Hard times for IT sector amid sales slump

“There is no major difference between the recession in high-tech industries happening around the world and in Poland."
By : Greg Goodale

    The Y2K glory days are over.

   A lack of government initiatives on information technology (IT) and the high cost of Internet access contributed to this year’s slump in sales on the computer market, according to manufacturers.

   Forecasts for 2001 continue to be bearish throughout the industry, including results for the fourth quarter, which usually see a rise in public sector orders. Computer manufacturers conclude that this year’s sluggish demand has deeper roots than low consumer confidence and curtailed spending from the public sector.

   “The market (this year) is certainly smaller than I would like it to be,” said Andrzej Dopierała, chairman of Hewlett Packard Polska (HPP). “If we’re talking about growth in dollars, it will be in the low single figures.”

   The biggest boom in the IT sector was in 1999 with 36% growth, as the number of start-ups mushroomed to solve the Y2K problems in the public sector and private firms, according to market research firm Teleinfo. But the first signs of cooling off started to show last year.

   “(IT) growth in 2000 fell to between 14% and 15%, which was a real slowdown for Poland,” said Tomasz Kulisiewicz, communications adviser to the Polish Chamber of Information Technology and Communications (PIIT). “(The industry) still has a lot of catching up to do with other countries of a similar size.”

   According to Marcin Sowiński, product development manager at OKI Systems, large firms that rely on the public sector have faced the greatest fall in sales in 2001 as a result of cuts in government spending. “The tender market has been very poor this year,” Sowiński said. “Although we (OKI) can say it was a good year, we had planned for much higher (sales growth) as we were counting on normal market growth.”

   Andrzej Widerszpil, chairman of Compaq, said despite huge potential in the Polish IT sector, sales dropped in the past year. “If you look at the top 10 producers, their sales were down 15% at the start of the year,” Widerszpil said. “There is no major difference between the recession in high-tech industries happening around the world and in Poland, except that Poland is a long way behind and should have no basis for a recession.”

   HPP’s Dopierała also said business was lagging far behind its potential. “In 2000, this market was worth $2.8 billion, which is significantly less than what a European country of 40 million (people) should spend on IT,” Dopierała said.

   Widerszpil added that the value of the Polish market is wildly overvalued compared to reality. He said that since revenues from a single deal are frequently reported by several companies involved in different stages of processing the same order, the value of the market is probably closer to $2.5 billion. “The (country’s) expenditure on IT is sad, it is the lowest in the region,” Widerszpil said. “Expenditure on IT is 1.3% of GDP (gross domestic product), the Czech Republic has 2.2%, Hungary 2.7%, while the West generally has over 3%.” He said that if Poland spent the same proportion of its GDP on IT as Hungary, the potential value of the market would be $6 billion. “If a market valued at $6 billion sees expenditure of only $2.5 billion, this is a failure,” Widerszpil said.

   The limited spending power of Polish consumers and companies combined with poorly developed IT infrastructure, and the limited education of the average Pole, are the major factors for the slow progress of computerization in Poland, analysts said.

   But computer makers complain that telecoms giant Telekomunikacja Polska (TPSA) also helps stifle IT growth, compared to operators in Hungary and the Czech Republic. “Ninety percent of small businesses still use dial-up servers,” Kulisiewicz said. “The cost of fixed lines in Poland is still very high. Five to six times higher than in Western Europe.”

   TPSA and Poland’s independent operators have been slow to adopt the Integrated Services Digital Network (ISDN) digital data transmission system, which has become a popular means of providing cheap, fixed-line Internet access for small companies in the Czech Republic and Hungary. “Poland only has a few hundred thousand ISDN lines in a country that has 11 million lines, because for many years it went unnoticed by the main operator and was not well regarded by the others,” Kulisiewicz said. “Twenty-one percent of telephones in Norway’s homes are ISDN.”

   Michał Potocki, spokesman for TPSA, said Poland’s size made comparisons to smaller central European countries unfair. “Hungary, the Czech Republic and Slovakia are much smaller countries with smaller populations, so infrastructure investment is less costly,” Potocki said. “Poland is much larger, has a much greater number of residents and a lower population density, which increases the cost of building infrastructure.”

   Lobbying by the PIIT to persuade the government to spend more on IT infrastructure and to make efforts to break the monopoly of TPSA has so far failed to achieve anything. “This is something we have to fight,” Widerszpil said. “The high cost of telephone calls is one of the things that is dragging down the growth of the IT market.”