Slovenia Information Technology Report Q3 2008

Market Overview The Slovenian IT market should remain healthy through the medium term, as Slovenia invests to consolidate its position as one of the most advanced of the 2005 EU entrants. Spending on IT products and services is expected by BMI to increase from US$970mn in 2007 to more than US$1.4bn in 2012.

Services (26% of spending) and software (19%) are projected to grow at a faster rate than hardware (55%). Both enterprise spending and government initiatives will be among the drivers.

The government's National Development Strategy provides a framework within which both local and, more significantly, EU funds will be spent on improving e-infrastructure. Slovenia became a member of the eurozone on January 1 2007, and the direct and indirect effects of EU membership will continue to drive spending in this country. Both government and businesses will invest in applications and solutions that make processes more efficient. Adoption of the euro was a major driver of IT spending in 2007, particularly in the financial sector Rising household wealth levels in Slovenia should ensure continuing potential for PC sales growth.

Despite relatively high household penetration levels, there remain some digitally deprived lower-income groups. Regional policy should provide a stimulus through the government's technology parks programme, as well as government redevelopment efforts in areas such as the relatively underdeveloped north-eastern region, Podravje.

Industry Developments In 2008, Slovenia continues to administer various IT projects making use of both local and EU funds.

There are a number of priority areas. While the number of connected schools is now fairly high, the actual number of computers in schools and usage by students and teachers lags behind. IT Skills levels in the workforce are also only slightly above average and so there is need for more investment in this area.

Investment in R&D is also lower than in some comparable states.

Similarly, in the field of e-government, despite a few notable successes such as virtual tax assistance and remote access to civil court proceedings and processes, there is still a long way to go, particularly in training officials of an older generation. For enterprises, EU funding for its Competitiveness and Innovations programme for the period 2007-2013 includes substantial sums to support ICT policies.

There are also additional sums for entrepreneurship and innovation, which can have IT applications.

Competitive Landscape Slovenian IT services and software giant Hermes Softlab (HSL) has entered a partnership with Serbian Comtrade Group. Comtrade, one of the biggest IT companies in SE Europe, has submitted a binding bid to take over HSL. The potential merger would create a significant new player in Southern and Central Europe. It would bring to an end an approximately one year search process by HSL for an appropriate strategic partner.

HSL's search for a partner reflects the generally aggressive mood among Slovenia's domestic IT giants following strong 2007 financial results. Actual IT, whose core business is IT services, expected 2007 revenues of around EUR16.7mn, representing a 24% rise. Actual has also been involved in merger activity in 2008, acquiring Smt, a computer hardware company, for EUR19.6mn. Actual pointed to Smt's expansion into services in recent years.

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%. Future progress will depend partly on results in tackling illegal software, which accounts for about 50% of software in use. In 2007 the government stepped up enforcement efforts, following previous criticism. 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, near-saturation 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.

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%. 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.

The growth rate is set to rise as Slovenian organisations upgrade IT systems to gain or maintain competitive advantage following EU accession. As speculation rises that the Southern and Eastern Europe (SEE) region could become a new offshoring frontier, Slovenia has stepped up its preparedness to exploit the opportunity.