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Hungary Information Technology Report Q2 2010
Business Monitor International, April 2010, Pages: 54
Hungary Information Technology Report provides industry professionals and strategists, corporate analysts, information technology associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Hungary's information technology industry.
Hungary’s market retains considerable latent growth potential. Home computer penetration remains low compared with peer group countries – only slightly higher, for example, than Romania and Bulgaria. However, the difficult economic circumstances are currently a negative drag on household and small enterprise spending.
Hungarian IT spending is now forecast to grow modestly in 2010 against the backdrop of a still-difficult domestic political and economic situation. Total spending on IT products and services in 2010 is projected at around US$2.9mn, up around 2% compared with the country’s IT budget in 2009. Trading conditions remain challenging for IT vendors with both investment and private consumption expected to remain muted.
The IT market is expected by BMI to increase to US$3.7bn in 2014. Despite current economic headwinds, BMI still expects growth in some IT market segments over the next few years, with EU funds supporting new public sector IT initiatives. However, much will depend on the speed of economic recovery, both in Hungary and globally.
Industry Development
IT spending in Hungary will continue to receive momentum from a number of programmes to assimilate Hungary into the EU’s broader ‘Information Society’. The government’s second National Development Plan provides the framework for the use of US$28.8bn from the EU’s structural and cohesion funds for the 2007-2013 period. The Hungarian Association of IT Companies is hopeful that a new influx of EU funds will help stimulate a recovery in public sector IT spending. One key policy area for structural funds is health. The National Development Plan has committed EUR1.7bn for the development of the health sector. In 2008, the government completed the first phase of a pilot project to improve exchange of information among hospital outpatient clinics and general practitioners (GPs) in one of the least developed regions of Hungary.
Competitive Landscape
Hungary continues to attract investment from computer hardware manufacturers. Acer’s parent company, Foxconn, said that it would open a new production unit in Hungary for the manufacture of Acer PCs. The site, which will employ 300 people, will be located at Szekesfehervar, 60km from Budapest. Meanwhile, fellow Asian vendor Lenovo is also expanding facilities in Hungary, having reached an agreement in 2009 with leading global firm OEM Flextronics to manufacture PCs at a plant in Sarvar.
Enterprise software leader SAP has targeted a 15% rise in revenues for its Hungarian unit in 2009 over 2008 revenues of HUF12.5bn. The company said that Q109 figures were in line with its target. SAP Hungary generated around EUR6mn from sales of software licenses in 2008 and the company hoped to increase that to EUR10bn in 2009. To drive this growth, SAP planned to win more business in the public sector.
In 2009, telecoms companies have moved to capture a share of the Hungarian market for managed services and other IT services. In June, Hungary’s incumbent telecoms company, Magyar Telekom, said that it was still looking at acquisitions in the IT sector. Key acquisition targets for the company included healthcare, banking and retail software development terms, as it planned to strengthen its position in these sectors.
Computer Sales
Hungary’s computer hardware market is estimated at around US$1.2bn in 2010, with notebooks accounting for more than half of sales. Revenues are expected to reach US$1.5bn by 2014, growing at a 2010-2014 compound annual growth rate (CAGR) of 5.6%.The popularity of relatively inexpensive netbooks helped to prevent a steep shipments deceleration, while acting to deflate average prices. In 2010, retail sales are expected to grow slowly, even as businesses remain cautious, with most growth expected in the second half of the year. The median expectation is probably one of moderate growth driven mainly by notebooks. More than half of PC units sold in Hungary in 2008 were laptops and this ratio could rise to above 70% within the forecast period.
Software
The Hungarian software market is projected by BMI at US$662mn in 2010 and is expected to grow over the forecast period to US$926mn. In 2009, the economic slowdown represents a challenge to software vendors, as enterprises are tempted to focus more on the bottom line. Business confidence had slumped to record lows in February, depressing investment.
State support will be important in sustaining investment. The large company sector is relatively saturated in terms of basic applications such as enterprise resource planning (ERP) systems. However, opportunities exist to sell upgrades or more specialised applications such as customer relationship management (CRM), human resources (HR) and business intelligence. There is an increased focus on developing applications tailored for specific industry verticals, with the largest opportunity being in the banking and financial sectors. Key opportunities are likely to be found in the small and medium-sized enterprise (SME) and public sectors, where spending is lower than many other countries in the region.
IT Services
The Hungarian IT services market is expected to be worth around US$1.3bn by 2014, up from an estimated US$999mn in 2010, with services accounting for more than one-third of IT spending in Hungary as the market matures. Spending is expected to contract in 2009, as Hungarian organisations scale back or cancel projects. The market will also be affected by the slowdown in government IT projects tendering, with low single-digit growth projected for 2009 and 5% in 2010.
In the medium term, EU accession and the continuing advancement of technology mean more and more companies – and government departments – will turn to outside experts to handle the complexities of the emerging IT environment. There remains a number of projects in the pipeline in areas such as healthcare, utilities and government procurement. The cheaper forint, following another sharp depreciation in February 2009, has made Hungary attractive again as a destination for locating service centres.
E-Readiness
A 2007 EU report on e-government development in Hungary found good progress generally in frontoffice procedures, but less so in back-office ones.
The government is now implementing what it refers to as the ‘fifth level’ of e-government development, which involves the targeted providing of proactive automated services. By the end of 2006, the percentage of government services fully available online was deemed to have reached 50%, close to the EU average. Hungary also moved from 23rd to 14th in the EU rankings for e-government, as some 48% of citizens contacted some form of government institution online, mainly to obtain information. Recent surveys have highlighted that the elderly and those living in rural areas are at the core of Hungary’s digital divide issue. While Hungary has low internet penetration overall by European standards, a massive 84% of Hungarians between the ages of 55 and 74 are computer illiterate and policymakers fear that this could lead to increasing social isolation.
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