Market Overview

Hungary’s IT market continued to grow in 2008 despite a slowdown over the previous 18 months owing to a difficult political and economic situation. IT spending should have received strong momentum from Hungary’s EU accession in 2004, but because of a weak economy and fiscal austerity measures, public spending in particular has fallen short of expectations.

The market grew

faster than expected in H108, despite the global slowdown. Lower prices were the main reason, with the weak US dollar and stronger forint. Prices of notebooks have fallen by around 40% compared with two years ago. However, as the global credit crunch tightened, some vendors anticipated a stagnating market, and there were reports that demand from the enterprise sector had slowed as companies cut expenditure.

Despite this, BMI still expects solid growth in many IT market sectors over the next few years, with new public-sector IT initiatives, and demand particularly strong in the financial sector. The total size of the IT market is forecast by BMI to increase from an estimated US$2.91bn in 2008 to US$4.55bn in 2013, at a compound annual growth rate (CAGR) of 9.4%.

Industry Developments

During 2008, there was some revival of government IT spending, with some new e-government projects and pilot schemes already commissioned and contracts signed. However, there remained concern about lower-than-expected spending since EU entry in 2004, and a lack of clear ownership of IT issues in the government following the abolition of the IT and telecoms ministry.

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. IT spending in Hungary will at least continue to receive strong momentum from a number of programmes to assimilate Hungary into the EU’s broader ‘Information Society’. The Hungarian Association of IT Companies (IVSZ) 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 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 GPs in one of the least-developed regions of Hungary.

Competitive Landscape

Vendors were divided as to how the difficult economic climate in 2008 would affect the domestic PC market, with the median expectation being one of moderate growth driven mainly by notebooks. Market leader Acer targeted about 100,000 unit sales of notebooks in 2008, with some 30% of the Taiwanese company’s sales being to corporate clients. Acer’s parent company, Foxconn, said that it would open a new production unit in Hungary for manufacture of Acer PCs.

Turning to software, market leader Microsoft recently 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. With its increased recent success in the public sector, Microsoft Hungary recently created a public-administration division, with a team of six exploring expansion possibilities.

IT services vendors found that 2008 brought an improvement, following a virtual dry-up of government projects in 2007. British telecom company British Telecom (BT) was the main winner in what was described as the biggest single IT investment made into healthcare in Hungary to date – the Inter- Institutional Electronic Exchange System (IKIR). Meanwhile, IBM won an US$11mn IT infrastructure project from utility company Hungary Electricity Transmissions Operator (MAVFIR).

Computer Sales

Sales of desktops, notebooks and accessories were valued at an estimated US$1.01bn in 2008, with notebooks accounting for more than half of sales for the first time. Computer sales are expected to reach US$1.49bn by 2013, growing at a CAGR of 8.1%. Sales of PCs are expected to be solid during the forecast period, with the stock of computers expected to rise by more than one-third over the forecast period.

Around 400,000 PC units were expected to have been sold in Hungary in 2008. PC sales continued to grow in H108, despite the global slowdown. Prices have fallen significantly and laptops can now be bought for as little as HUF80,0000, down from HUF 150,000 two years ago. The lower value of the US dollar has reduced the prices of imported computers and components in recent months, but a resurgent dollar and high interest rates may now dampen consumer spending.

Software

Overall 2008 software sales were estimated by BMI at US$639mn, and they are expected to grow at a CAGR of 13.1% over the forecast period to US$1.18bn. 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 likely to be found in the small- and medium-sized enterprise (SME) and public sectors, with spending in the latter lower than many other countries in the region.

Most Hungarian companies are 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 CRM, where fast growth is possible.

IT services

The Hungarian IT services market is expected to be worth US$1.55bn by 2013, up from an estimated US$987.8mn in 2008, with services accounting for just over one-third of total IT spending in Hungary, as the market matures. Growth in IT Services opportunities over the 2008-2013 period is expected to be driven by two main developments. First, the ongoing project of reforming and streamlining the overbureaucratic Hungarian public administration system structures will provide many service tenders.

Second, 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 now operate 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.

E-Readiness

Internet penetration was estimated at 41.9% in 2008, and is expected to pass 60% in 2013. Broadband penetration was estimated at 11.6% in 2008, and is forecast to pass 20% by 2013. A 2007 EU report on egovernment 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 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 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, 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.