Malaysia: Growth in IT spending to be negative?

For first time in decade, IDC expects IT spend in country to shrink between 1.8 percent and 3 percent this year, but adds a recovery is likely as early as 2010.
Written by Lee Min Keong, Contributor

MALAYSIA--IT spending in the country is projected to experience negative growth for the first time in a decade, with a contraction of between 1.8 and 3 percent in 2009, IDC said.

Despite the negative forecast for 2009, the research firm expects to see initial signs of recovery on IT spending in Malaysia as early as 2010, with investments rebounding to its pre-crisis level by 2011.

Basing its assumptions on first-quarter-2009 research results of various IT spending segments, current economic indicators, historical trends and assumptions, IDC foresees 2009 IT spending growth to be at -1.8 percent. However, IDC said if the economy does not pick up by the third quarter of this year, IT spending growth for 2009 could fall to -3 percent.

However, IDC said "bright spots" that still exist in various sub-sectors will cushion the overall IT investment in Malaysia although the major contributors--the consumer and manufacturing sectors--are likely to remain cautious in spending.

Maggie Tan, associate research director of IDC South East Asia, said in a statement: "Depending on the levels of fiscal improvements seen in the economy, how the [government's] overall stimulus package 'kicks-in', as well as the Southeast Asian regional efforts to combat the current world downturn, IDC sees Malaysia riding out this crisis with signs of an upswing in IT investments within 12 to 18 months."

Though hardware spending in 2009 will drop compared to 2008, the exception to this will be in network and infrastructure spending by national telecom operators and the government for broadband and mobile services infrastructure rollout, IDC said.

Investments in package software will also dip in 2009 as the enterprise markets have shown signs of gradual slowdown since the second half of 2008, while the small and midsize businesses (SMBs) are likely to be affected in this year's first half.

IDC said the IT services market, on the other hand, will enjoy the limelight during this downturn.

"This is a result of the private sector being likely to prolong replacement lifecycles and increase emphasis on maintenance and support of its existing hardware investment in order to channel Capex (capital expenditure) towards priorities areas and having a preplanned budget on Opex (operating expenditure) for IT infrastructure support in the next 12 to 18 months," it added.

Within the consumer space, IDC is expecting consumers in the mid- to high-income group to continue contributing to the overall IT spending, particularly on new technologies or services such as Wi-Fi access and broadband. Consumer spending will most likely take a hit in the third quarter of 2009 if job losses and closures of SMBs continue to be pervasive in the country.

Growth hanging on jobs
"Sizeable job cuts in the manufacturing, financial and services industry will result in lower household income expenditure. If the trend spreads to major metropolitan areas such as the Klang Valley, IDC expects the consumer spending on IT to drop significantly in the third quarter of 2009."

Drawing on historical trends in IT spending, IDC sees IT investments having a direct correlation to real gross domestic product (GDP) growth and private consumption growth. IT spending generally picks up faster than both GDP and private consumption growth and drops more significantly than the two.

"With the current slowdown, IDC expects IT spending to take off strongly when the economy begins to pick up, possibly at double the GDP rate prompting companies and governments to continue investing strategically in IT to be better prepared for the new challenges once the economies stabilize.

Malaysia's GDP is projected to grow between -1 percent and 1 percent this year, according to Bank Negara Malaysia, the central bank, which had earlier projected a 3.5 percent GDP growth before the full force of the global financial crisis hit Malaysia end last year.

Meanwhile, Tan noted how the strategy of Southeast Asian governments to invest in broadband could create more job opportunities in the short term, while building up a strong IT infrastructure throughout the country for long-term benefits.

"The Malaysian government and telecom operators are similarly committed in rolling out high-speed broadband despite the economic conditions," she said.

IDC said the worst probable outcome could happen if certain key assumptions do not materialize, particularly with delays in the government's stimulus package trickling into the market.

Hardware will take a deeper fall as consumer spending in the second half of 2009 will be impacted given that the mid- to high-income earners will likely cut back on unnecessary spending and focus on the big-ticket expenditures such as home and car loans, it added.

Lee Min Keong is a freelance IT writer based in Malaysia.

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