Romania Information Technology Report Q2 2008

Market Overview In 2008 Romania is expected by BMI to continue as one of the fastest growing IT markets in Eastern Europe, driven by large inflows of EU funds earmarked for ICT. Domestic spending on IT products and services was estimated at around US$1.35bn in 2007. This total is expected to increase at a CAGR of 13% through 2012. The IT market in that year is expected to be worth around US$2.4bn. Computer sales grew extremely rapidly in the second half of 2007 as prices for both notebooks and desktops fell dramatically. This was due partly to a cheaper dollar but also because of fierce competition in the retail sector and a buoyant consumer sector in the second half of the year.

Some US$380mn in EU structural funds are assigned for ICT through 2012 and over the next few years the new EU state is set to be transformed by a number of initiatives designed to assimilate it into the EU's broader 'Information Society'. Increased competition and privatisations will also provide opportunities in many economic sectors.

Industry Developments The Ministry of Communications and IT (MCIT) has outlined a number of programmes on which it intends to spend EU structural funds. Funds earmarked for Romania's ICT sector for the 2007-2013 period have been confirmed at around EUR383mn. The main theme of the programmes is to be narrowing the digital gap between Romania's urban and rural areas. Around 70% of the money earmarked for MCIT is to expand broadband communications infrastructure.

However, MCIT will also focus on other areas including e-government and business. The finance ministry, when laying out its strategy for 2008, included providing the fiscal administration with a computer network as one of its priorities for the year. In July 2007, the EU announced that it would make substantial sums available to Romania under its Competitiveness and Innovations programme 2007-2013, the total budget for which is EUR3.011bn.

Company News With international vendors reporting record local market sales for 2007, the number and proportion of computers being made in Romania has increased significantly. Figures from the Association of IT and Communications Equipment Producers and Distributors (APDETIC) in November suggest that 50% of PCs on the market are now actually produced in Romania. The Association's figures put annual local production at around 300,000, which is three times the level of two years ago.

HP, which moved into a top-three spot in the Romanian IT services market last year, has recently enlarged its service partner network with the additional of local IT companies ETA2U and CG&GC. HP now has a total of fourteen partner companies in Romania servicing HP products under warranty and providing post-warranty technical support. The company is also planning to open four new spare parts warehouses in Romania this year.

Computer Sales In 2007, desktop sales performed strongly with average prices of desktops and notebooks falling between 8%-10%. Desktops still account for more than 70% of the market in Romania. According to BMI estimates, the Romanian PC market (including notebooks and accessories) was worth US$722mn in 2007, up from US$607mn in 2006. The low level of computer penetration still represents an opportunity for vendors during our forecast period, with the market set to reach US$1.3bn by 2012. While recent statistics reveal that 43.5% of urban inhabitants in Romanian own a computer, the nationwide figure for home computer ownership is just 24.6%. Just 9.8% of Romanians use a computer at work, and 2% at school. Moreover, 70% of Romanians lack basic computing skills. The PC market was growing rapidly in the second half of 2007 with quarterly sales reported at around 200,000 units. Most of the growth is being driven by laptops which are recording close to three figure year-on-year unit growth, while desktops are also still managing double-digit growth.

Software The market value of legally-packaged software in 2007 was estimated by BMI at around US$176mn, and investments by businesses and the public sector should see this increase to US$343mn by 2012. An anticipated drop in software licence fees should help support growth in spending. Demand is becoming more sophisticated, with more demand for support and technical assistance. Despite the piracy issue, there should be increasing demand for vertical applications tailored to the needs of particular sectors. These include: administration, healthcare, pension and finance. In the enterprise sector, the enterprise resource planning (ERP) market is still essentially in its early phase, where larger companies and organisations still provide strong demand. In other CEE countries, the focus of opportunity has now shifted towards the small to medium-sized enterprise (SME) sector.

Services According to BMI estimates, the Romanian IT services market was worth US$311mn in 2007, representing 22% year-on-year (y-o-y) growth. IT services accounted for around 23% of all IT spending in Romania last year. Spending on services is predicted by BMI to increase at a compound annual growth rate (CAGR) of 12% to around US$539mn by 2012, driven by the large number of complex ICT projects being implemented in public and enterprise sectors with the support of EU funds. The government has announced that IT service providers will be in line to receive EU structural funds worth over EUR550mn during the 2007-2013 period under the EU programme to increase economic competitiveness. General economic reform, including a continuing wave of consolidation and privatisations, together with economic growth, will ensure growing demand for IT expertise. Particular areas of opportunity during the forecast period should include telecoms, financial services and banking, and the public sector.