Vietnam information technology report q3 2013

Q3 2013
www.businessmonitor.com
VIETNAM
INFORMATION TECHNOLOGY REPORT
INCLUDES 5-YEAR FORECASTS TO 2017
ISSN 1749-3072
Published by:Business Monitor International
Vietnam Information Technology
Report Q3 2013
INCLUDES 5-YEAR FORECASTS TO 2017
Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: July 2013
Business Monitor International
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© 2013 Business Monitor International
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DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as
to the accuracy or completeness of any information hereto contained.
Vietnam Information Technology
Report Q3 2013
INCLUDES 5-YEAR FORECASTS TO 2017
Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: July 2013
Business Monitor International
Senator House
85 Queen Victoria Street
London
EC4V 4AB
United Kingdom
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:
© 2013 Business Monitor International
All rights reserved.
All information contained in this publication is
copyrighted in the name of Business Monitor

International, and as such no part of this
publication may be reproduced, repackaged,
redistributed, resold in whole or in any part, or used
in any form or by any means graphic, electronic or
mechanical, including photocopying, recording,
taping, or by information storage or retrieval, or by
any other means, without the express written consent
of the publisher.
DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as
to the accuracy or completeness of any information hereto contained.

CONTENTS
BMI Industry View 7
SWOT 9
IT SWOT 9
Wireline 11
Business Environment 13
Political 14
Economic 15
Industry Forecast 16
Table: Vietnam IT Industry - Historical Data And Forecasts (VNDbn) 16
Broadband 21
Table: Telecoms Sector - Broadband - Historical Data And Forecasts 21
Macroeconomic Forecasts 23
Economic Analysis 23
PMI Data Suggests Economic Recovery Remains On Track 23

Downward Revision To Reflect Weak Q113, But Growth Trajectory Intact 25
Table: VIETNAM - ECONOMIC ACTIVITY 26
Industry Risk Reward Ratings 27
Industry Risk/Reward Ratings 27
Table: Asia Pacific IT Risk/Reward Ratings - Q3 2013 30
Market Overview 31
Hardware 31
Software 38
Services 48
Industry Trends And Developments 53
Regulatory Development 57
Table: Government Authority 57
Regulatory News 59
Company Profile 62
FPT Software 62
Table: FPT Group Revenue By Segment (VNDbn) 64
Table: Profit Before Tax Margin By Segment (%) 64
Regional Overview 66
Demographic Forecast 71
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Table: Vietnam's Population By Age Group, 1990-2020 ('000) 72
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 73
Table: Vietnam's Key Population Ratios, 1990-2020 74
Table: Vietnam's Rural And Urban Population, 1990-2020 74
Methodology 75
Methodology 75
IT Industry 75
IT Ratings - Methodology 76
Table: IT Business Environment Indicators 77

Weighting 78
Table: Weighting Of Components 78
Sources 78
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BMI Industry View
BMI View: We forecast IT spending will increase by 17.6% in 2013 to reach a total value of VND62,082bn
(US$2.97bn). This is a slight downgrade from the Q213 update on the basis of a slightly weaker economic
environment, however, the macroeconomic environment remains supportive of fast IT market growth over
the medium term. Household PC penetration remains low, meaning an opportunity for vendors to record
sales growth over the medium term as incomes rise. Meanwhile, a range of government ICT initiatives and
a campaign to develop Vietnam's domestic IT industry will also boost growth. In the enterprise market there
is strong demand for ERP and security solutions, as well as medium-term opportunities in cloud computing
services as telecoms infrastructure improves. Finally, the outsourcing market is also expected to expand
rapidly over the medium term as enterprises, particularly in Japan, switch business away from China in
search of cost savings.
Headline Expenditure Projections:
Computer Hardware Sales: VND44,389bn in 2013 to VND68,935bn in 2017, CAGR of +12.5% in local
currency terms. Low PC penetration provides opportunities for sales to first time buyers while the influx of
cheap tablets from Android and Windows 8 vendors and notebooks are expected to provide a growth
avenue over the medium term.
Software Sales: VND5,610bn in 2013 to VND10,378nn in 2017, CAGR of +17.5% in local currency
terms. Potential for strong growth in licensed operating systems, business software and security software -
however this outlook depends on the success in bringing down illegal software use.
IT Services Sales: VND12,083bn in 2013 to VND22,812bn in 2017, CAGR of +18.2% in local currency
terms. Services will be the outperforming segment of the IT market as demand grows in several verticals,
including banking, telecoms, energy and government. Additionally, there is a potential boom in outsourcing
from Japanese enterprises to drive outperformance of services segment.
Risk/Reward Ratings: Vietnam scores 41.1 out of 100 in our Asia Risk/Reward Ratings table. This places

the country 11th, ahead of Sri Lanka and behind Indonesia and Thailand.
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Key Trends & Developments
PC penetration remains low in Vietnam, although it has been rising in recent years as device prices have
declined at the same time as Vietnamese incomes have risen and supporting infrastructure has improved.
Low penetration gives PC vendors an opportunity to tap both the first time buyer and upgrade/replacement
market to achieve strong growth in the coming years. However, the complexion of the hardware market is
changing with competition to international vendors most notably coming from low-price Chinese tablets
such as Hipad, Ondan, Teclast and Ampe in 2013. These products are undercutting traditional notebooks on
price, even after local dealers benefitting from high mark-ups. The margins available mean they are being
heavily promoted by local retailers. This has reportedly resulted in declines in prices for notebooks, which
are nevertheless finding themselves unable to compete at the low end of the market.
The outsourcing market in Vietnam has the potential to be one of the fastest growing segments of the IT
market, however there are challenges to continued growth. On the positive side, there has been increasing
interest in Vietnam as a business process and software development outsourcing location, particularly from
Japanese enterprises. Vietnam has a cost advantage over China, which accounts for the majority of Japanese
outsourcing by value. This could see significant shifts as the trend gains momentum. However, in 2013
there have been concerns raised about the availability of skilled labour, with IT university admission rates
declining, which could ultimately lead to a bottleneck that stymies the development of Vietnam's
outsourcing sector.
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SWOT
IT SWOT
SWOT Analysis

Strengths
■
Government policies to expand ICT infrastructure and internet penetration are driving

demand for IT products and services.
■
Vietnam's gradual integration into the global trade network via its accession into trade
organisations such as ASEAN and WTO, as well as bilateral agreements with Japan
and China.
■
The domestic IT market is in a rapid growth phase, with trade liberalisation and
growing affordability driving Increased adoption among enterprises and consumers.
Weaknesses
■
IT spend per capita much lower than in neighbouring Thailand, reflecting a much
lower GDP and GDP per capita.
■
Low levels of access to credit and budgets restrain spending by SMEs.
■
Highly cost-sensitive market, with 75% of software provided by lower-cost local
software vendors.
■
High level of software piracy, although progress has been made in recent years.
Opportunities
■
Low PC penetration means there is scope for vendors to tap first time buyer market
as well as the upgrade/replacement market.
■
Low-cost tablets are proving popular with consumers, with significant medium term
sales growth potential.
■
Vietnam is becoming a popular destination for outsourcing, with particularly strong
growth potential from Japanese enterprises.
■

National IT Plan will drive spending on IT utilisation in areas such as e-government, e-
taxation and education.
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SWOT Analysis - Continued
■
SMEs have much potential to increase spending on basic solutions, including
customer relationship management and security.
■
Banking and finance, oil and gas, aviation and telecoms are projected to be some of
the biggest opportunities for multinational vendors.
■
The government's drive to create a significant IT services industry over the next 15-20
years is expected to be a significant factor shaping the IT market through incentives
to create IT clusters.
Threats
■
The implementation of the China-ASEAN free trade agreement means that
established multinationals will face a growing challenge from low-cost Chinese
vendors in the Vietnamese market.
■
Low cost tablets from own-brand Chinese vendors a particular threat to low- and
mid-range notebook vendors.
■
Falling prices may further undermine margins and profitability after steep discounting.
■
Cyber security issues could undermine confidence in IT solutions and services, with
Big Data and cloud computing vulnerable.
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Wireline
Wireline SWOT

Strengths
■
Fixed-line penetration levels and internet user rates are high in major urban centres
such as Ho Chi Minh City, Hanoi, Danang and Haiphong.
■
Competition exists in fixed-line and internet access markets; VNPT faces competition
from several other state-owned companies and privately owned operators.
■
High levels of literacy and other demographic factors bode well for strong and
continued demand for wireline services over the next few years.
Weaknesses
■
Vietnam's fixed-line and internet access markets are dominated by state-controlled
operator VNPT.
■
Although alternative broadband infrastructures are currently being explored,
broadband growth continues to be highly dependent on DSL.
■
Low fixed-line penetration rates in rural regions limit the scope for DSL broadband
growth.
■
Although internet user growth is improving, rural Vietnam still has limited access to
internet infrastructure.
■
Broadband tariffs remain high, creating a barrier for low-income subscribers to
access.
Opportunities

■
The privatisation of VNPT could help to bring about increased investment revenue
and the arrival of new skills.
■
On a national level, broadband penetration rates remain low - this means that the
sector has considerable growth potential.
■
Significant opportunities exist to develop alternative broadband technologies,
including WiMAX, LTE and fibre; WiMAX and LTE internet services have the potential
to raise the level of internet user penetration in rural parts of Vietnam.
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Wireline SWOT - Continued
■
Draft Bill of Law on Telecommunication has been put forward for discussion at the
National Assembly Steering Committee. If passed, the bill will allow private
companies to build network infrastructure for the first time and will open up the
telecoms market to foreign investors.
Threats
■
Fixed-line sector may enter a period of decline, with potentially negative
consequences for DSL growth.
■
As the market for mobile data services grows, this could have potentially negative
consequences for the growth of fixed broadband services.
■
VTV's dominance in the pay-TV sector is holding back market development.
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Business Environment

SWOT Analysis

Strengths
■
Vietnam has a large, skilled and low-cost workforce, which has made the country
attractive to foreign investors.
■
Vietnam's location - its proximity to China and South East Asia, and its good sea links
- makes it a good base for foreign companies to export to the rest of Asia, and
beyond.
Weaknesses
■
Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.
■
Vietnam remains one of the world's most corrupt countries. According to
Transparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123
out of 176 countries.
Opportunities
■
Vietnam is increasingly attracting investment from key Asian economies, such as
Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech
skills and know-how.
■
Vietnam is pressing ahead with the privatisation of state-owned enterprises and the
liberalisation of the banking sector. This should offer foreign investors new entry
points.
Threats
■
Ongoing trade disputes with the US, and the general threat of American

protectionism, which will remain a concern.
■
Labour unrest remains a lingering threat. A failure by the authorities to boost skills
levels could leave Vietnam a second-rate economy for an indefinite period.
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Political
SWOT Analysis

Strengths
■
The Communist Party of Vietnam remains committed to market-oriented reforms and
we do not expect major shifts in policy direction over the next five years. The one-
party system is generally conducive to short-term political stability.
■
Relations with the US have witnessed a marked improvement, and Washington sees
Hanoi as a potential geopolitical ally in South East Asia.
Weaknesses
■
Corruption among government officials poses a major threat to the legitimacy of the
ruling Communist Party.
■
There is increasing (albeit still limited) public dissatisfaction with the leadership's tight
control over political dissent.
Opportunities
■
The government recognises the threat corruption poses to its legitimacy, and has
acted to clamp down on graft among party officials.
■
Vietnam has allowed legislators to become more vocal in criticising government

policies. This is opening up opportunities for more checks and balances within the
one-party system.
Threats
■
Macroeconomic instabilities in 2012 are likely to weigh on public acceptance of the
one-party system, and street demonstrations to protest economic conditions could
develop into a full-on challenge of undemocractic rule.
■
Although strong domestic control will ensure little change to Vietnam's political scene
in the next few years, over the longer term, the one-party-state will probably be
unsustainable.
■
Relations with China have deteriorated over recent years due to Beijing's more
assertive stance over disputed islands in the South China Sea and domestic criticism
of a large Chinese investment into a bauxite mining project in the central highlands,
which could potentially cause wide-scale environmental damage.
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Economic
SWOT Analysis

Strengths
■
Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 7.1% annually between 2000 and 2012.
■
The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 14.0% in 2010.
Weaknesses
■

Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving
the economy vulnerable to global economic uncertainties in 2012. The fiscal deficit is
dominated by substantial spending on social subsidies that could be difficult to
withdraw.
■
The heavily-managed and weak currency reduces incentives to improve quality of
exports, and also keeps import costs high, contributing to inflationary pressures.
Opportunities
■
WTO membership has given Vietnam access to both foreign markets and capital,
while making Vietnamese enterprises stronger through increased competition.
■
The government will in spite of the current macroeconomic woes, continue to move
forward with market reforms, including privatisation of state-owned enterprises, and
liberalising the banking sector.
■
Urbanisation will continue to be a long-term growth driver. The UN forecasts the
urban population rising from 29% of the population to more than 50% by the early
2040s.
Threats
■
Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam. If the government focuses too much on stimulating growth
and fails to root out inflationary pressure, it risks prolonging macroeconomic
instability, which could lead to a potential crisis.
■
Prolonged macroeconomic instability could prompt the authorities to put reforms on
hold as they struggle to stabilise the economy.
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Industry Forecast
Table: Vietnam IT Industry - Historical Data And Forecasts (VNDbn)

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
IT Market Value 36,898 45,404 52,773 62,082 70,836 80,399 90,746 102,126
o/w Hardware 27,305 33,372 38,261 44,389 49,939 55,877 62,161 68,935
- PC 22,117 27,098 31,374 36,754 41,350 46,378 51,594 57,216
- Servers 2,457 3,003 3,443 3,995 4,495 5,029 5,594 6,204
o/w Software 3,051 3,868 4,630 5,610 6,593 7,708 8,961 10,378
o/w Services 6,542 8,165 9,882 12,083 14,303 16,814 19,624 22,812
IT Market, % of
GDP 1.86 1.79 1.79 1.87 1.90 1.92 1.93 1.93
e/f = BMI estimate/forecast. Source: BMI.
BMI made a small downward revision to our forecast for IT market growth in 2013 in the Q313 update,
however our forecast for the later years was unchanged. We made a small downward revision to 2013
growth on the basis of a slightly weaker GDP growth forecast, but this revision should be considered in the
wider context of a supportive economic environment and a rapidly expanding IT market.
We expect the IT market in Vietnam will expand to VND62,082bn in 2013, an increase of 17.6% from
VND57,773bn in 2012. We expect strong growth to continue over the medium term with a compound
annual growth rate (CAGR) of 14.1% 2013 to 2017, with the value of the market reaching VND102,126bn
in 2017. There will be double digit CAGR for all three segments of the market, however we expect software
and services growth to outperform hardware and account for an increasing share of the total market over the
five years to 2017.
The major trends driving this strong growth include increases in PC penetration - driven by the supply of
cheaper hardware from Chinese vendors and a new generation of devices running Windows 8 - underpinned
by improvements in network infrastructure and rising real incomes. Government spending and policy will
also add to growth, through procurement initiatives, investments in hi-tech industrial parks and policies
designed to boost the sector such as improvements to IT education and security certification schemes for
firms. Meanwhile, despite global economic headwinds presenting a risk, Vietnam's software and
outsourcing services firms are positioned to benefit from large foreign enterprises seeking lower cost

locations over the medium term.
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2013 Outlook
BMI has revised our macroeconomic outlook for
2013 downwards slightly, but it will still be
supportive of IT market expansion. We forecast real
GDP growth will pick up to 5.6% in 2013 from 5.0%
in 2012, however, the forecast for 2013 has been
revised down from 7% in the Q2 2013 update.
Meanwhile, real growth in private final consumption
is also forecast to rise, pushing up to 5.0% in 2013
from 4.7% in 2012. Government spending is
expected to increase by 6.5% in real terms, again up
from 2012, and further, we expect IT spending
growth to outpace overall government spending
growth as it procures IT hardware, software and
services as part of its development plan.
Despite a positive growth outlook Vietnam remains
a low income market with GDP per capita expected
to reach just US$1,751 in 2013. As such IT spending on big ticket items remains out of the reach of a large
part of the population. Furthermore, the economy is exposed to risks from global economic headwinds
through the export market, swings in commodity prices and pressure on the value of Dong.
BMI expects strong sales in the retail PC market to continue through 2013, based on sales of desktops,
notebooks and tablets. Further, the market will gain additional momentum from the impact of new vendors
entering the market and existing vendors releasing new models, including Android tablets and
Microsoft Windows 8 based tablets, hybrids/convertibles and ultrabooks. This is an extension of trends
from recent years when declining prices have sustained sales volumes in a market where businesses and
individuals remain price-sensitive. However, a more recent factor is the influx of low-priced Chinese own-
brand tablets that has deepened the market and allowed growth momentum to be maintained. Furthermore,

vendors in the notebook category have been lowering prices to compete with this influx, which has helped
make devices more affordable and boosted sales.
Another area of the market performing strongly in 2013 is the outsourcing services market. Several pieces
of research have shown that Vietnam is now the first choice for Japanese enterprises looking to outsource
Industry Trends - IT Market
2010-2017
e/f = BMI estimate/forecast. Source: BMI.
Vietnam Information Technology Report Q3 2013
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functions, primarily based on the cost advantages offered. The majority of Japan's corporate outsourcing is
still directed to China in terms of value, but software and business process outsourcing has significant cost
advantages in Vietnam, as well as a friendly business environment. This could see rapid growth as firms
shift from China to Vietnam, and the potential for international demand from elsewhere could sustain the
boom.
Government spending and PC subsidy programmes will be supportive of the PC market in 2013 as the
government continues to roll-out IT modernisation programmes. The government has been spending heavily
on IT, with around 50% of this going to hardware in recent years. It has also spent heavily on licensing
software used by government agencies, but in 2013 the Ho Chi Minh City government is beginning a push
to increase the utilisation of open source software, which could be replicated elsewhere.
Drivers
The Vietnamese government is pursuing policies to promote the development of Vietnam's IT market
through to 2020. These policies include promoting the use of IT by government agencies, citizens and
enterprises - as well as promoting the development of local industry, particularly in software and
outsourcing services. Examples of policies include plans to modernise IT in government agencies and the
customs department, as well as the Tax Administration Modernisation Plan for 2008-2013, represent
opportunities for vendors of IT products and services. A number of government ministries and
organisations, including the Ministry of Education and Training, have started to promote the roll-out of
cloud services. The government has also promoted the IT industry through policy and incentives to grow hi-
tech parks, both for the construction of IT hardware, but increasingly software and IT services.
The government's drive to create a significant IT services industry over the next 15-20 years is expected to

be a particularly significant factor shaping the IT services market. The cost of outsourcing in Vietnam was
estimated in 2013 research to be as much as 30% lower than in China, a fact which Japanese firms were
especially aware of. The momentum that could be garnered from Japanese enterprises shifting business
process and software development outsourcing to Vietnam could see medium term increases from European
and North American demand.
However growth will depend on government progress on various business environment issues, including
copyright protection. Further progress in combating software piracy, which is still reported to be at higher
levels than in China, India and Thailand, despite some progress in recent years, is required. The government
has indicated a willingness to improve through the implementation of stricter regulations. It is also taking
steps to increase the penetration of information security certification by distributing funds to enterprises.
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Improvements to supporting infrastructure are also driving IT market development. Telecoms operators are
investing in the expansion of both wireline and wireless broadband network infrastructure to rural areas, as
well as upgrading capacity of urban infrastructure and improving backbone networks. Additionally,
telecoms operators such as Viettel are emerging as significant distribution channels for notebooks as
vendors seek tie-ups. In a country where PC penetration remains low, particularly in rural areas,
government digital divide programmes to boost internet and digital utility in rural areas underpin
addressable market growth and open PC ownership to a growing number of rural inhabitants.
Tariff reductions, particularly the ASEAN ones, have contributed to lower prices and a boost to PC sales.
However, the new China-ASEAN free trade agreement offers both opportunities and challenges to vendors,
given the growing presence of low-cost Chinese vendors in the Vietnamese market. Reports from Q113
indicate that international vendors have suffered in particular against the supply of cheap own-brand
Chinese tablets. Local dealers are promoting the devices because of the margins available, but even with
this mark-up they are proving a big-hit and hurting sales of traditional notebooks.
Segments
Government remains a key IT spending segment and accounts for around 30% of total Vietnamese IT
spending, with high levels of investment in hardware. Spending has continued to grow both at central and
regional government level. For instance, in 2010 the prime minister ordered all cabinet ministers to use
computers as part of a two-year plan to increase IT use in government. Most recently in April 2013 the Ho-

Chi Minh City authority announced plans to spend VND300bn (US$14.3mn) on developing e-government
capacity. It will also focus on replacing out of date hardware and improving network security in 2013. An
additional feature is the authority's intention to work with local small and medium IT enterprises where
possible, rather than immediately turning to large IT vendors. Spending in 2013 is a marked increase over
the 2005-2012 period when the city authority carried out 1,012 projects with a total spend of VND665bn.
In the enterprise market it is larger Vietnamese companies that are most likely to buy packaged software
from multinationals, which have only around 25% of the local software market. In the large corporate
sector, growing demand for digital infrastructure projects in segments such as banking, telecoms and energy
has attracted global IT services leaders, such as IBM, to invest in Vietnam. Foreign investment, particularly
by Japanese companies, in call centres and other areas will help to grow the market.
Meanwhile smaller enterprises have a lower penetration of enterprise software, including ERP and security
software. As such it is an area of the market in which vendors can achieve growth as SME awareness of the
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benefits of IT utilisation increase. Vendors will have to face the challenge of enterprises that are constrained
by low budgets and lack of access to credit. Companies are looking for software that will help boost
performance and operational efficiency. Promising SME verticals include discrete manufacturing and
consumer packaged goods, as well as hotels and property management. The solution areas with most
demand currently include security software and key applications such as CRM, ERP and HR management.
The banking and finance sector is a promising area for database software and one where foreign companies
have done well. Spending opportunities in the finance segment will be driven by regulatory compliance, due
to regulations such as Basel II, HIPPA and the Sarbanes-Oxley Act, and quite likely by new regulations
introduced in the wake of the global financial crisis.
An increasing number of Vietnamese companies have shown an interest in and willingness to use cloud
services, although the market is only in the early stages of development. In the short term weaknesses in
telecoms infrastructure - in terms of reach and capacity - will limit cloud service adoption, but this barrier
will erode over the medium term. The government has also got involved in encouraging the development of
this business model in Vietnam and new cloud computing offerings and increased competition in this
segment should fuel further demand from end-users to utilise this technology.
Summary

Overall, the hardware market is anticipated to grow from VND44,389bn in 2013 to VND68,935bn in 2017,
with computer sales rising from VND36,754bn to VND57,216bn over the same period. Software spending
should rise from VND5,610bn to VND10,378bn and IT services from VND12,083bn to VND22,812bn over
the forecast period.
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Broadband
Table: Telecoms Sector - Broadband - Historical Data And Forecasts

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
No. of internet users ('000) 26,905 31,159 31,470 32,100 32,742 33,397 34,064 34,746
No. of internet users/100 inhabitants 30.6 35.1 35.1 35.4 35.8 36.1 36.5 36.9
No. of fixed broadband internet subscribers ('000) 3,644 4,085 4,775 4,966 5,115 5,218 5,322 5,428
No. of fixed broadband internet subscribers/100
inhabitants 4.1 4.6 5.3 5.5 5.6 5.6 5.7 5.8
e/f = BMI estimate/forecast. Source: BMI, VNNIC
According to data provided by the Vietnam Internet
Network Information Centre (VNNIC), there were
31.3mn internet users in Vietnam at the end of
November 2012, up from 30.6mn in 2011. Vietnam's
internet sector continued to exhibit slower growth in
2012, continuing on from the trend seen in 2011.
The average monthly growth rate for 2011 was
1.1%, which was lower than the growth average in
2010 (1.4%). The first 11 months of 2012 saw even
weaker growth with an average m-o-m growth rate
of just 0.2%. Given that the number of 3G
subscriptions has surged in the past year, it is
possible that the VNNIC does not take into account
mobile internet users in its definition.

Fixed internet services are experiencing muted
growth due to the higher cost of ownership as
consumers need to purchase personal computers,
namely desktops and notebooks. There has been no explanation for the sudden decline in subscriber growth,
but market saturation is likely to play a significant role. We now expect 32.1mn internet subscribers in
Vietnam at the end of 2013, a penetration rate of 35.4%. We expect this number to increase to 34.7mn by
end-2017, a 36.9% penetration rate.
Industry Trends - Broadband
Sector
2010-2017
e/f = BMI estimate/forecast. Source: BMI, VNNIC
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Although the internet user penetration rate is expected to be approaching saturation in major cities and
towns, rural Vietnam remains comparatively untapped as a result of consumers' lower purchasing power.
However, expansion into these areas is costly and the return on investment is not as attractive. Mobile
internet services are a more efficient way to capture customers in rural areas.
Vietnam's fixed broadband subscriber market grew by 22.8% in 2010, which was a significant slowdown
from 44.8% in the preceding year. The market registered growth rates of 150.3% in 2007 and 58.3% in
2008, but the higher growth momentum could be attributed to a low-base effect.
Like the overall internet sector, Vietnam's broadband industry is experiencing a slowdown. There were
4.3mn broadband subscribers at the end of November 2012, up by 8.0% y-o-y. The average monthly growth
rate in the first 11 months of 2012 was 0.5%, down from the 1.0% in the whole of 2011. This was due to the
contractions in the months ended June 2012, September and November 2012. We have raised our
broadband forecasts this quarter, however, in light of strong growth reported in the ministry's subscriber
figures. According to MIC, there was a surge in broadband subscribers in end-2012, and, by end-March
2013, there were 4.8mn subscribers in the country.
Although Vietnamese telecoms companies continue to deploy broadband services such as fibre-to-the-x,
affordability and coverage remain key concerns in the emerging market. Furthermore, demand for
traditional fixed broadband services is increasingly under threat from mobile alternatives due to a lower cost

structure. While we believe there will be limited growth potential for the fixed broadband industry in
Vietnam in the near future, we retain an optimistic view in light of Vietnam's growing affluence and
expanding middle class. While next-generation mobile technologies LTE and WiMAX could cannibalise
demand for fixed broadband solutions, companies could generate consumer interest by introducing
bandwidth-intensive services such as IPTV or target businesses by offering bundled packages such as cloud
solutions.
We expect the growth rate of the Vietnamese broadband market to decline in the next few years as
consumers opt for mobile alternatives. That said, declining prices of products and services should help the
sector to grow by an average of 2.0% between 2013 to 2017 to bring the total number of fixed broadband
subscribers in Vietnam to 5.4mn.
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Macroeconomic Forecasts
Economic Analysis
Vietnam's real GDP growth came in relatively weak at 4.9% year-on-year (y-o-y) in Q113, missing
Bloomberg consensus of 5.2% by a significant margin. The latest GDP print has fuelled concerns that the
economic recovery could be losing momentum as the government races to restructure the banking sector
and reassure investors that a banking crisis can be avoided. Although we acknowledge that uncertainties
over the build-up of bad debt in the banking sector could continue to weigh on investor sentiment and
undermine efforts by the government to reignite growth, this is typically the final saga of a credit cycle.
Furthermore, we have witnessed encouraging evidence that an economic recovery in the coming quarters
remains on track.
Banking Sector Woes Continue To Weigh
Vietnam - Real GDP, VNDbn (LHS) & % chg y-o-y (RHS)
Source: BMI, General Statistics Office
PMI Data Suggests Economic Recovery Remains On Track
The HSBC Purchasing Managers' Index (PMI) showed that Vietnam's manufacturing sector witnessed a
strong rebound in March, with the index punching above the crucial 50 point mark to post a 23-month high
Vietnam Information Technology Report Q3 2013
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of 50.8, up from 48.3 in February. We have also witnessed a strong PMI reading of 51.6 in China, up from
50.4 in February, signalling that robust demand from the Chinese economy could lend some support in
boosting Vietnam's exports over the coming months. The latest set of PMI data reinforces our conviction
that economic activity in Vietnam will accelerate over the coming quarters on the back of improving
macroeconomic fundamentals and easing credit conditions. Meanwhile, the Vietnamese equity market has
also witnessed a strong performance since the beginning of the year, with the benchmark Ho Chi Minh
Index (VNI) recording impressive gains of around 20% year-to-date. We view this as a sign of increasingly
bullish sentiment towards the country's long-term growth story.
The Vietnamese government has also taken a more aggressive stance with regards to speeding up economic
reforms since 2012, and we expect this trend to remain in play in 2013 and beyond. Prime Minister Nguyen
Tan Dung approved a master plan in February to further restructure the economy, strengthen oversight of
the banking system and establish a roadmap to clean up state-owned enterprises (SOEs). The plan is
expected to be implemented by June. We are optimistic that reforms to strengthen regulatory oversight of
the banking system will help to improve the quality of credit and reinstall confidence in the banking sector
going forward.
Investors have been staying on the sidelines and are keeping a close eye on the government's plan to
establish a new debt management agency that is expected to consolidate non-performing loans from ailing
banks. Progress on this front is encouraging, with the government unveiling plans to launch the debt
management agency within a matter of weeks. Such reforms will play a crucial role in attracting greater
foreign direct investment (FDI) into Vietnam over the coming quarters, and should complement renewed
efforts by the government to speed up privatisation of state-owned enterprises (SOEs) to allow the private
sector to assume a greater role in driving economic growth going forward. It is widely expected that at least
seven SOEs will launch initial public offerings (IPOs) in 2013 and another 20 more SOEs could be listed by
the end of the year if the response is favourable.
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