Hungary Information Technology Report Q4 2009

Market Overview

Hungary's IT market is forecast to suffer negative growth in 2009 due to a difficult domestic political and economic situation. Spending is estimated at around US$3.0bn, down around 5% from the 2008 total. Many IT spending segments remained weak in H109 after demand fell away in the second half of last year. The Hungarian market retains considerable latent growth potential. Home computer penetration remains low compared with peer group countries - only slightly higher, for example, than Romania and Bulgaria. However, the difficult economic circumstances are currently a negative drag on household and small enterprise spending. The total size of the IT market is expected by BMI to increase from an estimated US$3.1bn in 2008 to US$3.5bn in 2013, at a CAGR of 6%. 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. However, much will depend on the speed of economic recovery, both in Hungary and globally.

Industry Development

IT spending in Hungary will continue to receive momentum from a number of programmes to assimilate Hungary into the EU's broader 'Information Society'. The government's second National Development Plan provides the framework for the use of US$28.8bn from the EU's structural and cohesion funds for the period 2007-2013. The Hungarian Association of IT Companies (IVSZ) 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 development of the health sector. In 2008, the government completed the first phase of a pilot project to improve exchange of information among hospital outpatient clinics and general practitioners (GPs) in one of the least developed regions of Hungary.

Competitive Landscape

PC vendors have reported mixed fortunes in the Hungarian market since the onset of the economic slowdown in 2008. Some leading vendors reported strong growth last year, with brighter retail sales - at least in the earlier part of 2008 - compensating for relative stagnation in the corporate market. HP was the leading PC vendor with a market share estimated at around 20%. The market remains quite concentrated, with the top four vendors accounting for more than 50% of sales. Enterprise software leader SAP has targeted a 15% rise in revenues for its Hungarian unit in 2009 over 2008 revenues of HUF12.5bn. The company said that first quarter 2009 figures were in line with its target. Last year SAP Hungary generated around EUR6mn from sales of software licenses, and the company hopes to increase that to EUR10bn in 2009. To drive this growth, SAP plans to win more business in the public sector In 2009 telecoms companies have moved to capture a share of the Hungarian market for managed services and other IT services. In June 2009 Hungary's incumbent telecoms company, Magyar Telekom, said that it was still looking at acquisitions in the IT sector. Key acquisition targets for the company included healthcare, banking and retail software development terms, as it planned to strengthen its position in these sectors.

Computer Sales

BMI expects PC sales to be in negative growth territory in 2009 due largely to the sharp economic deceleration. The desktops, notebooks and accessories category is estimated at around US$1.0bn in 2009, with notebooks accounting for more than half of sales. Revenues are then expected to grow at a 2010-2013 CAGR of 5%. The popularity of relatively inexpensive netbooks has helped to prevent a steep shipments deceleration, while acting to deflate average prices. For 2009 and 2010, the median expectation is probably one of moderate growth driven mainly by notebooks. More than half of PC units sold in Hungary in 2008 were laptops, and this ratio could rise to above 70% within the forecast period, although desktops will continue to have a significant presence. Software The Hungarian software market is projected by BMI at US$679mn in 2009 and is expected to grow at a CAGR of 7% over the forecast period to US$904mn. In 2009, the economic slowdown represents a challenge to software vendors, as enterprises are tempted to focus more on the bottom line. Business confidence had slumped to record lows in February, depressing investment. State support will be important in sustaining investment. The large company sector is relatively saturated in terms of basic applications such as enterprise resource planning (ERP) systems. However, opportunities exist to sell upgrades or more specialised applications such as customer relationship management (CRM), human resources (HR) and business intelligence. There is an increased focus on developing applications tailored for specific industry verticals, with the largest opportunity being in the banking and financial sectors. Key opportunities are likely to be found in the small- and medium-sized enterprise (SME) and public sectors, where spending is lower than many other countries in the region. IT Services The Hungarian IT services market is expected to be worth around US$1.2bn by 2013, up from an estimated US$1.0bn in 2009, with services accounting for more than one-third of IT spending in Hungary, as the market matures. Spending is expected to contract in 2009, as Hungarian organisations scale back or cancel projects. The market will also be affected by the slowdown in government IT projects tendering, with low single-digit growth projected for 2009, and 5% in 2010. In the medium term, EU accession and the continuing advancement of technology means 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. The cheaper forint, following another sharp depreciation in February 2009, has made Hungary attractive again as a destination for locating service centres. E-Readiness A 2007 EU report on e-government development in Hungary found good progress generally in front office procedures, but less so in back office ones. The 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. By the end of 2006, the percentage of government services fully available online was deemed to have reached 50%, close to the EU average. Hungary also moved from 23rd to 14th in the EU rankings for e-government, as some 48% of citizens contacted some form of government institution online, mainly to get information. Recent surveys have highlighted that the elderly and those living in rural areas are at the core of Hungary's digital divide issue. While Hungary has low internet penetration overall by European standards, a massive 84% of Hungarians between the ages of 55 and 74 are computer illiterate and policymakers fear that this could lead to increasing social isolation.