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Hungary Information Technology Report Q3 2007Product Type: Market Research ReportPublished by: Business Monitor International Published: November 2007 Product Code: R302-1334 Description Market OverviewIn H207 growth in the Hungary IT market is expected to strengthen as companies resume spending delayed due to the government’s austerity package. Strong computer sales are also expected to continue on the back of rising consumer demand for notebooks. A series of factors create a positive outlook going forward including a robustly growing financial services segment, improved consumer credit conditions, and a series of major government projects including biometric passports and the Schengen border agreements. The total size of the IT market is expected by BMI to increase from US$2.7bn in 2006, to US$3bn in 2007 and to around US$4bn by 2010. IT spending in Hungary will continue to receive strong momentum from a number of EU programmes to assimilate Hungary into the EU’s broader ‘Information Society’ across a whole range of social and economic policy areas. A particular focus is the SME segment which is receiving funding to support ERP implementations and becoming an important battleground for vendors. The government elected in 2006 has generally been slow to launch any major IT spending initiatives, while at the same time it has been attempting to abolish the IT Ministry as a separate entity. However, there remain substantial drivers for growth, including a wave of foreign investment in outsourcing and services facilities that will require extensive equipping with hardware, tech-related reforms and initiatives arising from EU market regulations, as well as an internet penetration rate that is predicted to reach 45% by 2010. Hungary’s IT market development mirrors the contradictions of an economy that has enjoyed faster development over the past decade than fellow Visegrád Group countries (the Czech Republic, Poland and Slovakia), but which remains hampered by an inefficient state sector. While Hungary has made dramatic progress in some areas of informatisation, in other areas it is a relative laggard. Of course, the other side of the coin of low computer penetration is considerable PC market development potential for vendors, with lower prices and the growing popularity of PCs fuelling faster growth Industry Developments The most recent EU report on egovernment development in Hungary has found good progress generally in front office procedures but less so in back office. Overall in 2006 the percentage of government services fully available on line was deemed to have reached 50%, close to the EU average. Hungary also moved from 23rd to 14th in the EU rankings for egovernment as some 48% of citizens contacted some form of government institution online, mainly to get information. The government has recently completed its second National Development Plan, which provides the framework for the use of US$28.8bn from the EU’s structural and cohesion funds for the period 2007- 2013. IT spending in Hungary will at least continue to receive strong momentum from a number of programmes to assimilate Hungary into the EU’s broader ‘Information Society’ across a whole range of social and economic policy areas. In 2007, the government is now implementing what it refers to as the ‘fifth level’ of egovernment development which involves the targeted providing of proactive automated services. Competitive Landscape Taiwanese vendor Acer, which is targeting sales of EUR35mn in Hungary this year up from EUR31mn in 2006, expects sales at big retailers to be a major growth driver. Acer sold around 33,000 notebooks in Hungary in 2006, accounting for around 65% of its local revenues and providing a 13-15% market share in the segment. In 2007 it expects to sell 50,000, presenting a challenge to rival vendors. Meanwhile Dell, which usually adopts a strategy of selling directly to consumers in larger markets and through dealers in small markets, has recently implemented a change of direction by launching its first Dell store in the country. The Budapest based retail outlet is expected to be followed by another three stores in different areas of the country. Another company mounting a strong challenge in the local market is Toshiba which claimed to have sold 6,577 notebooks in Q107, up 72% on the same period of the previous year. Toshiba’s FY06 market share was 9%, up from 3.9% in 2005. This placed it 5th in the market but its Q107 sales moved it into 3rd spot with a 12.4% share behind Fujitsu-Siemens and HP, and the company is aiming for an 18% share in 2007. Computer Sales As competition intensifies in the PC market the growing force of larger retailers is becoming an increasingly important influence in the sector. According to local data, currently around 20% of computers are sold at big retailers but this ratio is expected to double in the next year. Sales of desktops, notebooks and accessories were put at around US$953mn in 2006 and are expected to grow at a compound annual growth rate (CAGR) of 5% to reach US$1.2bn by 2011. Sales of PCs are expected to be brisk during the forecast period, with the stock of computers expected to rise by more than one third over the forecast period. The lower value of the US dollar has reduced the prices of imported computers and components, opening the market so that demand for notebooks is now coming from first-time computer buyers who would previously have bought desktops. Small enterprises are also buying notebooks, with price, rather than advanced functions, still the main purchase criteria. Fujitsu-Siemens has established itself as the overall computer market leader with around 16.8% of the market in the first nine months of 2006, during which time its sales rose 50% year on year (y-o-y). Acer leads in the notebook segment, while HP and Acer are other leading suppliers of PCs to the local market. Software The SME segment is a key battleground in the enterprise applications segment with smaller companies now receiving more help from government as well as EU funds for e-business and ERP system development. The next National Development Plan is also expected to provide significant funding and all this will fuel growth for the segment. Overall 2006 software sales were calculated by BMI at US$543mn. They are expected to grow at a CAGR of 11% over the forecast period, to around US$915mn. With enterprise demand for core enterprise resource planning (ERP) applications already fairly saturated, Hungary’s software opportunity is developing as the market matures. In recent years, programmes such as the state’s Economic Development Operative Programme (GVOP) have offered financial incentives and grants to companies to install ERP packages. Companies such as SAP and Oracle have been among the beneficiaries. Now however, vendors are looking to other areas such as customer relationship management (CRM) where fast growth is possible. Most Hungarian companies are however SMEs, and the sector plays an important role in the economy and is the most dynamic currently in terms of packaged software. With market maturation, there is also an increased focus on developing applications tailored for specific industry verticals, with the largest opportunity being in the banking and financial sectors. IT Services The Hungarian IT services market is expected to be worth close to US$1.5bn by 2011, up from US$950mn in 2006, with services taking up more than one-third of IT spending in Hungary, as the market matures. Growth in IT service opportunities over the 2006-2011 period is expected to be driven by two main developments. Firstly, the ongoing project of reforming and streamlining the over-bureaucratic Hungarian public administration system structures will provide many service tenders. Secondly, the global business process outsourcing (BPO) sector’s rapid growth since 2000 is likely to continue and play an increasingly important role in Hungary’s economic development. An increasing number of multinational companies are now in Hungary and global names, such as General Electric (GE) and Citibank, are fuelling the outsourcing market. Local companies such as Telecom group T-Com are also involved. E-Readiness A recent report published by the Information Society and Trend Research Centre (ITTK) found that areas of ICT weakness remain. The survey found that between one-third to two-thirds of society remained ‘digitally illiterate’ and more or less indifferent towards the internet and IT. While nearly three-quarters of Hungarian households with internet access have a broadband connection (a high proportion), internet penetration in general is low by European standards. Many villages and settlements in Hungary lack the necessary infrastructure for connection, and meanwhile IT spending as a percentage of GDP is merely average of the eight eastern European EU members who joined in 2004. The government has recently completed its second National Development Plan which provides the framework for the use of US$28.8bn from the EU’s structural and cohesion funds for the period 2007- 2013. Two policy areas have been receiving attention recently. One key policy area for structural funds is likely to be Health, with the National Development Plan outlining plans for funding the development of the health sector. The Minister for Social and Labour Affairs has also recently called for HUF10bn in EU funding to be made available to support the development of more telecommuter workplaces during the 2007-2011 budgetary period. Over recent years, regulation has encouraged more competition in the telecoms market, halving the price of internet access. Meanwhile, the number of broadband ADSL internet connections grew significantly in 2005, with providers such as Magyar Telecom hoping to convince more Hungarians to take up broadband. However, with prices still high, some experts remain sceptical about government or operator penetration targets being achieved without tariff reductions. The IT and Telecoms Ministry and National Telecommunications Authority have also been promoting broadband actively, with the government seeing it has a key factor for Hungary’s future competitiveness. Table of Contents
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