribe to best practices in their operations," he stated.

On the hardware front, prices of systems and peripherals are expected to drop, and in turn boost demand. "The notebook market will see intense competition leading to price degradation," said Lee, adding that unit sales of notebooks should increase this year but without substantial revenue growth. Overall growth rate for notebooks is forecast to grow between 40 percent and 60 percent, desktops at 8 percent, while printers remain at a healthy 10 percent, he stated.

"Smartphones/PDAs will witness robust growth approaching 20 percent, due to wider availability of WiFi connected hotspots," Lee said, explaining that availability of wireless and broadband facilities would be a key driver for handheld devices.

The report also revealed that few organizations will venture into unchartered territory. Given the current economic climate, companies are less willing to invest in emerging technologies, and most chief technology officers (CTOs) are therefore adopting a wait-and-see attitude, Lee pointed out.

Shortage of skills
A lack of human resource and skilled IT graduates continues to be a major industry concern. "Many have complained that there are too many IT graduates with very few relevant skills. IT education should be augmented with hands-on training and field experiences," said Lee.

He pointed out that the shortage is critical in niche areas, such as software engineering and business management, where skills are required for software quality assurance, object-oriented analysis and project management. Creative multimedia and security are also most sought after in Web security.

Lee also noted that Malaysia's low ICT awareness and ICT literacy rates restricted the growth of this industry, and suggested that the industry players placed more emphasis on education and training consumers.

The level of Internet penetration in Malaysia will also need to be raised in order to stimulate the ICT industry. "Compared to the advanced Asian economies like Korea and Japan, Malaysia has rather low PC and Internet penetration levels. Internet penetration in Malaysia is 34.5 percent as compared to Singapore’s 50.4 percent in 2004," he noted.

Government can do more
One technology vendor told ZDNet Asia that the government sector is not spending enough to stimulate the ICT industry. "These days, we don’t see as many government projects as before. One should take a good look at what the authorities are doing over in Singapore," he said.

Singapore's public sector IT spending is expected to see a significant increase this year. Local authorities plan to call for S$2.2 billion (US$1.3 billion) worth of IT tenders over the next 12 months. The amount is a three-fold increase from the previous year.

In contrast, government IT spending in Malaysia has been on a decline since 2002. In 2002, government IT spending dropped from RM790 million (US$207.9 million) to RM776.39 million (US$204.31 million) in 2003. Last year, the figure fell even further to RM667.6 million (US$175.68).

In Malaysia, the manufacturing sector continues to be a major buyer of ICT products and services, which is projected to spend RM14.4 billion (US$3.79 billion) in 2005.

Lee said that the soft market conditions have forced Malaysian companies to pursue new business opportunities in the international market. China remains a favorite export market among the Malaysian ICT companies, followed by Indonesia, the Philippines and Vietnam.

Cordelia Lee is a freelance correspondent who is based in Malaysia.