Romania Information Technology Report Q1 2008

Market Overview In 2008 Romania is expected by BMI to continue as one of the fastest growing IT markets in Eastern Europe. Domestic spending on IT products and services was heading for a total of around US$1.3bn in 2007. This total is expected to increase at a CAGR of 10% through 2012. The IT market in that year is expected to be worth around US$2.1bn. Computer sales grew extremely rapidly in 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.

Following Romania's EU accession on year ago, EU and government spending have become even more significant drivers of Romania IT market growth. Some US$380mn in 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 Romanian government is working to ensure Romanian organisations have access to EU funds available for boosting economic competitiveness. In July 2007 the EU announced that it would make substantial sums available to Romania under its Competitiveness and Innovations programme 2007-2013, which includes information technology as an important strand. The total budget for the programme is EUR3.011bn of which the EU is contributing close to 85% for purposes including initiatives to enhance the use of ICT by citizens, government agencies and enterprises.

One of the Knowledge Based Economy initiatives is to provide internet connections to rural and small urban settlements. In the latest phase of the project around twenty percent of the eligible population are to receive free internet access. Funding for this phase of the project is US$69.4mn, of which US$60mn is being provided by the World Bank and the remainder by the government.

Company News Romania's desktop segment is more competitive than notebooks where the top three vendors have a more than 50% share. In the desktop segment the top three vendors, including Dell, K-Tech and Fujitsu- Siemens, have a combined share of around 36%. Most international vendors were expecting to report record local market sales for 2007 with no sign of growth letting up as the year entered its final quarter.

The competitive battlefield is moving to the SME arena, with SMEs accounting for more than half and corporate accounts more than 80% of Dell's local sales. The company recently launch a brand new product series, Vostro, specifically for Romanian SMEs. SMEs are also an important target group for Lenovo.

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$686mn in 2007, up from US$606mn 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$1.1bn 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.

Software The market value of legally-packaged software in 2007 was estimated by BMI at around US$183mn, and investments by businesses and the public sector should see this increase to US$297mn 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$288mn in 2007, accounting for around 22% 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 10% to around US$467mn 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.