Analyst's View

Asia Pacific enterprise software spending to Grow 10.2% in 2010

Asia Pacific's enterprise software market revenue is forecast to reach US$ 22.1 billion in 2010, posting 10.2 percent growth, according to Gartner. This represents an upturn from the expected 6.6 percent growth in 2009, which is a notable slow down compared to 2008 growth of 13.8 percent. Within the region, the volatile economy is impacting the application software segment more than the infrastructure software segment.

Despite the recent slowdown in growth, Asia Pacific still has a positive outlook over the five-year forecast period from 2008 through to 2013, achieving a compound annual growth rate (CAGR) of 10.8 percent, the highest of any region worldwide. For the next five years, China, India and Vietnam will continue to register the highest CAGRs (14.6 percent, 12.4 percent and 10.7 percent respectively). Mature markets Australia and Singapore will also have attractive CAGRs, of 9.5 percent and 9.4 percent respectively.

China and India continue to benefit from a large domestic customer base and government stimulus packages, as well as relatively low market penetration. Australia and Singapore's revenue is supported by a consistent maintenance revenue stream and a strong vendor channel and service infrastructure, as well as positive expectations for end-user software budget increases in 2010[1].

"Asia Pacific will have a more positive outlook compared with other regions such as Europe and North America and as a result, major vendors will continue to target higher-growth markets in the region," said Yanna Dharmasthira, research director at Gartner. "However business customers continue to have strong bargaining power in the region. Some Asia Pacific markets have been traditionally more price-sensitive, a situation that is even more pronounced in the downturn. We expect to see more intense vendor competition in Asia Pacific, from multinational vendors as well as prominent local country vendors."

China will continue to lead software demand in the region, with a 12.2 percent growth rate in 2009 and 14.5 percent growth in 2010. Although China's high dependency on exports is significantly impacting its economic growth in 2009, the government's stimulus package cushions the negativity.

Australia is the next-largest market with a 5.4 percent growth rate in 2009 and 8.2 percent growth in 2010. Although some mature countries are experiencing a notable recession, Australia's economic growth in 2009 will experience only slight negative growth before picking up in 2010. Australia also has the advantage of a well-established IT infrastructure and a well-developed sales and service infrastructure.

Despite experiencing the slowest growth in 2009 among the region's four largest markets at only two percent, South Korea is still the third-largest software market in Asia Pacific. South Korea is a well-developed and IT-savvy market and revenue will come from its large installed base, specifically from maintenance and upgrades. Notable software growth improvement at 6.5 percent is expected for South Korea in 2010.

India is the fourth-largest market in the region with expected growth of 10.1 percent in 2009 and 11.8 percent growth in 2010. While its economy is also impacted by the economic downturn, India has the advantage of being less dependent on exports than China. India's largely untapped market, combined with a strong pool of IT skills, is expected to uphold local software demand.

"Asia Pacific will continue to have significant positive potential for future IT investment because of its relatively low penetration and is supported by a large base of domestic uses. With the economic slowdown, end-user organizations will prioritize IT as a way to cut costs and enhance their organizational efficiency and competitiveness, which is critical in the current environment," said Dharmasthira.

Infrastructure software represents 64.4 percent of enterprise software spending in Asia Pacific in 2010. The bulk of infrastructure software spending is made up of operating systems, database and security software segments. Data integration tools and virtualization software will have the fastest CAGRs in the next 5 years.

Although application software spending will have a slower growth rate than infrastructure software spending, during the next five years it is projected to grow at a solid 9.9 percent. ERP and office suites will remain the largest segments throughout the forecast period, while Web conferencing and project and portfolio management (PPM) will have the fastest CAGRs.