Market Monitor ICT Japan 2019

• Sales growth to accelerate ahead of the 2020 Summer Olympics
• On average, payments take between 90 and 120 days
• Low number of insolvencies

 

 

The Japanese ICT industry is well established and holds a global reputation for excellence and innovation. Globally Japan was the third largest ICT market in terms of spending in 2018 (USD 220 billion), behind the US (USD 1.3 trillion) and China (USD 499 billion). In 2019 total spending is expected to increase 4%, to JPY 26.1 trillion (USD 229.1 billion). In terms of revenues three Japanese companies (Hitachi, Sony, Panasonic) rank among the world´s top 15 ICT enterprises.

The market will continue to remain robust, reflecting the affluence of local customers and sophistication of the enterprise base. However, growth is dented somewhat by increased saturation in the domestic market, especially for PCs and traditional software and services solutions.

 

 

IT spending growth is forecast to increase steadily in 2019-2022. IT services sales are expected to amount to JPY 19.25 trillion (EUR 150.2 billion) in 2019 and to increase to JPY 22.13 trillion (EUR 172.6 billion) in 2021, a compound annual growth rate (CAGR) of 4.8%. The 2020 Olympic Games in Tokyo are fueling higher spending in 2019 and 2020, as well as increased ICT investment by Japanese businesses, as businesses prepare for the influx of visitors and global media operations are set up for the event.

Computer hardware sales are expected to amount to JPY 2.62 trillion (EUR 20.4 billion) in 2019 and to increase slightly to JPY 2.7 trillion (EUR 21 billion) in 2022, resulting in a CAGR of 1.2%. While PC vendors will benefit from rising unit prices and should see a boost in 2020 when Windows 7 support expires, there will be a drag from declining printer demand and the cannibalization of in-house infrastructure demand, as firms adopt cloud solutions.

Software sales are expected to amount to JPY 4.26 trillion (EUR 33.2 billion) in 2019 and to increase to JPY 5.18 trillion (EUR 40.4 billion) in 2022, a CAGR of 6.7%. Yen appreciation will increase the affordability of improved software solutions, while businesses increasingly invest in solutions such as cyber security and data analytics.

 

 

The recent escalation of the Sino-US trade dispute, and especially the US restrictions on suppliers to the Chinese technology company Huawei will surely affect certain Japanese ICT businesses. For the time being, the impact on sales and profitability seems to be limited, while the mid- and long-term consequences are currently hard to predict. Any economic slowdown in China triggered by the trade dispute would surely lead to lower demand for Japanese ICT exports to China and to other parts of Asia.

Japanese ICT companies obtain financing easily as banks are very willing to lend and interest rates are low. The current government is very supportive of bank lending, putting pressure on banks to even lend to weaker companies. Therefore, high gearing ratios are common in Japan.

On average, payments in the ICT industry take between 90 and 120 days. The business culture in Japan promotes prompt payment, and therefore the number of protracted payments is low. The insolvency level in the ICT sector is low and is expected to remain stable in 2019.

 

 

The financial profile of ICT producers and service providers is generally good, with the majority of companies generating high revenues and profits, coupled with strong balance sheets. While the ICT wholesalers and retailers segment is operating in a highly competitive environment with generally low profit margins, credit insurance claims have remained low so far.

Our underwriting stance for this industry remains open for the time being, due to stable growth, the low insolvency level, good payment experience and market domination by large corporates and well-established domestic businesses. We continue to closely montitor any impacts of the ongoing Sino-US trade dispute and the Huawei issue.