Israel Information Technology Report Q3 2008 - www.companiesandmarkets.com adds new report.

2008-09-13 06:37:02 - Israel Information Technology Report Q3 2008 - a new market research report on www.companiesandmarkets.com

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Market Overview The Israeli IT market’s recent momentum should be maintained during BMI’s 2008-2012 forecast period, despite a projected slowdown in overall economic growth. Due to Israel’s exposure to the US slowdown, conditions are not as favourable as at the start of last year. Despite this, BMI estimates that the local IT market will continue to grow at a compound annual growth rate (CAGR) of around 7% for the next few years. IT spending reached an estimated value of US$4.4bn in 2007. Lower interest rates should provide a support, despite the risk of higher inflation. A key factor is that nearly 50% of Israeli IT spending is accounted for by major government and military sector projects. These are unlikely to be affected by short-term economic factors. Indeed the government will likely up its own consumption levels in a bid to prop up the economy. IT services will be the fastest growing segment of the IT market, which exhibits a growing demand for IT outsourcing solutions. Meanwhile, financial sector organisations are on the rise, driven by regulatory compliance and reforms. Government IT initiatives will continue to be a source of opportunity. However, consumers and enterprises are also increasing outlay on IT. Computer sales were notably buoyant in 2007, with the positive economic situation and low interest rights prompting higher than projected spending. High internet penetration and growing broadband penetration remain strong drivers for the retail segment. Competitive Landscape Israel’s domestic IT giants reported a solid financial start to 2008. Ness saw revenues up 27% year-onyear (y-o-y) in the first quarter to US$159.7. The company reported improved operating margins in the Israeli market, and closed a number of important deals, despite the strong US$ and weaker local economy. Meanwhile, fellow Israeli IT major Matrix also saw a revenues rise 9.6% year-on-year in 2007, to around ILS1.3bn. The fastest growing revenues segment was, however, software services, which were up 13%. Meanwhile, international vendors are enhancing their local presence. In 2008 IBM announced that it is establishing a new Systems and Technology Group lab in Israel. The new R&D facility will focus on storage and microchip technology solutions, and follows IBM’s acquisition of three local IT storage solutions start-ups so far this year. HP has also been on the acquisition trail, and announced plans to build a new printer factory. Industry Developments Defence concerns remain close to the top of the national agenda, and this is still an important area for IT spending. There are opportunities in both public and private sectors with organisations like Israel Aircraft Industries. The Israeli Airforce recently purchased simulation software from Presgis to support development of its new Flight and System Trainer for the F-161 aircraft. Meanwhile, the government is pressing ahead with e-government programmes. The 2005-2007 master plan of the government’s ERP project called for implementation in around ninety government units. Among other recent initiatives, there has been spending on computers in healthcare and the nationwide paperless court initiative. The Israeli government is also progressing with its plans to roll out Smart ID card systems intended to cover the entire population. Computer Sales Computer sales in Israel (including servers and accessories) are forecast at US$1.64bn for 2007, up from US$1.58bn in 2006. The market is expected to grow at a CAGR of 6% over the 2007-2012 forecast period, to around US$2.2bn by 2012. Computer sales grew strongly in the first three quarters of 2007. Growth is being driven by a generally buoyant economy and is encouraging buoyant retail sales, with as many as 10% of Israelis expected to purchase a computer in 2007. In 2007 desktop sales were reported to be far outstripping those of notebooks by 3:1. This reflects the fact that despite strong growth in demand for notebooks, the desktop sector is still unsaturated. PC penetration was only 26.4% in 2005, while digital divide issues mean that Israel currently has 600,000 children living below the poverty line, only 3% of whom have internet or home PC access, compared with 90% in the top income group. Software Spending on packaged software in 2007 was estimated to be US$888mn, up from US$772mn in 2006. The packaged software segment is expected to grow at a CAGR of around 8% over the forecast period. Spending on software is shifting towards the small-medium enterprise (SME) segment. Increased IT budgets were meaning increased spending on enterprise solutions in 2007. Reviving or emerging areas of opportunity include security solutions, customer relationship management (CRM) solutions, as well as business intelligence management. A survey of IT managers suggested that areas of high demand in 2007 would include management of Microsoft systems and servers, as well as systems management, basic data management, firewalls, enterprise resource planning (ERP) implementation and CRM. In terms of verticals, the financial sector is important, with other areas to watch including defence and healthcare. IT Services The IT services sector had a value of around US$1.4bn in 2007, and this is expected to rise to around US$2bn by 2012. IT services will be the fastest growing segment of the IT market, with financial, government and military sectors accounting for a large part of spending. A number of major outsourcing deals, including that awarded to HP by the Israeli Navy for management of its IT infrastructure, have highlighted the growing opportunity. Although Israel seemingly possesses many advantages as an outsourcing destination, in particular a technologically literate, linguistically skilled workforce, and low labour costs relative to most developed countries, the country has failed to capitalise on these strengths in the past. However, the government is now actively promoting Israel to multinationals, and Israel is starting to emerge as a location for packaged applications and localisation services. E-Readiness In 2007 Israel had around 4.3mn internet users, representing a penetration rate of around 59% of the population. Broadband penetration was around 20.8%, or around 1.5mn accounts. The government has announced that it intends to make a big effort to narrow the digital gaps which manifest themselves across various demographic lines. For example, recent research by the University of Haifa shows a consistent gap in internet access between Jews and Arabs, with 72.5% of Jews in Israeli using the internet, compared with 52.5% of Arabs. In order to deal with the problem, the following measures have been proposed: ??A senior minister for high-tech should be appointed to co-ordinate activities currently carried out by various ministries. The minister should prepare a master plan for government policy in the information industry; ??Regulations should be amended to facilitate rapid investments in communications, technological infrastructure, bandwidth and fast internet backbone; ??Massive investment should be made in the educational system for training information workers; ??Aid to be given to the less well-off to make them part of Israel’s information industry.

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