In the next five years, the compound annual growth rate of software industry will reach 17.2%, the growth of software outsourcing industry is the fastest, followed by the management software and system integration; however, the growth of hardware industry in the next five years is 9.3%. At the same time, the current price-earning ratio of hardware industry is higher than software industry. Therefore, we believe that the software industry has better investment opportunities, but the hardware industry has not.
Software Grows Strongly, Hardware Grows Gently
In 2006, the computer industry has reached 570 billion Yuan of market scale, in the next five years; it will grow with the average growth rate of 15.3%. Among them, the software industry will lead the growth of the whole industry, in 2006, the market scale is 66.5 billion Yuan with the increase of 17.85, in the next five years, the compound growth rate will also maintain at a high level of 17.2%. Although the service industry has risen to a growth rate of 25%, but the industry scale is still small and the market is decentralized. The growing speed of hardware industry is obviously slow with the growth rate of 11.5%. Therefore, the investment opportunities are mainly in software industry.
Among all the software industries, the software outsourcing has the largest space to grow, in the next three years, the compound growth rate is 39%, it is said that in the next ten years, it will grow with a high growth rate; this opens space for the related enterprises. The management software is still growing up, the growth rate of ERP software which is the most important part will be 19.3% in the next three years, the fast growth rate and monopoly of it has created a good profit upgrading space to those leading enterprises. The growth speed of system integration is moderate, in the next three years, it will be 16.0%, although the competition in this industry is fierce, the companies with strict management and excellent cost control are standing out.
In the general hardware industry, the market sales growth rate of PC is becoming stagnant, and the rate of notebook keeps the high growth of more than 20%. The A-share listed companies are disadvantaged in notebook computer market; they cannot enjoy the benefits of the high growth of the industry. The dedicated hardware market has kept a unique and good demand.
Software Outsourcing Industry Keeps High-Growth In The Next Ten Years
In 2006, Chinese software and service offshore outsourcing market growth is as high as 43%, but it is only the beginning, Chinese software outsourcing market has just come into the growth early period. IDC forecasts that in the next five years, the software outsourcing market's compound growth rate will reach 40%. It is said that in the next the years, Chinese software outsourcing market will show a high growth and the market scale will be more than 10 times.
From the international comparison, China has the comparative advantages to be a large software outsourcing country: low-cost technical staff, a large number of software developers, better Japanese and English language skill, policy support and other advantages. However, China accounts for little in the global market with only 1/13 of India, China has accounted for no more than 1/100 of American outsourcing market. This means that the development of Chinese software outsourcing business is great.
Why China goes behind with India in software outsourcing market? This is because China started late. The global offshore software outsourcing market began in the 1990s, at that time, the domestic demands of software, integration and hardware were strong, and the software enterprises yielded good economic returns, this led the domestic enterprises only focused on the domestic market and missed the good opportunity. In 2001, the domestic IT industry diverted to the downturn, the enterprises competed with each other fiercely, the profit space was compressed, therefore, the domestic software enterprises started to focus on outsourcing market. Compared to China, the domestic IT demand in India is little, enterprises have to exploit international market at their best, most of the domestic trained software talents have engaged in software outsourcing industry. India has seized this opportunity to get the absolutely leading success. Now, it is different, almost all the software enterprises in China regard outsourcing business is the most profitable field with growth potential.
The demand of offshore outsourcing business is from developed countries, most of them are large enterprises, and some of them are small and medium-sized companies. Although the demander takes advantage on pricing, the demander always doesn't low the price too much, but the demander gives the profit space to the provider. This is because the most concerned thing of the demander is the quality rather than the price; it saves a lot when projects have been subcontracted to China.
The profit ratio of software and services offshore outsourcing business will not reduce along with the industry scale. China is in the initial stage, along with the sales scale increases, enterprises will upgrade the profit ratio because of scale economy. From the supply-demand balance, the insufficient supply will exist for a long time; the project profit ratio will not reduce. According to the experience of India, the sales profit ratio of the two largest outsourcing companies have maintained at a relatively high level for a long time.
