Turkey Information Technology Report Q2 2010

Market Overview
The size of the strategically located Turkish IT market is expected to increase from around US$6.4bn in 2010 to US$10.0bn by 2014, making it one of the fastest growing in emerging Europe. PC sales slowed in 2009 as the global credit crunch hit consumer spending, but the fundamentals of low computer penetration and rising incomes should keep the market on an upward path.
Turkish demand for IT is expected to return to positive growth in 2010. Consumer and business IT spending growth decelerated in 2009, but a faster-than-anticipated emergence from recession in H209 boded well for an upswing in 2010 and confirmed our prediction that over our five-year forecast period, the Turkish IT market will be a regional outperformer.
The Turkish IT market is forecast to achieve a compound annual growth rate (CAGR) of 12% during the 2010-2014 forecast period. Turkey’s cultural and geographical position as a hub between Europe and the Middle East only accentuates the significance of the country’s large market size for IT vendors. In recent years, PC sales have received new momentum as the focus of demand shifts towards the Anatolian region and this is expected to continue as the rate of PC penetration rises.
Industry Developments
In 2009, the government continued to implement its E_Gateway portal project, which is central to the government’s target of using IT to create a citizen-centric government. In the second phase, health, justice and security applications were rolled out, with remaining applications due to be added in 2010, the deadline for completing the project.
Healthcare should be a significant area of opportunity for IT vendors over the next few years as healthcare organisations seek efficiency improvements and better-quality services. The Health Transformation Project, launched by Turkey’s Ministry of Health, has driven an increase in outsourcing of hospital functions.
Meanwhile, other departments have continued to launch tenders, including a data warehouse for Turkey’s Social Security Institute and an upgrade of the statistical system of the Ministry of Labour and Social Security. As with many other government IT projects, the statistics project was being driven by an aim for compliance with EU standards and the EU is providing 75% of the funding from its general budget.
Competitive Landscape
Strong growth prospects for the Turkish PC market have encouraged PC vendors to increase investment in channels and local production. Market leader HP’s new plant is expected to cost around US$60mn and will produce 200,000 units a year after operations start in 2010. Meanwhile, Japanese IT giant Fujitsu has invested US$2mn to expand its PC production capabilities in Turkey. Fujitsu plans to expand Turkish output to 70,000-100,000 units in 2010.
In 2010, Microsoft hopes that sales of its Windows 7 operating system, launched in October 2009, will boost local sales. In summer 2009, Microsoft continued to lay the groundwork for the new operating system launch and released the enterprise version of the software in August. According to US government figures, Microsoft leads the application software category with about 12% of the market. IT services vendors have continued to strengthen infrastructure and service offerings in Turkey, despite the global recession. In August 2009, Accenture announced that, in partnership with enterprise software giant Oracle, it was opening an Accenture Innovation Centre in Istanbul. Meanwhile, IBM opened a new Business Continuity and Resiliency Services facility in Izmir. The new facility replaced one that had been in operation since 2005 and features advanced data centre and workplace recovery capabilities.
Hardware
Turkey’s computer hardware sales are projected at US$4.5bn in 2010 and are forecast to reach around US$7.3bn in 2014. Around 2.6mn PC units are projected to be sold. The market is forecast to return to positive growth in 2010, with revenues forecast to grow at a 13% 2010-2014 CAGR. The market fundamentals remain promising, with computer penetration low at around 10%. Until a few years ago, demand for computers was mainly confined to big cities like Istanbul, Izmir and Ankara. Now, however, the fastest growth in sales is coming from Anatolia. Demand for laptops is expected to be the strongest growth area over our forecast period, but desktops remain popular with businesses. With faster internet speeds, growing broadband penetration should be a key driver of PC sales across consumer and business segments.
Software
The software market in Turkey is projected at US$789mn in 2010 and is now forecast to reach US$1.1bn in 2014, representing a CAGR of 9%. However, much will depend on the success in bringing down the rate of illegal software usage which, at 65%, is nearly twice the global average.
October 2009’s launch of Microsoft’s Windows 7 operating system has the potential to impact positively on sales in 2010, although much will depend on consumer and business confidence. However, 2010 could see a boost regardless, particularly in the second half of the year, from systems upgrades deferred from the previous year. The economic crisis led some companies to review IT budgets or look to defer systems updates, but other companies saw IT as a means of achieving greater efficiencies in difficult times.
IT Services
Turkish spending on all categories of IT services is projected at US$1.1bn in 2010, with a return to growth as business confidence recovers following the economic contraction in 2009. The Turkish IT services market is expected to grow at a 10% CAGR over BMI’s 2010-2014 forecast period. The market is forecast to reach US$1.6bn by 2014. While support remains the largest services category, other groups – including outsourcing on non-core functions and training services – are growing particularly fast.
E-Readiness
Data indicated that Turkey’s e-commerce transactions level doubled in 2007 to 54.1mn transactions, up from 21.7mn the previous year.
Although other operators in Turkey are providing ADSL services, they are currently reliant on the incumbent Türk Telekom’s wholesale ADSL product; wholesale connections are included in the incumbent’s reported total.
Turkey’s Telecommunications Authority is keen to foster the growth of alternative broadband operators by allowing them to co-locate on Türk Telekom’s network, in addition to reselling Türk Telekom’s wholesale ADSL product. Competing against Türk Telekom remains difficult, given that the incumbent owns the bulk of Turkey’s fixed-line network infrastructure and is determined to compete aggressively on price.
In 2007, the Organisation for Economic Co-operation and Development (OECD) called for more initiatives to increase public use of information and communication technology (ICT), with research from the EU Statistics Office showing that Turkey is among countries in which internet access is very low. The research found that only 39% of Turks had computers at home and that Turkey was below the EU average in terms of both computers per household and internet access.
Turkey lags its EU neighbours on many indicators, except e-government, where much progress has been made. In 2005, a new unit responsible for the overall coordination of ICT projects – the Information Society Department – was established within the State Planning Organization. To increase the participation and level of success, an advisory board with 41 members has also been established. This consulting body gathers representatives from public institutions, NGOs and universities.