Poland Information Technology Report Q2 2008

Market Overview Following very strong growth in 2007, the Polish IT market is expected to maintain its momentum as one of the fastest growing IT markets in the region. The total size of the IT market is now projected to increase from US$6bn in 2007 to around US$10.1bn in 2012. With several million euros flowing into the country as part of EU programmes, and government spending now reviving, the recovery in IT spending underway since 2003 should be sustained. The IT market is expected to grow at a CAGR of 11% between 2007 and 2012, with IT services driving double-digit growth for the sector as a whole.

Government spending slowed going into 2007 with a relative shortage of large projects. However, the situation started to improve in H207, and some major projects are now expected in 2008, including a US$200mn tender from the Ministry of Health. While economic growth is expected to slow over the medium terms, there will also be opportunities in key sectors such as banking, telecoms and manufacturing. SME spending is expected to grow around 10%. Spending by banks alone accounts for as much as 15% of the whole IT market and is expected to maintain double-digit growth.

Industry Developments Growth in IT spending will also be stimulated by telecoms investment, projected to rise from US$1.3bn to US$1.5bn by 2008.In December Telekom Poland signed a US$52mn five-year IT outsourcing agreement with EDS. The agreement is the largest ever technology infrastructure contract ever signed in Poland and involves transition of 150 Telekom Poland employees to EDS, as well as another hundred or so employees of Telekom Poland partner companies.

Meanwhile, EU funding will continue to drive IT spending. Poland has been awarded a prospective EUR9.7bn under the EU's Innovative Economy programme for 2007-2013. Information technology projects are one important strand of the programme. In April 2007, the Council of Ministers formally adopted the National IT Infrastructure Plan for 2007-2013, which plans for PLN35bn to be available for IT investment over the relevant period, with some 75% of funds expected to come from the EU.

Company News A market context of strong PC sales growth in Poland and the CEE region is starting to encourage more direct investment in manufacturing by some PC vendors. In January 2008, Dell officially opened its new Poland plant which has entailed an investment of EUR200mn. The 37,000m2 facility in the city of Lodz was commissioned as a direct result of rising sales in the region and the company estimates that the plant will enable it to shave two days from its delivery time. Major rival Lenovo has also announced that it will open an assembly plant in Poland this year.

On November 20, 2007 the Polish Antitrust board approved the merger between Prokom Software and Asseco Poland. The two companies, both of which are listed on the Warsaw Stock Exchange, will be merged through a transfer of all Prokom assets to Asseco in exchange for new shares. A merger between Prokom and Asseco had long been rumoured.

With public contracts now finally picking up in the context of the National IT Infrastructure Plan, and a favourable economic environment providing a context for optimism, IT manufacturers are preparing to benefit. In November 2007 IBM said that it was launching a new service centre which may employ around 500 workers. IBM is seeking a location for the 5,000m2 facility in the Baltic coastal area.

Computer Sales Hardware remains the dominant category of IT spending, with hardware sales amounting to about US$2.5bn in 2007, and with spending projected to reach US$4bn in 2012. PC sales are forecast to increase from US$2bn in 2007 to US$3.2bn in 2012. The share of IT spending accounted for by hardware is expected to fall to 40% of the total by 2012. However, hardware spending will continue to be higher in Poland than in more established markets because of the amount of older legacy technology still in place.

With public contracts now finally picking up in the context of the National IT Infrastructure Plan, and a favourable economic environment providing a context for optimism, hardware vendors are likely to be the main beneficiaries of the new spending. Some 3mn computers were expected to be sold in Poland in 2007 with the Polish IT market developing at three times the pace of the global market by some estimates.

Software The software sector amounted to an estimated US$1.3bn in 2007, and is likely to grow to US$2.2bn by 2012, giving a CAGR of 11%. Despite persistently high levels of software piracy, growth has been strong over the past few years, with high computer penetration in the enterprise sector suggesting continued growth.

One factor boosting sales in 2007 was the release of the new Microsoft Vista operating system. Microsoft planned to sell more than 300,000 licences of Vista in Poland in 2007, but at least three times as many will sell bundled with new computers. SAP remains the leader in a market where the top four players, which also include Oracle, Comarch and IFS, account for more than 60% of revenues.

Services IT services, worth an estimated US$2.2bn in 2007, is the fastest growing sector of the IT market, with spending expected to rise to US$3.8bn in 2012. With a larger installed IT base, acceptance of the need for IT services is spreading through many organisations. Leading local SI Asseco Poland saw its consolidated net profits rise 69.5% in 2006 to US$26.6mn, while overall profits fell slightly.

While banks and telecom companies are still the main spenders on IT solutions, the power sector is emerging as a fast growth sector. Privatisation and industry consolidation are the main drivers of the increased spending levels in the sector, which contains several large companies. Leading local player Comarch has estimated that 2007 spending by this sector on IT solutions could have been as high as US$667.8mn, double 2006 levels.

Special Focus: Outsourcing In the last 12 months outsourcing has emerged as the fastest-growing segment of the IT services sector, as highlighted by the recent US$52mn deal between Telekom Poland and EDS (see above). Employment in outsourcing is estimated to have grown by 167% in the past 1-2 years, with local attractions for global companies including language and accounting skills and low wages. IBM is establishing a new service centre, the European technology consulting giant CapGemini recently announced plans to take on an additional 150 employees, and Volvo recently joined a growing list of companies choosing Poland for IT outsourcing. Many multinationals such as BMW, DaimlerChrysler and Deutsche Post are outsourcing IT work to companies operating in Poland. Meanwhile others have established service centres and call centres, including Lufthansa, Hewlett-Packard (HP) and CapGemini.

E-Readiness The number of internet users, which reached around 12.4mn in 2007, is expected to rise to 18.3mn by 2012. The number of broadband subscribers in 2007 is estimated at around 2.4mn. The internet market continues to be constrained by high telephone charges and relatively low levels of computer penetration.

Moreover, there are wide regional disparities, with internet penetration about twice as high in urban as in rural areas. A recent Forrester survey revealed that, whileoverall online banking uptake and PC availability remain low, Polish internet consumers already match Southern Europeans in buying online. Poland even outperforms Spain, with 30% of online consumers having previously purchased something online, compared with just 29% in Spain.