Slovenia Information Technology Report Q2 2008

Market Overview The Slovenian IT market should grow strongly in 2008, supported by an economy which is expected to continue performing, supported by robust growth in gross fixed capital formation. IT spending is expected by BMI to increase from US$970mn in 2007 to more than US$1.4bn in 2012, with services (26% of spending) and software (19%) growing at a faster rate than hardware (55%). IT services spending grew more than 10% last year and is expected to be the fastest growing IT segment.

With Slovenia becoming a member of the eurozone on January 1 2007, completing a ten-year period of economic and structural reform, the direct and indirect effects of EU membership will continue to drive spending in this country. Adoption of the Euro was a major driver of IT spending in 2007, particularly in the financial sector where it accounted for as much as 40% of spending. Both government and businesses will invest in applications and solutions that make processes more efficient.

BMI has upwardly revised our GDP growth projections to 4.5% in 2008. Regional IT markets development will receive a stimulus from the government technology parks programme, and government redevelopment efforts in areas such as the relatively underdeveloped north-eastern region, Podravje.

Industry Developments With Bulgaria and Romania now having joined the EU, Slovenia is launching a number of major new national development projects to highlight and consolidate its status as one of the most advanced of the 2005 intake. EU funding for its Competitiveness and Innovations programme for the period 2007-2013 includes substantial sums to support policies in the ICT sector. There are also additional sums for entrepreneurship and innovation. The projects are within the framework of the National Development Strategy.

In 2008 work is also continuing on a number of landmark technology park developments, many of which have started in the last one-to-two years. Since the 1990s Technology Parks have become one of the pillars of developing high-tech industry in Slovenia. The largest, and most IT focused, of the parks is the one at Ljubjana, which covers the central Slovenian region. In 2007 Ljubjana completed the first phase of construction of a new business support centre for the park, which has been co-financed by the EU.

Competitive Landscape The IT services market is bringing opportunities for vendors both domestically and regionally as Slovenian organisations upgrade IT systems to strengthen competitive advantages following EU accession. Currently the biggest IT companies in the market include local giant Hermes Softlab, as well as SRCSI and S&T Slovenia. The market grew more than 10% in 2007 and with similar growth expected there is likely to be further consolidation in the sector.

SAP and Microsoft Dynamics are the leaders in the enterprise application software market with Slovenian enterprise Kopa leading the local challenge according to IDC data. The combined share of the leading three is close to 50%. Most of the competition is for the manufacturing segment, which still accounts for around one-third of EAS spending in Slovenia, with other significant sectors including retail and communications.

Slovenia's domestic IT giants are in an aggressive mood following strong 2007 financial results, and are outlining plans for 2008 and beyond. Formerly troubled Hermes Softlab targeted a 15% rise in revenues in 2007, to EUR47.8mn, following an announced a 20% rise in sales revenues in 2006. Meanwhile, another Slovenian IT group Actual IT, which has IT services at its core business, expected 2007 revenues of around EUR16.7mn, representing a 24% rise.

Computer Sales Sales of computers (including notebooks and accessories) were estimated at US$416mn in 2007, up from US$396mn in 2006, and within an overall 2007 hardware market of US$533mn. Prices are continuing to fall, but sales will be driven by growing DSL coverage and penetration, with overall internet penetration rising to more than 70% by the end of the forecast period. Based on industry data, household PC penetration rose from 47% in 2001 to 61% in 2005. Broadband services such as IPTV, now offered by both SiOL and T-2, are now available to 70% of the country. Sector drivers will include banking (see Industry Developments) and telecoms.

While desktops still account for a majority of unit sales, the trend is very much in favour of laptops.

Services will become an increasingly important competitive differentiator here. Overall, international brands seem to be consolidating their position in the market, with HP still the leading brand, but with Dell now in second place, supplanting Lenovo which is now third. HP also leads in the server segment, followed by IBM.

Software The software market in Slovenia was estimated at US$184mn in 2007, up from US$164mn in 2006.

Relatively strong progress is expected during the forecast period to 2012, with software growing more than twice as fast as hardware in revenue terms, at a CAGR of 10%. According to industry projections, between 75,000 and 80,000 computers were expected to be sold in 2007 in Slovenia with Microsoft Windows Vista pre-installed.

Most large enterprises (79%) have now deployed enterprise resource planning (ERP) applications, meaning that vendors will have to look to other areas, such as SMEs, for growth. However, nearsaturation of the large-enterprise market in terms of essential applications should encourage vendors to look to other segments to maintain growth, or else focus more on vertical specialisms. Although large and very large enterprises still constitute around one-half of the spending on EAS in Slovenia, more than 64% of new installations are reported to come from small and medium-sized businesses.

Services The Slovenian IT services market grew to around US$252mn in 2007 from US$227mn in the previous year. Spending CAGR for the 2006-2011 period is put at 9%. In addition, 2008 should see continued healthy economic growth, leading to investment in applications and solutions that make processes more efficient on behalf of both governments and businesses.

IT services represents around 26% of IT spending in Slovenia, reflecting a market at an earlier stage of maturity than, for example, that of the Czech Republic. However, boosted by local giant Hermes SoftLab, IT services is the second largest ICT exports category by revenues. The growth rate of the IT services market is set to rise as Slovenian organisations upgrade IT systems to gain or maintain competitive advantage following EU accession