Czech Republic Information Technology Report Q2 2008

Market Overview The Czech IT market is growing at a rate well above that of the economy as a whole, and PC penetration is expected to reach 60.9% of the population by 2009. Following stronger than expected PC sales growth in 2007, BMI forecasts that the total size of the Czech IT market will increase from just over US$4bn last year to around US$6.2bn in 2012. Despite falling prices, demand for PCs and notebooks has been strong over the past year, as consumers look for new functionalities. This situation is spurring intense competition between multinational vendors and local assemblers. The market is also receiving strong investment from IT services players such as IBM.

Despite being one of the most mature IT markets in the region, the Czech Republic still offers plenty of growth potential. Computer penetration is still some way behind the EU average. In addition, several million euros are flowing into the market from EU funds following accession. Economic liberalisation will generate opportunities in financial, transport, and retail sectors, among others. Growth in spending will also be stimulated by financial sector reform, telecoms investment, and greater investment in international process integration and networking, as well as the employment of broadband for business and consumer use.

Industry Developments A number of major national IT initiatives are being rolled out in 2008. The education ministry is to spend CZK130mn this year alone to fund its project to connect all Czech libraries to the internet by the end of the year. The government is required by law to provide internet access to those people who do not have internet at home.

Meanwhile, the General Health Insurance Company (VZP) has agreed with the Czech Pharmacies chamber on a project to create an electronic network connecting 24,000 pharmacies in the Czech Republic. The system is expected to be up by May 2008.

However, in December 2007, the Czech government announced that the long anticipated introduction of biometric passports will be postponed until 2009. The government attributed the further delay in launching the major IT project to the failure of the EU to approve technical specifications.

Competitive Landscape Demand for notebooks drove strong sales growth for the leading vendors in the Czech Republic in 2007.

The same factor is fuelling ambitious projections for 2008. HP was expecting revenues to reach US$200mn this year, from US$140mn in 2007. Last year HP reported around 15% revenues growth, although unit sales growth was considerably higher at around 30%.

Acer is the overall leader in the booming notebook segment, followed by HP and then Dell. The top three vendors account for nearly 10% of the market but face growing competition from rivals including Fujitsu-Siemens and ASUS. There are also a number of domestic challengers, including BGS Levi Group, who have featured in the top 10.

Meanwhile, IBM and HP are market leaders in the buoyant Czech IT services sector, where BMI expects more than 10% growth in both 2006 and 2007, to a market value of nearly US$3.96bn by 2008. IBM has recently been hiring aggressively, adding an average of 100 new staff per month at its Brno complex over the past two years. Beyond the big two however, there has also been investment from players such as Logica CMG, and new market entrant Telefnica O2.

Computer Sales In 2007, computer sales (including desktops, notebooks and accessories) had an estimated value of close to US$1.5bn, up 12% year-on-year (y-o-y). In 2008 growth is expected to be remain strong, driven particularly by notebooks. A combination of increasing demand for notebooks, where multinationals have an advantage over foreign vendors, and decreasing price sensitivity among local consumers has worked in favour of the leading vendors. These trends are expected to continue in 2008 with notebook sales likely to exceed desktops as prices continue to fall.

Software BMI has estimated a software market value of US$759mn in 2007, up 5% on the previous year. The market should be worth approaching US$1.4mn by 2012, although much will depend on success in bringing down a piracy rate which remains above the EU average. Many larger organisations in the manufacturing and utilities sector have already completed ERP implementations and so the larger vendors are now concentrating more on the SME sector.

Services BMI estimates that sales revenue of IT services rose 11% in 2007 to around US$1.2bn, as EU membership continued to provide impetus in the form of foreign investment inflows and funds from EU programmes. The Czech market was ahead of many other Central and Eastern Europe (CEE) 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 11% to just over US$2bn by 2012. The more sophisticated market means that there is more demand for applications tailored to specific verticals, as well as systems consolidation and platform integration.

E-Readiness Much of the current growth in internet connectivity is now coming from conversion from narrowband to broadband rather than overall growth in internet usage. The Czech Republic still lags behind Western Europe in high-speed internet connections, with around seven per 100 citizens, compared with 20 in Western Europe. However, in 2007 the number of broadband users surpassed 1.2mn. 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 30% currently and expected to rise to 50% by 2009.

A 2005 survey organised by the Ministry of the Interior and Informatics produced the following results:

??One-quarter of the population of the Czech Republic aged 18-60 years is literate in IT; ??While only 2% of the population aged 60 years and over are information literate, information literacy among young people aged 15-17 years totals 55%; ??Only one-third of all primary and secondary school teachers are literate in IT; ??Only 1% of the population can be regarded as complete computer professionals (excellent familiarity with the area); ??The lowest level of computer literacy is among unqualified labourers (4%); ??Three-quarters of the people able to work with computers have acquired their knowledge through the trial-error method (73%); ??Two-thirds of the respondents use their computers for self-education purposes (63%), half for playing games (46%) and one-third for shopping purposes (31%); ??Two-fifths of the respondents who do not own a computer have no meaningful use for one (47% among the respondents aged 60 years and over); ??The internet is most frequently used to search for information or to write simple emails.