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Hungary Information Technology Report Q4 2011
Business Monitor International, Oct 2011, Pages: 57
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. The government has 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
Despite the difficult trading conditions, fellow global IT services leader IBM has continued to invest in Hungary. In September 2010, IBM announced a new Budapest-based centre for analytics. The company has targeted US$16bn in business analytics and optimisation revenues by 2015, and plans new analytics solutions centres in a number of other locations, including Vienna and Zurich.
In May 2010, fellow US IT leader HP introduced an expanded set of consulting services specifically for telecoms companies. At the same time, the company announced a recent customer win at Hungary's leading telecoms company Magyar Telekom. Magyar engaged HP to develop a single, consolidated platform for Magyar to automate key processes and workflows. The solution was first deployed for new IP services and Magyar now plans to extend it to the rest of its services portfolio. In July 2010, Magyar Telekom said that it had signed an agreement to buy 100% of Hungarian IT company Daten Kontor Group (DK Group). DK Group develops, installs and manages IT applications, and Magyar Telekom hopes that the acquisition of the HUF2.2bn turnover company, which was still subject to regulatory approval, will help it to strengthen its position in the IT services market.
Computer Sales
The addressable computer hardware market is estimated at US$1.3bn in 2011, up from US$1.2bn in 2010. Revenues are expected to reach US$1.6bn by 2015, growing at a 2011-2015 CAGR of 6.8%. However, the slow economic recovery and heavy household debt burden will continue to weigh on demand and prices.
Retailers reported sluggish consumer PC sales in Q111, with the situation described by business daily Világgazdaság as 'disastrous'. BMI expects sales to pick up later in 2011 due to seasonal demand factors and as retailers restock. The median expectation is probably one of moderate growth driven mainly by notebooks. Meanwhile, 2010 also saw the emergence of tablet notebooks, spearheaded by Apple's iPad.
Software
The Hungarian addressable software market is projected by BMI at US$743mn in 2011 and is expected to grow at a CAGR of 8.1% over the forecast period to US$1.0bn. In 2010, the economic slowdown represented a challenge to software vendors, as enterprises were tempted to focus more on the bottom line. Business confidence had slumped to record lows in February 2009, 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. Key opportunities are also 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$1.4bn by 2015, up from an estimated US$1.1bn in 2011, with services accounting for more than one-third of IT spending in Hungary as the market matures. The IT services market was hit by the slowdown in government IT projects tendering, and key segments such as finance and telecoms have been hit by crisis taxes. 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 remain a number of projects in the pipeline in areas such as healthcare, utilities and government procurement.
E-Readiness
The Hungarian 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. Recent surveys have highlighted that the elderly and those living in rural areas are at the core of Hungary's digital divide.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.
Hungarian IT spending should have received strong momentum from Hungary's EU accession in 2004, but due to a weak economy and fiscal austerity measures, public spending in particular has fallen short of expectations. Trading conditions remain challenging for IT vendors in 2011 as household demand, business investment and government spending will remain muted due to deleveraging and fiscal austerity.
Meanwhile, banking credit will remain limited. The IT market is expected by BMI to increase to US$4.0bn in 2015. 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, and opportunities around outsourcing and cloud computing. However, much will depend on the speed of economic recovery, both in Hungary and globally.
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