Poland Information Technology Report Q1 2008

Market Overview The Polish IT Market is expected to maintain its momentum over the 2007-2012 forecast period with several million euros flowing into the country as part of EU programmes to improve competitiveness. The total size of the IT market is forecast to increase from US$5.1bn in 2007 to around US$8.4bn in 2012.

With economic growth accelerating, 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 meaning difficult times for IT services companies. However, the situation started to improve in the second half of the year, and some major projects are now expected in 2008, including a US$200mn tender from the Ministry of Health. Meanwhile there will also be opportunities in other sectors such as banking and manufacturing.

Spending by banks alone accounts for as much as 15% of the whole IT market and is expected to maintain double digit growth. Growth in spending will also be stimulated by telecoms investment, projected to rise from US$1.3bn to US$1.5bn by 2008, and by investment in enterprise networking.

Industry Developments 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, which also includes research and innovation. The news of the funding is likely to trigger a series of tenders in 2008, with the information technology component likely to be worth nearly EUR1 bn. Among the most eagerly awaited tenders is likely to be one for a medical service system for the health ministry.

In April 2007, the Council of Ministers formally adopted the National IT Infrastructure Plan for 2007- 2013 which factors in a large boost in EU funding. The plan provides a systematic framework for IT development in the public sector as well as the development of an IT society in Poland. According to the plan, some PLN35bn will be available for IT investment over the relevant period, with some 75% of funds expected to come from the EU. Local governments are to receive an additional EUR25bn from Brussels.

Company News In September 2007 a deal was announced which will lead to the takeover by Asseco Business Solutions of its shareholder and fellow local IT giant Prokom Software. Prokom assets will go to Asseco in exchange for new shares. The recent lengthy stagnation in public procurement tenders has had an adverse effect on the financial situation of major domestic firms in the IT sector and helped drive a new wave of consolidation in the sector.

Meanwhile with a favourable economic environment providing a context for optimism, IT manufacturers are investing to take advantage of a growing market. Leading local manufacturer NTT Systems said that it plans to open a new factory by the beginning of 2008 with a production of 40,000 computers. Poland has been tipped as the location for a new Lenovo PC plant, although at time of press this had yet to be finalised. Dell's new assembly plant in Lodz was rolling out its first units for Poland by the end of 2007 and will provide a key strategic boost to the company and its partners by allowing faster time to market.

Computer Sales Hardware remains the dominant category of IT spending, with hardware sales amounting to about US$2.1bn in 2007, and with spending projected to reach US$3.4bn in 2012. PC sales are forecast to increase from US$1.7bn in 2007 to US$2.6bn 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$1.0bn in 2007, and is likely to grow to US$1.8bn by 2012, giving a CAGR of 12%. 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$1.8bn in 2007, is the fastest growing sector of the IT market, with spending expected to rise to US$3.2bn in 2012. With a larger installed IT base, acceptance of the need for Poland Information Technology Report Q1 2008 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 is the main driver 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.

Employment in outsourcing is estimated to have grown by 167%, with local attractions for global companies including language and accounting skills and low wages. The European technology consulting giant, CapGemini, recently announced plans to take on an additional 150 employees, while 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, while overall 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.