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Hungarian IT spending is forecast to grow modestly in 2012 against the backdrop of a still-difficult domestic political and economic situation. Total spending on IT products and services in 2012 is projected at around US$3.2bn, up around 5% in dollar terms compared with the countrys IT budget in 2011. Retailers reported sluggish consumer PC sales in H111, and key segments of the business market have been hit by government crisis taxes.

Trading conditions remain challenging for IT vendors, although a cut in income tax and an improved employment situation should help household demand pinched by deleveraging and fiscal austerity. Government IT spending will remain severely constrained by the fiscal situation, with the administration committed to reining in spending in the face of fiscal constraints.

Industry Developments

IT spending in Hungary will continue to receive momentum from a number of programmes to assimilate Hungary into the EUs broader information society. The governments second National Development Plan provides the framework for the use of US$28.8bn from the EUs structural and cohesion funds for the 2007-2013 period. The Hungarian Association of IT Companies is hopeful that a new influx of EU funds will help stimulate a recovery in public sector IT spending.

One key policy area for structural funds is health. The National Development Plan has committed EUR1.7bn for the development of the health sector. The government has completed the first phase of a pilot project to improve exchange of information among hospital outpatient clinics and general practitioners in one of the least-developed regions of Hungary.

Competitive Landscape

Despite the difficult trading conditions, global IT services leader IBM has continued to invest in Hungary. In September 2010, IBM announced a new Budapest-based centre for analytics. The company has targeted US$16bn in business analytics and optimisation revenues by 2015, and plans new analytics solutions centres in a number of other locations, including Vienna and Zurich.

Meanwhile, US IT leader HP has introduced an expanded set of consulting services specifically for telecoms companies. The company also has announced a recent customer win at Hungarys leading telecoms company Magyar Telekom. Magyar Telekom has moved to strengthen its position in the IT services market through its acquisition of Hungarian IT company Daten Kontor Group.

Computer Sales

The addressable computer hardware market is estimated at US$1.3bn in 2012, with only a modest increase compared with 2011. Revenues are expected to reach US$1.7bn by 2016, growing at a 2011- 2016 compound annual growth rate (CAGR) of 5.7%. However, the slow economic recovery and heavy household debt burden will continue to weigh on demand and prices.

Retailers reported sluggish consumer PC sales in H111, with the situation described by business daily Világgazdaság as disastrous. BMI expected sales to pick up later in 2011 owing to seasonal demand factors and as retailers restock. The median expectation is probably one of moderate growth driven mainly by notebooks and tablets, spearheaded by Apples iPad.

Software

The Hungarian addressable software market is projected by BMI at US$729mn in 2011 and expected to grow to US$798mn in 2012. We forecast a CAGR of 8.1% over the forecast period to US$1.1bn in 2016. Despite the challenging trading conditions, there will be opportunities for vendors that are able to demonstrate clear efficiency gains leading to cost savings as a result of enterprise resource planning (ERP) software investments. Hungarian companies remain very focused on cost reduction.

State support will be important in sustaining investment. The large company sector is relatively saturated in terms of basic applications such as ERP systems. However, opportunities exist to sell upgrades or more specialised applications such as customer relationship management, human resources and business intelligence. Key opportunities are also likely to be found in the small and medium-sized enterprise and public sectors, where spending is lower than many other countries in the region.

Services

The Hungarian IT services market is expected to be worth around US$1.5bn by 2016, up from an estimated US$1.1bn in 2011, with services accounting for more than one-third of IT spending in Hungary as the market matures. The IT services market was hit by the slowdown in government IT projects tendering, and key segments such as finance and telecoms have been hit by crisis taxes.

In the medium term, EU accession and the continuing advancement of technology mean more and more companies (and government departments) will turn to outside experts to handle the complexities of the emerging IT environment. There remain a number of projects in the pipeline in areas such as healthcare, utilities and government procurement.

E-Readiness

The Hungarian government is now implementing what it refers to as the fifth level of e-government development, which involves the targeted providing of proactive automated services. Recent surveys have highlighted that the elderly and those living in rural areas are at the core of Hungarys digital divide.

Hungary has low overall internet penetration by European standards, and a massive 84% of Hungarians between the ages of 55 and 74 are computer illiterate. Policymakers fear that this could lead to increasing social isolation.

Hungarian IT spending should have received strong momentum from Hungarys EU accession in 2004, but due to a weak economy and fiscal austerity measures, public spending in particular has fallen short of expectations. Trading conditions remained challenging for IT vendors in 2011 as household demand, business investment and government spending remained muted owing to deleveraging and fiscal austerity. Additionally, banking credit remained limited. The IT market is expected by BMI to increase to US$4.2bn in 2016. Despite current economic headwinds, BMI still expects growth in some IT market segments over the next few years, with EU funds supporting new public sector IT initiatives, and opportunities around outsourcing and cloud computing. However, much will depend on the speed of economic recovery, both in Hungary and globally.