46 billion PLN IT market in Poland collides with the COVID-19 pandemic
In the years 2017-2019, the IT market in Poland experienced positive growth. The market grew due to the revival of public tenders, following a slump in 2016, as well as positive macroeconomic and market factors. In 2020, PMR expects a visible recession in the market due to the COVID-19 pandemic. However, in the following years, strengthened by the crisis experience, growing GDP, and further development of digital business transformation, the IT market will return to a growth path.
Making up for losses
In the past three years (2017-2019), the IT market in Poland made up for the losses it suffered in 2016 due to the slowdown in the public sector. During this period, besides the rebound in public tenders, the positive growth of the IT market in Poland was also influenced by:
- The intensification of in-house development, which contributes to the growth of projects such as body-leasing (dynamic revenue growth).
- The digital revolution of companies (e.g. cloud, data centers, mobility, cybersecurity).
- GDP growth and rebound in investments.
- The attractiveness of the Polish IT market for domestic and foreign investors.
- The dynamically growing smartphone market, mainly in the B2C segment.
However, in parallel, from 2017-2019, the market was also influenced by negative factors such as spending restrictions on IT in the public sector and financial problems of IT distributors (the introduction of the so-called reverse VAT mechanism and increased tax inspections related to VAT fraud).
Value (billion PLN) and changes (%) of the ICT market in Poland, 2018-2020
e – estimation
f – forecast
Source: PMR, 2020
IT market growth dynamics
The average annual growth dynamics of the IT market (CAGR 2010-2019: 6.8%) are clearly higher than the dynamics for the saturated telecommunications market (CAGR 2010-2019: -0.3%).
PMR data indicates that the share of the IT market in the total value of the ICT market in the country was 48% in 2019. The long-term trend is in favor of the IT industry – for comparison, in 2010, this indicator stood at around 34%.
Currently, the largest segment of the IT market in Poland is hardware, followed by services. In the case of the hardware segment, the sale of smartphones has a significant impact on its high share in the market value, while the growth of cloud utilization and managed services strongly influences the share of the services segment in recent years.
Large companies continue to be the main consumers of IT in Poland. In vertical terms, banks and financial institutions, as well as the telecommunications sector, are the leaders. Expenditures on IT noticeably increased last year in the industrial and construction sectors.
The IT market and the COVID-19 pandemic
In the situation of the collision between the market and the COVID-19 pandemic, the key question arises of how much the market will lose in value, mainly in which areas, and what will be its condition in the “post-COVID” reality. PMR believes that in 2020, the COVID-19 crisis will cause an 8% decline in the IT market in Poland. However, the situation in the IT industry is, in many respects, more stable than in other sectors.
The pandemic will result in a worse macroeconomic situation in the country, which will lead to cost-cutting in businesses and the suspension of current and postponement of new investment projects, including ICT solutions. Furthermore, COVID-19 will disrupt the natural ecosystem of companies, leading to the decline of companies and a smaller number of new companies entering the market. It will mostly affect the revenues of IT service providers, mainly in the area of integration services. Interestingly, revenues from outsourcing services will remain slightly positive.
In the software market, PMR expects a slowdown, especially in large, new IT projects included in corporate and large companies’ schedules. The market is also at risk due to the bankruptcy risk of many small and medium-sized companies in the current crisis. The decline in the value of the software market in 2020 will be partly offset by the growing importance of the cloud model.
In 2020, PMR also forecasts declines in the majority of segments in the hardware market in Poland. Although there will be a noticeable one-time “spike” in desktop, laptop, and printing device sales in the first half of the year (due to the government project Digital School) related to the lockdown and transition to remote work and learning, overall sales of these devices will end up negative for the year. The downward trend will also affect server and storage sales. On the other hand, smartphone sales will see a significant boost in the hardware market in 2020.
The coming years will bring a rebound in the value of the IT market in Poland and opportunities for IT product and service providers to recover from the losses incurred in the COVID reality. Therefore, the CAGR (Compound Annual Growth Rate) of the market value from 2020 to 2025 will be positive and is expected to be 2.0% according to PMR’s forecasts. COVID-19 has shown the direction in which entrepreneurs must move to avoid the negative effects of similar events in the future. Digital transformation, the growing importance of online channels, the cloud, and the emphasis on secure remote access to resources will force companies to invest.
In addition to the experiences related to the pandemic, which drive new investments and IT expenditures, in the medium and long term, the IT market in Poland will return to natural and established growth trends. The macroeconomic situation in Poland also remains crucial for the market conditions, considering the overall inclination of companies to invest and the level of internal demand. Therefore, the growing GDP in the country in the coming years will have a positive impact on the value of the IT market. Digital business transformation and the concept of Industry 4.0, which build companies’ competitive advantage, will be the driving force behind the market.
Compared to the telecommunications market, the negative impact of COVID-19 on the IT market will be significant. PMR believes that the decline in the value of the telecommunications market due to the pandemic will be symbolic. The high penetration of services and cyclical subscription agreements will serve as strong buffers for the market. As a result, the average annual growth rate (CAGR) of both markets will be at a similar level in the years 2019-2025, at around 2%.
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ICT Business Unit Director