BMI expects 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 2008-2012 forecast period. BMI forecasts 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 economic cycle has now likely passed its peak, but as double-digit PC sales growth demonstrates, the market fundamentals of rising incomes, growing small business demand and above-European-average per-capita IT spending provide grounds for continued optimism. Despite being one of the most mature IT markets in the region, the Czech Republic offers plenty of growth potential. Computer penetration is still some way behind the EU average, and is expected to reach 60.9% of the population by 2009.

Driven by falling prices, demand for PCs and notebooks will remain strong in 2008, with consumers also looking for new functionalities. 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, supporting projects in areas such as Education and the Justice System. Economic liberalisation will generate opportunities in financial, transport and retail sectors, among others.

Industry Developments

A number of major new IT initiatives are being rolled out in 2008. The Transport Ministry is currently introducing a new system of computer chips for vehicles. The new chips will be rechargeable through ATMs or cell phones and will enable police to monitor traffic more effectively. Other current initiatives include a CZK130mn drive by the Education Ministry this year to connect all Czech libraries to the internet by the end of the year, and an electronic network connecting 24,000 pharmacies in the Czech Republic.

Meanwhile, concern is growing that a shortage of suitably skilled labour in the IT sector could limit the Czech Republic’s ability to attract international investment in strategic services and outsourcing. One visible symptom is increasing salaries in the sector. The average salary for an IT worker in the country including bonuses is now around CZK65,780.

Some IT companies including HP recently have complained about the challenge of a lack of suitable employees. In December 2007, the Czech government announced that the long anticipated introduction of biometric passports will be postponed until 2009. The government attributed the further delay in launching the major IT project to the failure of the EU to approve technical specifications.

Competitive Landscape

Acer was the main beneficiary of 25% growth in the Czech PC market last year. The Taiwanese vendor moved into first place in the market on the back of strong notebook sales, ahead of rivals HP and Asus. Close to 1mn units were sold in total last year. Acer had around 18% of the market, while HP and Asus each had around 12%. Turning to software, and market leader Microsoft recently approved a major software licensing framework contract with the government. The contract was reportedly worth CZK0.5bn. 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

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% year-on-year (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.

Software

After 10 years of fairly strong investment by larger Czech manufacturing companies in ERP and enterprise solutions, the market is approaching saturation in some verticals, directing vendor attention towards the SME sector. BMI has estimated a software market value of US$759mn in 2007, up 5% on the previous year. The market should be worth approaching US$1.4bn by 2012, although much will depend on success in bringing down a piracy rate which remains above the EU average.

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 that there is more demand for applications tailored to specific verticals, as well as systems consolidation and platform integration.

E-Readiness

Much of the current growth in internet connectivity is now coming from conversion from narrowband to broadband rather than overall growth in internet usage. The Czech Republic still lags behind Western Europe in high-speed internet connections, with around seven per 100 citizens, compared with 20 in Western Europe. In 2007 the number of broadband users surpassed 1.2mn. In one survey the Czech Republic ranked third for PCs per household among new EU member states at accession and overall PC penetration is around 30% currently and expected to rise to 50% by 2009.