Hungary Information Technology Report Q3 2008

Market Overview

BMI expects a new influx of EU funds in 2008 to stimulate Hungary’s IT spending following a slowdown last year due to a difficult political and economic situation. The total size of the IT market is expected by BMI to increase from US$3.6bn in 2007 to around US$4.7bn in 2010, at a CAGR of 9%. However, while the economy is recovering from the deficit-induced fiscal tightening of last year, a slowdown in economic activity in the eurozone presents new downside risks in 2008.

As a result, IT spending growth is likely to be more moderate in those areas of the economy not directly impacted by EU funding. Despite this, BMI still expects low double digit growth in some sectors over the next few years. Government spending should pick up with a number of new projects already commissioned in 2008, as Hungary takes advantage of a number of programmes to assimilate Hungary into the EU’s broader ‘Information Society’.

Key areas are likely to include the Health and Justice systems, but IT systems across the public sector are overdue for updating. 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 period 2007-2013.

PC sales, particularly notebooks, will be one bright spot, with double digit notebooks sales growth as prices continue to fall. The government is likely to focus on ways of improving IT use by enterprises. Low computer penetration, particularly in some demographic segments, still represents considerable PC market development potential for vendors. IT spending should be particularly strong in the financial sector, although opportunities in telecoms and utilities are likely to be fewer than before.

Industry Developments

One key policy area for structural funds is likely to be health, with the National Development Plan outlining plans for funding the development of the health sector. This includes investment in IT to enable transfer from paper-based administration to more effective electronic record-keeping.

Another area where spending is likely to increase is the court system, where new EU funding has already been made available. The caseload handled by the system increased by 10% last year. While major projects are still likely to be comparatively rare, a number of smaller projects are being commissioned by state bodies.

The Hungarian State Railway (MAV) has commissioned an HR solution from SAP to cover its 50,000 employees. Meanwhile, Hungary’s state-owned postal service Magyar Posta has allocated US$3.3mn for the lease of a computer system until December 2010. The budget includes hardware, implementation and maintenance.

Competitive Landscape

Microsoft has won an extension of its government contract to license use of its software in state schools. The original US$31.8mn contract between Microsoft and the government was signed in March 2007 and expired in February 2008. The contract has now been extended until February 2009. The announcement followed the award to Microsoft of a US$152.9mn general licensing contract to cover a wide range of Hungary’s state institutions.

In the PC segment, Acer was the main beneficiary of strong notebook unit sales growth. The Taiwanese vendor moved into the market leader position last year on the back of a triple figure percentage rise in notebook sales to 73,450 units. Other leading vendors also reported growth. Fujitsu Siemens said that it sold more than 100,000 computers in 2007, while HP reported a 10% rise in overall revenues, but due to falling prices, unit sales grew substantially faster than revenues.

Computer Sales

Notebook sales continue to drive the PC market, growing around 40% in 2008, in which year they accounted for more than 60% of all PC units sold. Sales of desktops, notebooks and accessories were put at around US$953mn in 2007 and are expected to grow at a compound annual growth rate (CAGR) of 6% to reach US$1.2bn by 2012.

Demand is being driven partly by falling prices; down 10% in the last twelve months or so. Desktop sales were down 20% in the same period, as notebook sales soared, but the overall stock of computers is expected to rise by more than one third over the forecast period.

Government initiatives to encourage telecommuting may provide a fresh stimulus. The lower value of the US dollar has reduced the prices of imported computers and components. Small enterprises are also buying notebooks, with price, rather than advanced functions, still the main purchase criteria.


Overall 2007 software sales were calculated by BMI at US$543mn. They are expected to grow at a CAGR of 9% over the forecast period, to around US$898mn. Key opportunities are likely to be in the SME and public sectors, with spending in the latter lower than many other countries in the region.

With corporate demand for core enterprise resource planning (ERP) applications already fairly saturated, SMEs are a key focus for vendors. Most Hungarian companies are, however, SMEs, and the sector plays an important role in the economy and is the most dynamic currently in terms of packaged software.

There is also an increased focus on developing applications tailored for specific industry verticals, with the largest opportunity being in the banking and financial sectors. Vendors are also looking to other areas, such as customer relationship management (CRM), where fast growth is possible.

IT Services

The Hungarian IT services market is expected to be worth close to US$1.4bn by 2012, up from US$950mn in 2007, with services taking up more than one-third of IT spending in Hungary, as the market matures. Growth in IT service opportunities over the 2007-2012 period is expected to be driven by two main developments.

Firstly, the ongoing project of reforming and streamlining the over-bureaucratic Hungarian public administration system structures will provide many service tenders. Secondly, the global business process outsourcing (BPO) sector’s rapid growth since 2000 is likely to continue and play an increasingly important role in Hungary’s economic development.

An increasing number of multinational companies are now in Hungary and global names, such as General Electric (GE) and Citibank, are fuelling the outsourcing market. Local companies such as Telecom group T-Com are also involved.


A 2007 EU report on e-government development in Hungary found good progress generally in front office 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 on line 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 get 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, 84% of Hungarians between the ages of 55 and 74 are computer illiterate and policy makers fear that this could lead to increasing social isolation. Broadband penetration was estimated at 12% in 2007, and is expected to reach 28% by 2012.


    Popular posts

    Related posts