South Korea's IT market should record single-digit growth in 2011, consolidating an upturn in IT demand in 2010. BMI expects South Korean IT spending to increase from US$17.8bn in 2011 to US$25.6bn in 2015. There will be a number of key drivers and growth trends including cloud computing, IT outsourcing, and industry-specific software applications.
In 2011, consumer segment IT growth should be solid thanks to rising income levels Korean economy posts continued growth. Growing broadband penetration and demand for tablets and other new form factors will continue to be PC market growth drivers.
New cloud computing offerings should fuel further demand from companies to utilise this technology and drive investment in data centres. Korean financial services institutions are investing more in customeroriented strategies and to streamline complex operating environments.
Industry Developments
South Korea announced that it was to spend US$224.5mn to prepare to launch fully fledged cloud computing services in 2010. Around 73% of the funds were to come from the state, with the money being used to develop technology and build infrastructure required to support the service. The government will also move to reform potential administrative and legal barriers to cloud computing, which it aims to complete by 2013.
A particular government focus is on encouraging small businesses to utilise cloud computing. In 2011, the Korea Technology and Information Promotion Agency for SMEs (TIPA) will launch programme for SMEs, under which between 50%-70% of the costs of cloud services are eligible for subsidy. A pilot project was run in 2010 and many leading telecoms and IT service providers are expected to participate in the tender.
South Korea plans to invest KRW400bn (US$341.1mn) by 2013 to help develop the domestic software industry. In 2010, the government announced that it would spend US$27.4mn to support a software training programme to produce more software entrepreneurs.
Competitive Landscape
Korean telecoms companies are moving aggressively into the IT services space. In H111, Korean telecoms giant KT announced that it will make the transition to an information technology convergence group from a telecoms service firm, with plans to have non-telecoms businesses take up 45% of overall sales by 2015. Non-telecoms sales made up 27% of revenues in 2010. The company is targeting global ales of US$5.5bn from IT services and media by 2015.
Meanwhile rival telecoms company SK Telecom said that its business-to-business services would start to generate revenues in the second half of 2010. A bigger expansion of sales is expected. In December, KT said that it targeted KRW700bn (US$612mn) in annual sales in cloud computing by 2015. Cloud computing is a key focus for both vendors and service providers. In July 2010, Microsoft announced that it was partnering LG Uplus to launch cloud computing services in South Korea. The two companies said that they would first form teams to study technical and business feasibilities. The partners hoped to help South Korean businesses improve productivity through delivery of services and applications such as ERP, HR, CRM and other business solutions on demand.
Computer Sales
According to BMI projections, sales in South Korea's PC market will be worth around US$3.7bn in 2011, with single-digit growth from 2010. Total PC revenues including notebooks and desktops are forecast to rise to US$4.5bn in 2015 at a compound annual growth rate (CAGR) of 6%. New PC form factors such as tablet computers will drive demand in 2011, boosted by telecoms operator subsidies, and 3G wireless network expansion will also drive sales. Laptops already dominate the consumer PC market, accounting for more than 60% of household PC sales.
Software
Software is forecast to report high single-digit growth in 2011, accounting for about 35% of total spending. As the market focus moves from hardware to services and solutions, the share of the market accounted for by software should rise, with enterprises seeking greater leverage from their investments. However, software piracy in South Korea is above the global average and remains a problem. The trend in the South Korean software market is towards specialised vertical-specific application packages for industries such as autos, pharmaceuticals, healthcare and financial services. Vendors such as Microsoft and Oracle are trying to keep ahead of smaller competitors by targeting key client groups with industry-specific software.
IT Services
IT services are projected to account for about 40% of the domestic IT market in 2011, with spending of US$7.1bn. The CAGR for the segment is estimated at 8% over the 2011-2015 period, with cloud computing, mobile computing and social networking applications among the main trends driving growth. The cloud computing market has yet to fully take-off, but vendors and service providers are investing heavily in preparation.
Sectors such as government, telecoms, healthcare and banking should continue to supply demand for implementation, consulting and managed services. Outsourcing has become a significant factor and is estimated to account for up to 24% of IT services spending. In recent times, traditional IT services providers have faced strong competition for a share of the outsourcing market from internet data centres (IDCs).
E-Readiness
South Korea has one of the most sophisticated mobile telephony markets in the world. Given the dramatic increase in 3G subscriber numbers seen by KTF, SK and LG Telecom as well as increased marketing for 3G services by KTF, BMI expects this healthy growth to continue.
There is some confusion as to what technologies South Korea's operators regard as 3G. All three operators have had CDMA2000 1x networks since at least 2001, which the International Telecommunication Union defines as third generation. However, KTF and SK did not regard their networks as IMT-2000 until they upgraded to CDMA2000 1x EV-DO in 2002. Both SK and KTF have now upgraded to W-CDMA-based HSDPA networks, launched in 2006, which are 3.5G. LG Telecom has lagged behind on the technological front and only in April 2009 did it commercially launch a CDMA2000 1x EV-DO Revision A network and start offering 3G services.

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Executive Summary 5
Market Overview 5
Industry Developments 5
SWOT Analysis 8
South Korea IT Sector SWOT 8
South Korea Political SWOT 9
South Korea Economic SWOT 10
South Korea Business Environment SWOT 11
IT Business Environment Ratings 12
Asia 12
Table: Regional IT Business Environment Ratings 12
Asia IT Markets Overview 16
IT Penetration 16
Sectors And Verticals 19
South Korea Market Overview 23
Government Authority 23
Background 23
Hardware 24
Software 25
Services 27
Industry Developments 30
Industry Forecast Scenario 33
Table: South Korea, IT Sector (US$mn Unless Otherwise Stated) 35
Internet 36
Table: South Korea Telecoms Sector – Internet – Historical Data & Forecasts 36
Macroeconomic Forecast 38
Table: South Korea – Economic Activity 40
Competitive Landscape 41
Hardware 41
Software 42
IT Services 44
Broadband 48
Table: South Korean Broadband Market, June 2009 49
Table: South Korea Broadband Access Types By Operator, June 2009 50
IPTV 50
WiBro 52
Wireline Developments 53
Table: Wireline (Fixed-Line And Broadband) Developments 53
Company Profiles 54
Samsung Electronics 54
BMI Methodology 56
How We Generate Our Industry Forecasts 56
IT Industry 56
IT Ratings – Methodology 57
Table: IT Business Environment Indicators 58
Weighting 59
Table: Weighting Of Components 59
Sources 59
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