Czech Republic Information Technology Report Q1 2008

Market Overview The IT market is growing at a rate well above that of the economy as a whole, and PC penetration is expected to rise to 60.9% of the population by 2009. BMI forecasts that the total size of the Czech IT market will increase from just under US$4bn in 2007 to around US$5.7bn in 2012. Demand for PCs and notebooks has been strong over the past year, with prices holding up as consumers look for new functionalities. The strong demand for PCs is spurring intense competition between multinational vendors and local assemblers.

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 In 2007 the Czech Lower House of Parliament approved the government's bill to abolish the IT ministry.

Following abolition, the brief of the former IT ministry has been distributed between the interior, industry and trade, and regional development ministries. The government's Interior Minister Ivan Langer issued a reassurance that the recent abolition of the IT ministry does not mean the end of IT development in the Czech Republic. Instead the move has been presented as part of the government's new electronic strategy.

Meanwhile the government has announced the implementation of a major national computer literacy programme. The programme is designed to address low levels of internet usage and below average ICT skills among employees. There is a particular focus on schools where progress remains restricted by low broadband connectivity and low student computer ratios. The government hopes to improve matters by supplying schools and libraries with the necessary computer equipment.

Competitive Landscape 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 ten. Competition is prompting some consolidation with the antimonopoly office who recently approved the merger of BGS Levi Czech with eD Systems Czech.

Meanwhile other vendors are looking for new channels to take advantage of the market opportunity.

Telecoms service provider O2 Czech Republic is to offer computers from HP bundled with the O2 ADSL service. The packaged also includes software from Microsoft. The price for a three year contract will range from CZK 585 - 1,205 plus VAT.

Computer Sales In 2007, computer sales (including desktops, notebooks and accessories) had an estimated value of about US$1.3bn, up 8% year-on-year (y-o-y). In 2008 growth is expected to be even stronger, driven particularly by notebooks. A combination of increasing demand for notebooks, where multinationals have an advantage over foreign vendors, and a 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.

Software BMI has estimated a software market value of US$720mn in 2007, up 10% on the previous year, representing slower growth than before. The market should be worth around US$1.3mn 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 13% 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 9% to just under 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.

Czech Republic Information Technology Report Q1 2008 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.