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The total telecom services market in the region will grow by 11% to US$163 Billion in 2005, driven primarily by growth in IP, broadband and wireless services”, said Piyush Singh, Managing Director, IDC Asia/Pacific.

IDC’s top 10 predictions for the Asia/Pacific excluding Japan (APEJ) ICT markets are drawn from IDC’s latest research, and a worldwide brainstorming exercise among IDC’s more than 700 analysts. This was followed by an extensive regional review to weigh in on key industry trends in 2005 in APEJ and on the strategic choices the industry's leaders will face in the coming year. Across virtually all ICT market areas, IDC predicts that 2005 will be a year of convergence, consolidation, innovation and realignment.

"The current ICT industry structure is inefficient and highly fragmented with numerous players competing in each market segment. At the same time, disruptive innovations continue to shift and re-define competitive markets. Given the imminent pressures on profits due to a combination of moderating industry growth worldwide, and intense global competition, industry consolidation will accelerate over the coming years as the industry evolves towards an optimal competitive structure in each major market segment. Companies that emerge successfully through the structural transformation underway will be the big winners in the coming decade", noted Mr. Singh.

IDC's top 10 predictions for the ICT Market in APEJ for 2005 are as follows:

1. IT Spending in Asia/Pacific excluding Japan (APEJ) will grow by 10% in 2005, despite slower economic growth

IT spending in Asia/Pacific excluding Japan (APEJ) is expected to remain robust in 2005, replicating its growth of 10% in 2004, over the prior year (in constant US$ exchange rates). Total IT spending in the region will reach US$97 billion in 2005, driven by a healthy 15% growth in China (excluding Hong Kong) and 22% growth in India. These two countries will account for 42% of total IT spending in APEJ in 2005, with China being the more dominant market with 33% share of total IT spending in APEJ. The high growth product/service market segments in 2005 will be: smart handheld devices, IT planning and implementation services, IT training and education, application software, and system infrastructure software.

2. Wireless services market will overtake fixed-line services in APEJ

The total telecom services market in APEJ is expected to reach US$163 billion in 2005, which represents a growth of 11% over 2004. More than half of this revenue will accrue from wireless services in 2005, marking an industry transition that began almost a decade ago. Services bundling and content integration will drive competitive strategies of telecommunications service providers in the region. IP services, broadband and wireless will remain the key growth areas.

We will finally see competition in 3G services, outside of South Korea. More service providers will launch commercially in the coming year and more competition will bring about better services to the end-user. Singapore will be the first market to see full-blown competition in 3G services with all its three mobile operators engaged in wideband code division multiple access (W-CDMA) commercial launches in compliance with a mandatory timeline; Hong Kong, Australia, and Taiwan will follow suit thereafter.

3. Semiconductor market will correct in 2005, registering a 2% dip in worldwide revenues

The worldwide semiconductor market has entered a correction phase triggered by supplier expectations of high demand and resulting overproduction. This correction is expected to produce an overall negative growth of 2% in 2005 with revenues reaching $205 billion. This follows from a 26% growth in 2004, where revenues totaled $210 billion. Supplier expectations for a strong market led to a 48% surge in capital spending in 2004. However, significant variations in monthly demand forced manufacturers to slow production in the second half of the year.

We expect the first half of 2005 will be marked by increased price pressures for suppliers. Utilization rates should bottom out by the middle of next year, which will help to stabilize the market. A continuation of the corporate PC and mobile phone replacement cycle, and growing demand for consumer electronics should help suppliers get back on track by 2H05. Following this correction phase, the global semiconductor market is expected to return to positive growth in 2006 through to 2008.

4. Consolidation and commoditization of IT hardware infrastructure will accelerate industry realignment

Reducing complexity in the datacenter and improving operational efficiency will be high on the agenda of enterprise users in 2005. The hardware infrastructure upgrade cycle that picked up steam in 2004 will continue into 2005, though at a slower rate in revenue terms, as prices continue to decline and hardware commoditization accelerates. Consolidation of servers and storage infrastructure will be a leading trend across countries in APEJ. Enterprise users will be keen to acquire the right management & provisioning tools to better manage their system, storage and networking resources.

Commoditization will continue to impact storage systems, with low-cost, high capacity drives defining the competitive battleground, foreshadowing greater price erosion in this market. This will trigger more consolidation within the industry to improve economies of scales, as well as acquisitions to enlarge the market scope of storage systems suppliers to include provision of infrastructure management solutions.

5. Security remains on top of CIO agenda; focus on end-to-end solutions

Along with the dual imperatives of improving operational efficiency and business responsiveness of IT, security will remain at the top of CIO agenda in 2005. The responsibility of safeguarding the information assets of the organization and ensuring IT dependent business continuity lies with the CIO. Robust end-to-end security solutions that include all layers of infrastructure, access and applications are critical in our increasingly networked business world. On the back of this trend, the security software market in APEJ is expected to grow by 18.9% to US$818.4 million in 2005.

Point solution vendors will increasingly find it difficult to survive in this marketplace. Larger players will actively seek to boost their functional product offerings to differentiate themselves from competition. This will mainly be done through mergers, alliances, and partnerships rather than through in-house capability development. The flurry of merger and acquisitions (M&A)/partnership activities in 2004 (which includes Symantec's acquisition of Brightmail and TurnTide, and CA's acquisition of Netegrity) will continue into 2005.

6. Linux will expand within server operating environments

Linux software license revenues are forecast to grow from US$6.48 million in 2004 to US$11.6 million in 2005 in APEJ, showing a year-on-year growth of 78.6%. This trend will continue over the next 4 years, and Linux software license revenues will reach US$69.8 million by 2008 at a compounded annual growth rate of 82.5%. Most of the growth will come from the server operating environment market, where Linux has been getting more traction and where users have indicated more optimistic usage plans. India and China present the largest opportunities for Linux adoption and migration in the server market.

While Linux usage is pervasive across countries and verticals, actual penetration rates have remained shallow so far, with end-users mostly relegating Linux to supporting their IT and Web infrastructure workloads. This is about to change; demand generation and product development activities from vendors such as Oracle and IBM are helping to fuel market interest in running Linux for database software and business process application type of workloads. The use of Linux on x86 servers in a grid environment provides end-users with an interesting alternative approach to scale up using commodity building blocks.

7. Offshore services and BPO will accelerate

In 2005, "offshoring" will accelerate as enterprises race to lower their cost structure, amidst global competition. On the other hand, the industry will continue to shift its capabilities and offerings closer to business processes and value, through greater investment in business consulting and process expertise, as well as greater focus on Business Process Outsourcing.

IDC expects comparatively rapid adoption of BPO in emerging markets in Asia as local companies increasingly compete with global entities and face continual changes in regulatory dynamics. Clearly these markets offer limited scope for labor arbitrage, so for such markets, it will be all about the ability to provide world-class services in the most cost effective and efficient manner. IDC expects the uptake of BPO in APEJ to spread across a range of processes, in particular human resources, procurement, financial accounting, logistics and industry specific solutions such as check and bill processing, and risk management.

8. Enterprise Solutions Platforms (ESPs) will reshape the application software business

ESPs - IDC's term for the emerging generation of application integration platforms like SAP's NetWeaver, Oracle Information Architecture (OIA), PeopleSoft's AppConnect, Siebel's Universal Application Network (UAN), and to some degree IBM's WebSphere, BEA's WebLogic and Microsoft's .NET - is moving the focus of the business applications market away from large, monolithic packages, towards the componentization of application functionality, exposure of functional components as reusable services, and linkage of components that define a business process through a dynamic integration environment. Navigating the complete transition towards ESP will take several years – even for the dominant enterprise application vendors. In 2005, the major application vendors will push for greater adoption by customers, and focus by the channel.

9. Digital home will establish a foothold in developed markets in the region

Given the increasing amount of digital content, devices and networks available, the digital home will start becoming a reality in several countries in APEJ in 2005. There are a number of converging technologies and applications playing a role in shaping the digital home market: TV, PCs, mobile phones, handhelds, printers, audio-visual equipment, appliances, digital content, broadband access, home networking and digital cameras, will form the key components of the digital home as a whole.

Having a fast Internet connection will strongly influence the way in which consumers listen to music, play online games and watch news or videos. According to IDC's latest forecasts, 69.3 million households in Asia/Pacific will have broadband Internet access by 2008, representing 9.4% of all households in the region. Growth of broadband penetration together with availability of online content and services will further drive digital convergence in the region.

10. Three emerging technologies will be on the verge in 2005

In spite of the talk of a "maturing" IT industry, 2005 will see lots of IT innovation. Many will be in the mainstream of today's markets – in the form of system packaging, virtualization, automated management, voice-over-IP, converged devices, integration platforms, and composite applications and web services. 2005 will also see the growth in interest and importance of innovations at the periphery, including sensor-enhanced RFID, mesh networks and semantic Web technologies.