Czech Republic Information Technology Report Q4 2009

Market Overview

In H109 Czech spending on information technology was affected adversely by the eurozone and global slowdown. Consumer and business IT spending growth was down, and economic uncertainty and rising unemployment will likely mean negative revenues growth this year. However, the Czech Republic IT market is forecast to achieve a compound annual growth rate (CAGR) of 6% during the 2009-2013 forecast period, thanks largely to EU funding for information and communication technology (ICT) and information society-related initiatives.

The retail environment was negative in H109, with an annualised contraction in retail sales value in each month of the first quarter as consumers delayed purchases. Rising prices of consumer electronics goods was another market inhibitor, thanks to the currency depreciation against the US dollar. There were some positive signs for vendors, particularly in demand for lower cost netbook PCs, although this also contributed to downwards pressure on prices. In 2009 a number of drivers should sustain the market through difficult economic times, in particular the several million euros flowing into the market from EU funds earmarked for ICT purposes. Despite being one of the most mature IT markets in the region, the Czech Republic still offers growth potential in many segments, 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 chain of 36 Proton outlets in the Czech Republic. However, the rate of growth slowed compared with the previous year. In 2008, the Czech government rolled out a number of IT initiatives. In September the government awarded a tender to build a digital information system to manage public finances. The project is called the State Treasury. The government's aim is to build an IT system to make public finances management faster and more transparent. Meanwhile, the health sector is another area of growing public sector spending. The Czech National Health Insurance Agency (NNZP) has implemented a new anti-fraud software plan to be implemented in the next couple of years. As part of the modernisation of the sector, 14 medical institutes run by the Ministry 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 in H109, with network operators an increasingly significant channel for PC sales. In H109 a number of network 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 was offering a Samsung model to its 3G subscribers. Rapid growth in notebook sales drove vendor and distributor performance in 2008. Local computer manufacturer 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 rank among Czech and Slovak IT distributors. Meanwhile, the market attracted new investments from PC manufacturers, with electronics manufacturing services (EMS) company Foxconn, which assembles for both 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 services opportunity. Leading Czech telecoms company Telefónica O2 has started offering IT services ranging from computer networks and computers through to consulting and hosting. The initial emphasis was in managed hosting, but the company offers a growing range of ICT solutions. Recently the telecoms company has also been aggressively targeting the small and medium-sized enterprise (SME) segment with 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 increased popularity of low-priced netbooks will depress average prices, with spending slipping into negative territory. The country still lags behind the EU average for computer ownership, which BMI sees as rising from 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 of electronics and computer equipment sales through retail channels and online stores; however, due in part to 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 is expected to dip sharply below the trend of previous years as investment falls by around 3%. Much will depend, however, on the success in bringing down the piracy rate, which still remains above the EU average. The most serious problem is among domestic users, who, thanks to growing computer and internet 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 enterprise resource planning (ERP) implementations for large accounts and central government to new markets and product areas. Many larger organisations in the manufacturing and utilities sector in particular have already completed ERP implementations. Therefore, vendors are now looking to other areas such as customer 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 a relatively high level of spending on IT services, and the local market is expected to grow at a CAGR of 6% to US$2.0bn by 2013. BMI estimates sales revenue of IT services will dip slightly in 2009 as a result of the eurozone slowdown. However, EU membership continues to provide impetus in the form of foreign investment inflows and funds from EU programmes. In late 2008 and Q109, IT projects were continuing to be commissioned by government bodies such as the Ministry of Finance. According to figures from the Czech Statistical Office, sales in computer services and related activities increased by 4.1% last year. However, the headline increase obscured some patterns of change in the composition of spending. The relatively sophisticated market means that there is more demand for applications tailored to specific verticals, as well as systems consolidation and platform integration.

E-Readiness

The Czech Republic still lags behind Western Europe in high-speed internet connections, with broadband penetration of around 14.5% in 2008. In 2008 the number of broadband users approached 1.5mn. In one survey the Czech Republic ranked third for PCs per household among new EU member states at accession, and overall PC penetration is around 48% currently and expected to rise to around 67% by 2013. A recent EU report revealed uneven advances in ICT indicators in the Czech Republic. The EU i2010 report suggested that much current growth in internet connectivity in the Czech Republic now comes from conversion from narrowband to broadband. Furthermore, rapid growth in overall connectivity is balanced by a slowing of broadband penetration of enterprises. Alternative broadband technologies such as wireless technologies Wi-Fi and WiMAX are expected to play an increasingly important role in the development of the broadband industry. Ceske Radiokomunikace (CRa) launched a commercial WiMAX service in Prague in January 2009. The availability of internet and broadband services is continually being expanded, driven by Telefónica O2's reduction 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 as Broadnet and UPC, which are able to offer an alternative to Telefónica O2's network infrastructure and encourage the incumbent to invest in developing its own network.