Market Overview BMI projects that the total size of the Czech IT market will increase from just over US$4bn in 2007 to around US$6.2bn in 2012. The market fundamentals of rising incomes, below-EU-average PC penetration levels and growing small business demand will ensure continued opportunities for IT vendors. However, overall growth in 2008 will likely be slightly lower than last
year as the Czech Republic enters a period of slower economic expansion with GDP growth in the 4%-5% range.

BMI does expect the Czech IT market to grow at a rate well above that of the economy as a whole, and projects a CAGR of 9% for the 2007-2012 period. Indeed Czech per-capita IT spending is already above the EU average. Driven by falling prices, demand for PCs and notebooks will remain strong in 2008, and household computer penetration is expected to reach 50% by 2009, from 40% currently. Another driver is increasing international investment in global services and outsourcing facilities in the Czech Region, although there is a risk that skill shortages could drive up costs.

New EU funds earmarked for ICT projects will continue to flow into the market in 2008. The Czech Republic continues to implement the digital ageda in areas like digital TV and e-government and to roll out projects in areas such as Education and the Justice System. Meanwhile, economic liberalisation policies will generate opportunities in financial, transport and retail sectors, among others. In summary, despite being one of the most mature IT markets in the region, the Czech Republic offers plenty of growth potential.

Industry Developments The Czech Republic is making strides on several fronts in ‘digitalisation’. In 2008 the government has started to phase in biometric data for use in travel documents and other permits. A bill was approved by the government in May creating a structure for relevant government offices to share this information. The Czech Interior Ministry will most likely be in charge of supervising this process.

Meanwhile, the Czech Republic has also begun the transition towards digital TV, with the first digital TV station in the Czech Republic, called Z1, starting to broadcast on June 1. Z1 will likely be followed soon by TV Barrandov and other digital stations which have digital licences. The transition to digital is expected to lead to opportunities for IT vendors, with set-top-boxes currently used by 5.9% of Czech households.

The government is reportedly considering a new plan to target industrial subsidies exclusively at high tech and strategic services sectors. According to leaked proposals, the government would like to shift government subsidies away from factories and towards high tech. The new proposals are being driven by growing concern about a shortage of suitably skilled labour in the IT sector.

Competitive Landscape The growth of consumer demand has meant that vendors are adjusting their channels mix to reflect a changing retail situation. A number of studies found that retailers were the biggest growing category of electronics sales last year. Dell is one vendor which has reacted by moving away from its direct sales model by starting to offer notebooks through retailer Electro World. Czechs are also spending an increasing amount – close to CZK20bn this year is likely – on buying computer equipment online.

Anticipated growth in notebook sales has fuelled ambitious vendor projections for 2008. HP was expecting revenues to reach US$200mn this year, from US$140mn in 2007. Last year HP reported around 15% revenues growth. Acer is the overall leader in the 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.

Turning to software, and market leader Microsoft recently approved a major software licensing framework contract with the government. The contract was reportedly worth CZK700bn. The framework agreement sets maximum levels for licence fees to be paid by government authorities. However, individual ministries will still be free to sign contracts with other entities Computer Sales PC sales growth is expected to be slightly slower in 2008 than in 2007, when lower prices on the Czech market contributed to faster than anticipated sales growth in desktops and particularly notebooks. In 2007, computer sales (including desktops, notebooks and accessories) had an estimated value of close to US$1.4bn, up 9% year-on-year (y-o-y). This underestimates unit sales growth due to the weaker dollar. A major growth driver continued to be falling notebook prices, with the cheapest units already below the CZK10,000 (US$624) level, including legally installed software. As recently as Q407 the cheapest price was around US$724, and while some analysts believe that prices cannot fall much further, BMI believes that prices of CZK8,000 are likely this year. HP already offers the HP 530 notebook with software for CZK9,000. Market leader Acer offers a similar product at just over CZK10,000.

In 2007, around 1mn PC units were sold. Computer sales (including desktops, notebooks and accessories) had an estimated value of close to US$1.5bn, up 12% y-o-y. In 2008 growth is expected to be remain strong, driven particularly by notebook sales, which are likely to exceed desktops as prices continue to fall. Recent data suggested that around 40% of home users used a PC in H108, up 10% y-o-y.

Software After 10 years of fairly strong investment by larger Czech manufacturing companies in enterprise resource planning (ERP) and enterprise solutions, the market is approaching saturation in some verticals, directing vendor attention towards the SME sector. BMI estimated a software market value of US$792mn in 2007, up 10% on the previous year. The market should approach US$1.4bn by 2012, although much will depend on success in bringing down the piracy rate. The use of illegal software in the Czech Republic was reported by the Business Software Association (BSA) at 39% in 2007, 4% above the EU level. The main problem now is among domestic users, which constitute a growing proportion of the software market. Software as a service is on the rise in the Czech Republic, with smaller companies placing greater emphasis on value for money.

Services BMI estimates that sales revenue of IT services rose 11% 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 11% to just over US$2bn by 2012. The more sophisticated market means there is more demand for applications tailored to specific verticals, as well as systems consolidation and platform integration.

E-Readiness A recent EU report revealed uneven advances in ICT indicators in the Czech Republic. The EU i2010 report suggests most of the current growth in internet connectivity in the Czech Republic is now coming from conversion from narrowband to broadband. Furthermore, rapid growth in overall connectivity is balanced by a slowing of broadband penetration of enterprises. Another recent survey by The Economist found that the Czech Republic was in general catching up with Western Europe in terms of such indicators as online availability of public services and broadband connectivity.