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Czech Republic Information Technology Report Q4 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2009 Product Code: R302-8388 Description Market OverviewIn H109 Czech spending on information technology was affected adversely by the eurozone and globalslowdown. Consumer and business IT spending growth was down, and economic uncertainty and risingunemployment will likely mean negative revenues growth this year. However, the Czech Republic ITmarket is forecast to achieve a compound annual growth rate (CAGR) of 6% during the 2009-2013forecast period, thanks largely to EU funding for information and communication technology (ICT) andinformation society-related initiatives. The retail environment was negative in H109, with an annualised contraction in retail sales value in eachmonth of the first quarter as consumers delayed purchases. Rising prices of consumer electronics goodswas another market inhibitor, thanks to the currency depreciation against the US dollar. There were somepositive signs for vendors, particularly in demand for lower cost netbook PCs, although this alsocontributed to downwards pressure on prices. In 2009 a number of drivers should sustain the market through difficult economic times, in particular theseveral million euros flowing into the market from EU funds earmarked for ICT purposes. Despite beingone of the most mature IT markets in the region, the Czech Republic still offers growth potential in manysegments, with computer penetration at 48% in 2008 still some way behind the EU average. Industry Developments Czech consumer electronics retailers enjoyed a good year in 2008, with revenues reaching record levels,according to local research. The largest retailer, HP Tronic, achieved sales of CZK6.8bn from its chainof 36 Proton outlets in the Czech Republic. However, the rate of growth slowed compared with theprevious year. In 2008, the Czech government rolled out a number of IT initiatives. In September the governmentawarded a tender to build a digital information system to manage public finances. The project is called theState Treasury. The government's aim is to build an IT system to make public finances management fasterand more transparent. Meanwhile, the health sector is another area of growing public sector spending. The Czech NationalHealth Insurance Agency (NNZP) has implemented a new anti-fraud software plan to be implemented inthe next couple of years. As part of the modernisation of the sector, 14 medical institutes run by theMinistry of Health are also rolling out unified software, supplied by Aquasoft. Competitive Landscape The growing popularity of mobile and fixed broadband services acted as a driver of the PC market inH109, with network operators an increasingly significant channel for PC sales. In H109 a number ofnetwork operators launched notebook and netbook bundling deals in co-operation with vendors. Vodafone Czech Republic offered a Dell mini-notebook through all its sales channels, while O2 wasoffering a Samsung model to its 3G subscribers. Rapid growth in notebook sales drove vendor and distributor performance in 2008. Local computermanufacturer and distributor AT Computers raised turnover by 9.3% last year to a reported CZK8bn.The company sold more than 50,000 computers and claimed to have achieved the number two rankamong Czech and Slovak IT distributors. Meanwhile, the market attracted new investments from PCmanufacturers, with electronics manufacturing services (EMS) company Foxconn, which assembles forboth HP and Acer at its Czech facility, reported to have injected another US$90mn in local operations. Telecoms operators are increasingly making a play for a share of the Czech managed servicesopportunity. Leading Czech telecoms company Telefónica O2 has started offering IT services rangingfrom computer networks and computers through to consulting and hosting. The initial emphasis was inmanaged hosting, but the company offers a growing range of ICT solutions. Recently the telecomscompany has also been aggressively targeting the small and medium-sized enterprise (SME) segmentwith consulting services. Computer Sales Czech PC market revenues are expected to reach nearly US$2.2bn by 2013, growing at a CAGR of 6%.More than 1mn PC units are expected to be sold in the Czech Republic in 2009, but the increasedpopularity of low-priced netbooks will depress average prices, with spending slipping into negativeterritory. The country still lags behind the EU average for computer ownership, which BMI sees as risingfrom around 48% in 2008 to 71% by 2013. For 2010-2013, the median expectation is probably one of moderate growth driven mainly by notebooks.Over the past few years, higher real wages and a strong local currency have led to an expansion ofelectronics and computer equipment sales through retail channels and online stores; however, due in partto the global credit crunch and economic slowdown, expansion seems likely to be slower going forward. Software BMI projects a software market value of US$968mn in 2009, up 3% on the previous year. Growth isexpected to dip sharply below the trend of previous years as investment falls by around 3%. Much willdepend, however, on the success in bringing down the piracy rate, which still remains above the EUaverage. The most serious problem is among domestic users, who, thanks to growing computer andinternet penetration, comprise a growing proportion of the software market. BMI expects growth to pick up again as the focus of software market growth shifts from basic enterpriseresource planning (ERP) implementations for large accounts and central government to new markets andproduct areas. Many larger organisations in the manufacturing and utilities sector in particular havealready completed ERP implementations. Therefore, vendors are now looking to other areas such ascustomer relationship management (CRM) and business intelligence, where faster growth is possible. Services The Czech market was ahead of many other Central and Eastern European countries in moving to arelatively high level of spending on IT services, and the local market is expected to grow at a CAGR of6% to US$2.0bn by 2013. BMI estimates sales revenue of IT services will dip slightly in 2009 as a resultof the eurozone slowdown. However, EU membership continues to provide impetus in the form of foreigninvestment inflows and funds from EU programmes. In late 2008 and Q109, IT projects were continuing to be commissioned by government bodies such asthe Ministry of Finance. According to figures from the Czech Statistical Office, sales in computerservices and related activities increased by 4.1% last year. However, the headline increase obscured somepatterns of change in the composition of spending. The relatively sophisticated market means that there ismore demand for applications tailored to specific verticals, as well as systems consolidation and platformintegration. E-Readiness The Czech Republic still lags behind Western Europe in high-speed internet connections, with broadbandpenetration of around 14.5% in 2008. In 2008 the number of broadband users approached 1.5mn. In onesurvey the Czech Republic ranked third for PCs per household among new EU member states ataccession, and overall PC penetration is around 48% currently and expected to rise to around 67% by2013. A recent EU report revealed uneven advances in ICT indicators in the Czech Republic. The EU i2010report suggested that much current growth in internet connectivity in the Czech Republic now comesfrom conversion from narrowband to broadband. Furthermore, rapid growth in overall connectivity isbalanced by a slowing of broadband penetration of enterprises. Alternative broadband technologies such as wireless technologies Wi-Fi and WiMAX are expected toplay an increasingly important role in the development of the broadband industry. CeskeRadiokomunikace (CRa) launched a commercial WiMAX service in Prague in January 2009. Theavailability of internet and broadband services is continually being expanded, driven by Telefónica O2'sreduction in wholesale access prices and the regulator's enforcement of local loop unbundling. Availability and competition is helped by the alternative operators with their own networks such asBroadnet and UPC, which are able to offer an alternative to Telefónica O2's network infrastructure andencourage the incumbent to invest in developing its own network. Table of Contents
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