it market trends in the baltics and central & eastern europe

IT Market Trends in the Baltics IT Market Trends in the Baltics and Central & Eastern Europeand Central & Eastern Europe

Torben Pedersen

CEMA Research Analyst

IDC

Infobalt 2002 IT Conference

Vilnius, Lithuania

October 21, 2002

AgendaAgenda

IT Market Trends in CEE Developments by Technology Area Comparative Country Developments in the CEE

region A Closer Look at the Baltic IT Markets Future IT Market Drivers Conclusions & Q/A IDC Research

Western Europe $307.2 billion

(27.9% of WW)

CEE Europe: $13.3 billion

(1.2%)

Total = ca. $1 trillionTotal = ca. $1 trillion

MEA $14.8 billion

(1.3%)

Worldwide IT Market Spending, 2001Worldwide IT Market Spending, 2001

CEE Region: What Crisis?CEE Region: What Crisis?

11.59

13.2914.72

16.23

0

2

4

6

8

10

12

14

16

18

20

2000 2001 2002 2003

(US$Bn) IT Spending

Source: IDC, 2002

Island of Stability and Growth Variety Factors Driving IT

Spending, not Just Economic Slowdown in WE - Some

Spillover in CE Countries WE Woes May Be CEE’s Gains Ongoing Growth Projected

Previous

New Scenario

Second Era

(1970s-1990s)

PC/LAN

Front-officeAffluent home

Customer serviceATMsDecision-supportOrder - processing

IT Market Growth Drivers in TransitionIT Market Growth Drivers in Transition

Technology“Trigger”

New ClassOf UsersAdded

Key Apps.added

First Era

(1950s-1970s)

Mainframe/terminal

Back-officeemployees

AccountingCost reduction

Third Era

(1995-2010)

Multimedia public net(WWW)

CustomersConsumers

Online CommerceCustomer er self-serviceEntertainmentEducationHome productivity

Where’s CEE Today?Where’s CEE Today?

Technology Comparison of IT Technology Comparison of IT Spending in CEE, 2002*Spending in CEE, 2002*

Single-user38.0%

Multiuser10.5%

IT Services27.2%

Packaged Software16.3%

Datacoms7.9%

Total = $15.5 billion - 10% Growth YoYTotal = $15.5 billion - 10% Growth YoY

*Preliminary estimates, August 2002

CEE Hardware Market Developments

Moderate Slow Down in Business PC and Server Sales, but Reflects Two-tier Market

– Larger CEE Countries Illustrate Signs of Maturity with Replacement Representing Key Demand Force

– Smaller Countries Illustrate Double Digit Growth Rates Expectation that Strong Demand Will Persist in 2003 Markets are Less Saturated than WE and USA -

Consequently Demand for Initial Shipments and Upgrades Persists

Untapped Potential Demand in SME and Home Segments Global Companies (FDI) May Cut Back on Investment More eGovernment and Education Sector Development

Overview of IT Hardware Spending in Central & Eastern Europe, 2001-2006

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

2001 2002 2003 2004 2005 2006

(US

$M

) Datacoms

Multiuser

Single User

Value CAGR: 8.4%

Regional IT Hardware Market to Exceed $12 billion by 2006Regional IT Hardware Market to Exceed $12 billion by 2006

Source: IDC Black Book, August 2002

CEE Software Market Developments

Software Spending Less Affected than Hardware - But Linked

Falling Piracy Rates Mean Greater Initial Spending on Packaged Applications

Transition from In-house Developed Applications to Packaged Continues Unabated, as Wage Rates Rise and Technology Becomes More Sophisticated

Major Move Towards Integrated Enterprise Applications Taking Place in Region - But Limited Spending on Extended Modules (Yet to Come)

XP and W2K Adoption Will Facilitate Some Spending as CEE Stays on the Tech Curve

Overview of Packaged Software Spending in Central and Eastern Europe, 2001-2006

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2001 2002 2003 2004 2005 2006

(US

$M

) Application Solutions

Application Tools

System Level Software

Value CAGR: ca. 13%

Software Market to Double in Size by 2006 = $4.1 BnSoftware Market to Double in Size by 2006 = $4.1 Bn

Source: IDC Black Book, August 2002

CEE IT Services Market Developments

Least Affected IT Sector, as Long as Currencies Remain Stable - Higher Nominal Growth in Local Currencies

Any Impact of Dollar on Exchange Rates May Mean Higher or Lower Dollar Denominated IT Services Spending Depending on Development (Devaluation/Appreciation)

Services Companies Are Not Suffering from Over-Capacity - Local Companies and Int. Vendors Continue to Move into Regional Services Space

Short Term Contracts and Discrete Consulting Reflect Timing and Rollout of Large Infrastructure Projects in Govt. and the Corporate Sector

Demand Continues to Expand in Isolated Local SME Segment Ongoing Demand for Basic Network Comms Development, Packaged

Software Implementation and Outsourcing Continue to Drive Spending on Services

IT Services Market Spending (US$M) in Central and Eastern Europe, 2001-2006

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2001 2002 2003 2004 2005 2006

Support Services

Training

Operations Management

Implementation

Consulting

$7.6 Bn Regional Opportunity by 2006 $7.6 Bn Regional Opportunity by 2006 Business Solutions are Hot!Business Solutions are Hot!

Value CAGR: ca. 16%

Source: IDC Black Book, August 2002

Country Market Comparison of IT Spending in Central & Eastern Europe, 2002*

HU10%

Baltic States3%

PO20%

Others4%

UKR4%

CA2%

RO3%

SK4%

SLO3%

BU1%

RU29%

CRO3%

CZ14%

Total = $15.5 billion - 10% Growth YoYTotal = $15.5 billion - 10% Growth YoY

*Preliminary estimates, August 2002

Development in CEE IT markets, 2001

Baltic States still Playing Catch-upBaltic States still Playing Catch-up

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0 25 50 75 100 125 150 175 200

IT/Capita US$

IT$/

GD

P

Czech Republic

Slovenia

HungarySlovakia

Croatia

Poland

Baltics

Romania

Russia

Bulgaria

Country Market Comparison of IT Country Market Comparison of IT Spending in the Baltic States, 2001Spending in the Baltic States, 2001

Estonia35.6%

Latvia32.0%

Lithuania32.4%

Total = $458 million - 10% Growth YoYTotal = $458 million - 10% Growth YoY

IT Market in the Baltic States: On the Path of Growth

IT Services

30.5%

Hardware50.9%

Software18.6%

10% Growth in 2001, after ca. 7% in 2000

Moved to Next Stage of Market Development

Hardware Illustrates Maturity - Replacement

Software Most Dynamic Segment

Software & Services Illustrate Highest Growth Rates

Currency Stability Key for IT Services Market Development

2001 Revenue = $458 million2001 Revenue = $458 million

Shipments of Personal Computers in the Baltic States, 2001-2006

The BS PC Market is Expected to Reach 267K Units in 2006

0

50,000

100,000

150,000

200,000

250,000

300,000

2001 2002 2003 2004 2005 2006

Servers

Notebook

Desktops

Computer Server Market Spending (US$M) in the Baltic States, 2000-2003

0

5

10

15

20

25

30

35

2000 2001 2002 2003

Low-end Servers

Midrange Servers

High-end Servers

Annual Market of ca. $38 million - NT/Unix DichotomyAnnual Market of ca. $38 million - NT/Unix Dichotomy

Overview of EAS Software Spending in the Baltic States, 2001-2006

0

5

10

15

20

25

30

2001 2002 2003 2004 2005 2006Year

(US$M

)

LithuaniaLatviaEstonia

On the Horizon……….

Why IT and the Internet are Important for the Baltic States

Government Says... Economic Development Reduce Costs Improve Public Service

Delivery Create Employment Reduce Red Tape ROI

Business Says... Improve Market Reach Reduce Costs Increase Productivity Improve Customer Satisfaction Essential to Corporate

Strategy Expand Geographic Scope ROI

Opportunity for Greater Investment in Information Technology

Information Society Growth Helps Governments . .

Key Challenge - Public Sector Reform: enhance level and breadth of public services, while capping burgeoning expenditures, particularly for personnel, in an effort to support monetary stability and increase productivity…...

Key Role of the State in CEE IT Markets

State DecisionsHeavy Industry Banking

Healthcare Utilities

Natural Resources

Insurance

Telecommunications

Transport

Public Sector

GovernmentGovernment Accounts from 25% to 50% of IT Accounts from 25% to 50% of IT Spending in Most CEE CountriesSpending in Most CEE Countries

Storage & Storage Management: Watch Out!

Storage Related Spending Reaches $1.2 billion in CEE region in 2001

Keen Interest of Global Players in CEE Markets (Veritas, EMC, Fujitsu Softek, etc.)

Hot area of investment by key verticals: banking, insurance, telco, utilities and the government

In Longer Term, Significant Revenue Stream from Storage Services

Currently Under-developed Area - IDC Outlook Quite Optimistic

Stepping Up IT Security

Prediction Corporations will reset their IT security plans in 2002

Rationale

Throughout the world, September 11 has corporations rethinking security in all aspects. Call it the “Bin Laden Effect.” The focus of IT security will shift from the “Three As” (authentication, authorization, administration) to business continuity.

Physical and IT security will become part of the same whole. This will provide opportunity for suppliers of IT services and products – but create challenges for CIOs and IT managers

Opportunity: All Things Mobile

63,000 Portable PCs Shipped in 2001 - 56% Unit Growth YoY

20% Growth Forecast for 2002 Mobile Telephony Penetration:

66% (includes multiple SIM) SHD Shipments on the Rise Smart Phone Sales Boom Growth in Sales of Devices for

Specific Verticals

Enterprises will have to Wake up to Wireless This Year – Creating Pent-up Demand for Technology and Services

Fixed and Mobile Telephony Comparison

Fixed and Mobile Telephone Lines (M) in the Baltics

0

1

2

3

4

5

6

2000 2001 2002 2003 2004 2005

Fixed Line

Mobile

Baltic fixed line networks will continue to develop, but slowly.

ISDN will be main driver of fixed-line connection growth

Mobile subscriber base expanding rapidly-- passing the fixed subscriber base in 2002.

Telephony Revenues

0

200

400

600

800

1000

1200

2000

2001

2002

2003

2004

2005

Fixed and Mobile Telephony Revenues ($M) in the Baltics

Fixed

Mobile

Mobile revenues to climb from $389M in 2001 to over $1bn in 2005 due to expanding subscriber base

SMS and other mobile data services will also create new revenue streams - about 20% of mobile revenues in 2005

Fixed-line revenues to climb from $489M in 2001 to nearly $700M in 2005

Fixed-line market needs to upsell customers to ISDN, complete tariff rebalancing and stimulate traffic growth (especially fixed-to-mobile and Internet)

Fixed-line operators will also need to focus on developing newer services, such as ADSL (not included here)

Mobile Penetration Across Europe

0% 20% 40% 60% 80% 100%

Bulgaria

Poland

Latvia

Lithuania

Estonia

France

Czech R.

Germany

Finland

Mobile Penetration at end 2001 Growth of subscriber base slows

in Western Europe due to market saturation

Leading Central and Eastern European markets beginning to catch up-- Estonia above 50%; Czech R. closer to 70%

Most of Central and Eastern Europe will climb past 60% penetration in the next few years

Falling prices and increased competition are key drivers

Opportunity: Riding the FDI Wave

>$8.6 bn in FDI through 2001 - Always IT Component

Key Inflows to IT High Usage Sectors, e.g. Manufacturing, Telcos, Banking/Finance, Oil/gas

Telcoms Notable Source of Demand as Usage Booms

Next Major Sector is Utilities Along with Privatization

FDI Changes Country IT Market Profile, Notable Spillover into Other Segments = Opportunity

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

1997

1998

1999

2000

2001

US$Bn

FDI (US$Bn) in the Baltics

Opportunity: Small and Medium-sized Businesses

SME Segment is Generally Under-computerized

Extremely Price Sensitive in More Price Sensitive Region

Willingness to Invest in Hardware - Rising Costs for Software and IT Services Fees are Prohibitive

Low-end Technology Focus - Requires Specific Consistent Approach - Combination of Dedicated Team and Channel

Lead in with PC Business Not Very Profitable Business in Short

Term The Next eBusiness Wave?

SME Share of CEE PC Market (% Units) - 2000-2001

0

20

40

60

20

00

20

01

(%)

CEE IT Market Development

IT Consulting

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

Single user

Services

Operations.

Datacoms

ImplementationSIAS

Multiuser

CAGR 01/069.7%

CA

GR

200

1-20

06

CAGR 01/068.9%

CAGR 01/0616.2%

CAGR 01/067.9%CAGR 01/06

13.2%

Software

App. Tools. App. Solutions.

CAGR 01/0611.4%

Storage

Overall Market Growth of 11-12% AnnuallyOverall Market Growth of 11-12% Annually

ca. $24 Billion Market by 2006ca. $24 Billion Market by 2006

0

100

200

300

400

500

600

700

800

2000 2001 2002 2003 2004 2005 2006

Services Software Hardware

Market Shift

The Next Level of IT Market Development in the Baltics….

IDC Confidential

Global Headquarters: 5 Speen St. Framingham, MA 01701

P 08.872.8200 F 508.935.4015 www.idc.com

Contact DetailsContact Details

Torben PedersenTorben Pedersen

Research AnalystResearch Analyst

IDC CEMAIDC CEMA

Direct: +42 02 21 42 31 49Direct: +42 02 21 42 31 49

tpedersen@idc.comtpedersen@idc.com