Computer Hardware and Software

  Statistics

 Computer Market in Poland

(*) estimates

Best Prospects for investors include: System Integration Services,Consulting Services, Hardware Maintenance and Internet Services

  The Marketplace

 The total Polish information technology market is estimated at $2 billion, with approximately two-thirds representing the equipment market, 20% software and 12% services. The current services market is estimated at $240 million. There are more than a million computers and peripherals installed, with at least half of the desktop computers working in networks. In 1996, the overall computer market increased by approximately 25-30%. The software and services market grew by 50%, with 69% growth of the Polish software segment. The preliminary data for 1997 shows that the overall growth of the sector slowed to approximately 16%-20% At the same time the services and software growth is estimated at 30%, while the sale of equipment dropped to 16%.

Even though results were on a par with global figures, the less impressive development of the computer sector in 1997 was also the result of macroeconomics factors. The main reasons were delays in the privatization process, lower than expected public sector's purchases, major floods which took place in the summer, and incidentally imposed custom duties on processors and some computer components from the beginning of 1997 which were removed by June.

  Expected Growth

The information technology market is expected to grow by 20% in the next few years, stimulated by overall development of the economy. The services are expected to grow approximately 30% per year. The services segment growth rate is expected to be higher than the average of the sector as the market is moving toward technology applications and services.  Computer Services is the most dynamic and promising segment of the information technology market. The computer market sector is estimated at $2 billion and is expected to grow 20% annually. The computer services segment is currently estimated at $240 million and it is expected to grow 30% annually. The service segment growth rate is expected to be higher than the average of the sector, as the market is moving toward technology applications and services in place of just technology itself.  The driving force in the development of the computer market is the overall strong performance of the Polish economy with the steady growth of the Gross Domestic Product (GDP) (6.7% in 1997 and 5.8% forecasted for 1998). Based on total revenues, the private sector presently accounts for 58%, which is up significantly from 51% in 1996 and from 43% in 1995. In the first three quarters of 1997, private sector investment rose 54% in real terms while it fell 1% in the state-owned sector. Overall industry investment is up 26%. The private sector accounts for 81.5% of total imports.

  Major Players in IT Sectors

Almost all major computer companies maintain their offices in Poland. American computer companies enjoy very strong position on the market. There are 6,000 registered companies operating on the computer market but only several dozen of them have a significant capital and share in this market. The largest 50 companies supply two-thirds of the equipment. In 1996, the top 100 companies each recorded incomes exceeding $3 million, while only the top companies each had sales over $30 million. Consolidation of computer companies is the way to put together their know-how potential, increase their competitiveness in the local market, enabling them to compete in public tenders and allowing them to carry out implementations of large information technology projects. Smaller companies find that making deposits/securities in order to participate in tenders freezes too much funds and can be troublesome.

 Capital Groups

There are currently several capital groups in the computer sector such as ComputerLand, Optimus, JTT, Prokom, TCH, Ster-Projekt, Inwar, Simple, Apexim and Computer Plus group.  To straighten their financial capabilities, computer companies tend to transform into joint stock companies and seek to increase assets. There are several investment funds interested in the information technology sector, such as Pioneer Poland Fund, Renaissance Partners, Private Investment Fund or Hejka Michna. Entering the stock market is also an attractive way to acquire investments funds. Although ComputerLand and Optimus still remain the only two computer companies among over a hundred listed on the Warsaw Stock Exchange, several more plan to enter the stock market in the near future. These companies include Prokom, Softbank, Apexim and Comp. Macrosoft is listed at the OTC market, in Poland called CTO. Several more companies, such as Soft-Tronik, Ster-Projekt are planning to enter this market in the coming months.

The Computer Service Market

Computer services market grows faster than the whole sector because, as the market develops and matures, users tend to purchase more solutions instead of just technologies or products. Users also come to realize that they have to pay for services separately. In the past, clients were often not willing to pay only for services, seeing services as more optional and difficult to account for. Some users don't like to specify service value in an order or invoice, as they have problems with proving the compliance in case of a control (especially important for public institutions), or writing services' amortization off. As the result, it is still common practice to hide some of the integration services cost in the price of the equipment or licensed software.

Systems Integration

System integration is the most promising segment of the information technology sector as the demand for these services grows with the development and modernization of the Polish economy. The use of the definition "system integration" varies from the U.S. standards as neither the scale of projects in Poland nor the value of provided services are comparable to western countries. Large Polish integrators use the "system integration" term for complicated projects for which the services exceed 1 million zloty (approximately $285,000). System integrators provide services ranging from analysis of computer systems needs, hardware and software systems installation and telecommunication links for data transfer and personnel training.  There are over 150 companies considering themselves as computer integrators. Aside from 20 companies with income from integration exceeding $3 million a year, there are many medium size integrators with yearly income between $300,000 and $3 million. In 1996, the income from system integration services of 131 leading system integration companies grew by 54% and reached $300 million. The income of the two largest system integrators, Prokom and ComputerLand represent 30% of the total sales of the 35 largest system integrators. The profitability ratio for the system integration segment is estimated at 5.7%, a little higher than for the whole sector.

The Integrator market is divided into big players and niche companies. Some companies consider themselves system integrators even though often the size of the project or scope of work does not justify this. There are also a few companies specializing in vertical market, for example Softbank offering services only to banking sector. COIG (Centralny Osrodek Informatyki Gornictwa- Central Mining Information Technology Center) specializes in the mining industry projects. It currently service almost 1000 installations used by 200 clients.       It is interesting to observe the drift toward services against production and distribution looking at Optimus, the largest computer company in Poland which currently holds 33% of the,Polish personal computer market. Optimus plans to diversify its activities to reach at least half of its profits from other activities than manufacturing. Optimus invested in Internet services and multimedia. Optimus already has the quality ISO 9001 certificate for network design, equipment installation, computers assembly and service, virtual shop and consulting service in the Internet called OSBI (Otwarty System Bezpieczenstwa Sieciowego) - Open Information Technology Security System. In 1997, Optimus signed an agreement with Telekomunikacja Polska S.A., the national telecommunications operator for cooperation to develop and facilitate use of Internet services. In December 1997, Optimus and Lockheed Martin Federal Systems signed an agreement to create a joint venture company to offer integration services, mainly to government institutions and the defense sector.  Prokom, the largest software & system integration company indicated what while Prokom's overall revenues grew 50% last year. Systems integration which accounted for 75% of 1966 business, jumped 135% compared with the previous year.  ComputerLand Poland is the second-largest system integrator in Poland. ComputerLand invested in a number of companies specializing in various services, such as OSI CompuTrain -training, Positive S.A. - organizing computerization process, Elba - banking technology company, Info-Serwis - systems integrator and CSBI S.A. - systems for industry, administration and banking. Services represented almost 40% of ComputerLand's sales. ComputerLand created a country- wide service system for large installations to maintain systems, monitor network and repair.  The whole computer sector emerged as almost entirely private, ZETO companies, originally created in seventies as state-owned Electronic Computing Technology Companies providing data processing services to state companies, banks and insurancecompanies. There are still over 20 independent ZETO companies, most of them privatized but still offering various services. The total profit of ZETOs in 1996 exceeded $55 million, with data processing services representing between 30 and 60% of their business.

Hardware Service

Hardware service is another emerging segment of the computer market. A few years ago, the equipment maintenance represented the core of this market segment. Five years ago service companies and end-users were not signing service contracts, specifying details of a service company responsibilities. The situation has been changing lately with users realizing the importance of having their systems up despite any circumstances.

Equipment Maintenance and Repairs

There are many firms specializing in equipment maintenance and repairs. The major group of service companies are those which started and service and technical back up of larger companies. There is also a group of companies providing third party maintenance. Companies with such contracts include Dell and Digital. Some computer companies have their own service offices - the samples include Hewlett Packard and Optimus. Service companies have to provide guaranteed service within 14 days.

Many service companies provide consulting services for planning local computer networks and networking power supply. The cost of maintaining service companies is high mainly to high cost of staff training, specialized equipment, some manufacturers requirements concerning supply of spare parts and the organization of storage. As the result most large service companies enhance their organization, some operate under a trademark cooperating on franchising idea (the samples are ComputerService Support CSS, Data-Service or ABC Data Service). The exclusivity of a single product or service is very rare, with just a few exceptions of large manufacturers with serve their own equipment. Usually service companies service a wide variety of products in order to increase their efficiency and minimize cost. Service companies usually operate as 15 - 20% profit margin. The cost of maintenance contracts is negotiable, depending on the equipment itself, spread of equipment installation and scope of service contract. The amount of $15 per month per computer/work station is the average fee. The market of large manufacturers is well covered by already existing companies and they mostly made their choice of service companies. There is currently competition for service contracts for equipment provided by distributors and large dealers. The retail service for individual users is a new element of the market.

 Competitive Situation

 While the price remains the main factor for purchasing decisions, Polish end-users pay more attention to the reputation and financial soundness of the bidder, detailed conditions of service offered, and project implementation terms. Availability of fast and cheap service and sufficient support provided by vendor's offices throughout the county has become a vital factor considered by end-users. Direct contacts with a supplier ofservices plays a key role in the vendor's selection in smaller projects.  End users are still technology oriented and often do not realize they need to re-design business practices and process while introducing integrated systems. Correct preparation for large and complex information technology projects, especially the proper identification of business processes, procedures and scope of projects cause a lot of problems during implementation stage. There are several large information technology projects that have been under way longer than expected and are far from being completed, for example the tax offices and the customs administration projects. In general, computer specialists in the public sector are underpaid especially compared to the private sector and high fluctuation results in additional problems with defining projects.  American companies face competition mainly from domestic companies, although only a small number of them have sufficient funding. The industry continues to go through mergers and acquisitions as Polish companies face growing complexity of theprojects and foreign competition.

 Almost all major computer companies have their own offices in Poland. Out of the 18 world's leading integrators listed by the Garner Group, 13 operate in Poland: Andersen Consulting, Coopers & Lybrand, Deloitte & Touche, Digital Equipment, EDS, Ernst &Young, Hewlett-Packard, IBM, KPMG, NCR, Oracle, Price Waterhouse and Unisys. Most of these companies focus on the corporate market. While U.S. companies enjoy a very strong position in the market, it is extremely difficult to assess the actual percentage of their market share. Official statistical data for services is unavailable, and only a limited amount of information is revealed by the companies themselves. ComputerLand Poland is the only U.S.-brand name company classified in the thirty largest system integrators, according to the latest ranking list. Digital Equipment Polska, IBM Polska, Oracle and Unisys Polska are listed along with its foreign competitors such as ICL, IFS, and SAP without a position market due to lack of available information. All "big six" consulting and auditing companies are very active in the computer services area, mainly consultation services.

Other American computer companies maintaining their offices in Poland include: 3Com, Aldec, American Computers and Games, Apple Computer-SAD IMC Poland, Autodesk, Bonair, California Computer, Disco, Computer Associates, Computervision, Computron-Rewiks, ESRI, Finus, Great Plains Software, GTech, Honeywell, Informix, Intel, Intergraph, Internet Securities, Lotus Development, Microsoft, Mod-Tap, Motorola, Novell, Prime Technologies, Sanchez Computer Associates, Silicon Graphics, Sun Microsystem,Tandem Computers, Unitronex. 19

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