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Poland Information Technology Report Q3 2007Product Type: Market Research ReportPublished by: Business Monitor International Published: November 2007 Product Code: R302-1335 Description Market OverviewThe launch in April of the government.s National IT Infrastructure Plan is likely to provide a needed boost to an IT market which has recently been lagging the growth rate of some other sectors of the economy. The total size of the IT market is expected to increase from US$5.2bn in 2006 to around US$8.4bn in 2010. Delays in government spending since 2004 have resulted in a relatively difficult times for some companies in the market resulting in a wave of consolidations. However, the implementation of a number of major government projects over the next few years, combined with likely strong demand from sectors such as Banking and Power, should provide the opportunity for revival. Despite recent advances in household PC penetration, there remains considerable potential for further market development, with Poland accounting for less than 2% of EU IT spending, and lagging behind fellow EU newcomers the Czech Republic, Hungary and Slovakia in per-capita IT spending. There are also broad disparities in PC penetration between urban and rural areas. With economic growth accelerating, and a continued flow of manufacturing investment to the region, the IT market is expected to grow at a compound annual growth rate (CAGR) of at least 10% between 2006 and 2011. BMI predicts that high IT equipment growth levels are likely over the next few years as IT penetration levels in Poland rise towards EU averages. Many large Polish companies have initiated on a new replacement cycle of IT equipment with sales up considerably, while small and medium-sized enterprises (SMEs) are also becoming an increasingly important market. IT services, in particular, are driving double-digit growth across the sector as a whole. There has been considerable recent growth in both the size and number of outsourcing contracts. IT services is expected to provide the fastest growing area of demand in the next few years in both the public and private sectors. Industry Developments In April the Council of Ministers formally adopted the National IT Infrastructure Plan for 2007-2013, which provides a systematic framework for IT development in the public sector as well as the development of an IT society in Poland. According to the plan, some PLN35bn will be available for IT investment over the relevant period, with some 75% of funds expected to come from the EU. Local governments are to receive an additional EUR25bn from Brussels. The Education System is one key focus area and in May the Education Ministry launched tenders for the delivery and installation of nearly five thousand computer classrooms and 4,800 online multimedia centres in school libraries. The total value was around PLN 384mn. This followed on the development reported in Q207 whereby the Ministry finalised its first tender for six months, selecting the consortium of Computerland Services and SAD for the delivery of Macintosh computers to schools nationwide. Company News The recent lengthy stagnation in public procurement tenders has had an adverse effect on the financial situation of major domestic firms in the IT sector and helped drive a new wave of consolidation. Among those affected, the largest domestic company Prokom saw its 2006 turnover fall over PLN200mn, while profit dropped from PLN70mn to PLN50mn. Prokom.s main rival Computerland recorded a 2006 turnover of over PLN900mn but earned only PLN6mn net profits. Both companies have been involved in the recent wave of consolidations. Leading local manufacturer NTT Systems has said that it wants to increase production of computers by 20% a year. In 2007 fiscal year NTT Systems produced 168,000 computers, of which 133,000 were sold in Poland. Production this year is to be raised to more than 200,000 units with the company planning to open a new factory by the beginning of 2008 with a production of 40,000 computers. Meanwhile Dell’s new assembly plant in Lodz is scheduled to open later in 2007. Computer Sales With public contracts now finally picking up in the context of the National IT Infrastructure Plan, and a favourable economic environment providing a context for optimism, hardware vendors are likely to be the main beneficiaries of the new spending. Some 3mn computers are expected to be sold in Poland this year with the Polish IT market developing at three times the pace of the global market by some estimates. Hardware remains the dominant category of IT spending, with hardware sales amounting to about US$2.2bn in 2006, and with spending projected to reach US$3.4bn in 2011. Within the hardware sector, PC sales are forecast to increase from US$1.7bn in 2006 to US$2.6bn in 2011. The share of IT spending accounted for by hardware is expected to fall to 40% of the total by 2011. However, hardware spending will continue to be higher in Poland than in more established markets because of the amount of older legacy technology still in place. Recent research has revealed that Poles are starting to purchase more high-end computers. As measured by a number of indicators, including processing power and feature sets, 2006 saw this trend accelerate as compared with 2005, with a stronger preference for higher-priced models. The PC market will remain buoyant, with the new government-sponsored education project supporting demand, along with falling prices of computers, particularly of notebooks. Special Focus: Banking Banking is thought to have become the third-largest sector in terms of IT spending in 2006, moving ahead of manufacturing. One driver is the need for the diversification of banking revenue, given the current environment of low interest rates. This has resulted in the rapid growth of credit card businesses, creating a need for new IT systems. Another area of rapid development is electronic banking. All major Polish banks now offer internet services that range from simple balance checking to making transfers and loan applications. Three banks . PKO Bank Polski, BRE Bank, and Volkswagen Bank Polska . have established internet-only banking arms. The number of internet bank accounts reached around 5.5mn by the end of 2005, according to a recent survey. However, relatively low rates of computer penetration as well as low incomes and various cultural factors serve to inhibit faster development. Software One factor likely to boost computer sales in 2007 in the release of the new Microsoft Vista operating system. Microsoft aims to sell more than 300,000 licences of Vista in Poland this year, but at least three times as many will sell bundled with new computers. The software sector amounted to an estimated US$1.1bn in 2006, and is likely to grow to US$1.9bn by 2011, giving a CAGR of 12%. Despite persistently high levels of software piracy, growth has been strong over the past few years, with high computer penetration in the enterprise sector suggesting continued growth going forward. SAP remains the leader in a market where the top four players, which also include Oracle, Comarch and IFS, account for more than 60% of revenues. Eight of the top 15 software developers and service providers are domestic companies, and many of the larger local software companies are consolidating their position by the acquisition of medium-sized and niche companies and even by entering foreign markets. An example of a company that strengthened its market position in 2006 is Comarch, which went through a process of management streamlining. Services While banks and telecommunications companies are still the main spenders on IT solutions, the power sector is emerging as a fast growth sector in 2007. Privatisation and industry consolidation is the main driver of the increased spending level in the sector, which contains several large companies. Leading local player Comarch has estimated that sector spending on IT solutions could be as high as US$667.8mn, double the 2006 levels. IT services, worth an estimated US$1.9bn in 2006, is the fastest growing sector of the IT market, with spending expected to rise to US$3.2bn in 2011. With a larger installed IT base, acceptance of the need for IT services is spreading through many organisations. Leading local SI Asseco Poland saw its consolidated net profits rise 69.5% in 2006 to US$26.6mn, while overall profits fell slightly. Special Focus: Outsourcing In the last 12 months outsourcing has emerged as the fastest-growing segment of the IT services sector. Employment in outsourcing is estimated to have grown by 167%, with local attractions for global companies including language and accounting skills and low wages. The European technology consulting giant, CapGemini, recently announced plans to take on an additional 150 employees, while Volvo recently joined a growing list of companies choosing Poland for IT outsourcing. Many multinationals such as BMW, DaimlerChrysler and Deutsche Post are outsourcing IT work to companies operating in Poland. Meanwhile others have established service centres and call centres, including Lufthansa, Hewlett-Packard (HP) and CapGemini. E-Readiness The number of internet users, which reached around 12.4mn in 2006, is expected to rise to 18.3mn by 2011. The number of broadband subscribers is estimated at around 2.6mn. The internet market continues to be constrained by high telephone charges and relatively low levels of computer penetration. Moreover, there are wide regional disparities, with internet penetration about twice as high in urban as in rural areas. A recent Forrester survey revealed that, while overall online banking uptake and PC availability remain low, internet Polish consumers already match Southern Europeans in buying online. Poland even outperforms Spain, with 30% of online consumers having previously purchased something online, compared with just 29% in Spain. Table of Contents
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