A clear distinction between the “pre-crisis” and “post-crisis” development of the IT market in Ukraine has to be made. “Pre-crisis” IT market had a 30-40% annual growth rate and a demand which exceeded supply. The global economic crisis hit Ukraine hard and suspended the IT market boom. At the end of 2008 sales have started falling, with businesses postponing or delaying most existing and planned IT projects.
Still, even the largest companies in Ukraine are strongly underinvested in terms of IT, and this represents a significant potential, at least in the middle term. Another potential is the EURO 2012 championship, which Ukraine will host. Essential IT investments are required for it, and this will influence market development. Sector consolidation is also expected, where smaller vendors will merge or become regional service centers of the bigger players.
IT market in Ukraine was worth around 2.7 billion USD in 2008. Hardware segment maintained over 80% of total market size. Number of IT providers of national reach does not exceed 100. PC penetration in Ukraine increased to almost 20%.
The total IT market in Ukraine can be segmented into Software, Hardware, Services, and Communication.
Although the software and IT service segments are smaller in size, foreign companies entering the market are raising the growth level of these two segments. Having a low penetration rate, the hardware market in the country is still dominated by PC and Notebook sales. The communication market, though larger in size, is experiencing a slow down due to market saturation, which is expected to be overcome by the introduction of new technologies.
Computer Software and Services Market Trends & Prospects
In 2008, software and services share in the total $ 2.7 billion Ukrainian IT market was 8% & 7% respectively. Approximately 80% of the market belonged to international vendors – Microsoft, Oracle, and SAP – and the remainder belonged to local software developers targeting the local market.
Currently the Ukrainian IT market is consolidating as major local players merge with international companies looking to expand their local presence. Software development becomes a viable business opportunity in smaller regional centers and is no longer limited to a few large cities.
Localization was another trend on the market – major software vendors have presented products in Ukrainian. This will not contribute greatly to their corporate sales but is very important to supplying the public sector, academic institutions and the retail industry. This trend is solid evidence of the growing interest by global software leaders in Ukraine.
Major prospects include:
Corporate IT system optimization and upgrade projects
Unified access to multiple information silos
Sharing and analysis across formats and repositories
Server and data storage virtualization
Cost control or modifications of corporate information systems
To be successfully implemented under current economic conditions, IT projects should be focused on resolving specific business problems, be fully operational in a short period of time, have high and transparent return on investments (ROI) and entail low risk. These changes represent big challenges and opportunities for vendors active on the Ukrainian IT market. Almost all Ukrainian IT vendors developed anti-crisis packages for their clients at the end of 2008. Also, they started to offer new distribution models, like SaaS (software as a service), leasing and even trial piloting.
The most optimistic market performance is expected for suppliers of solutions for corporate information systems and IT consultants. Infrastructure audits, network engineering, information lifecycle management, implementation, virtualization, and support of IT systems were among the most popular services.
Hardware Market Trends & Prospects
One of the important characteristics of the Ukrainian IT market is the high share of hardware in sales structure - 86% of IT spending in 2008. IT suppliers mainly serve the demand for new computers and implementation of IT infrastructure development projects for companies from industrial, retail, financial and telecommunications sectors.
Computers & Peripherals
Till 2008 more than 60% of PCs in Ukraine were bought in retail, creating significant domination of households’ purchases in the market structure. PC penetration per 100 inhabitants reached 19.7 units.
Sales estimates for 2009 show a decline of 45% (compared to 2008) in the segments of desktop and laptop PCs. Some PC retailers have started to develop additional services, like “computer first aid” and support services, to balance sales.
The recession, intense competition in the market, and increasing interest in virtualization & server consolidation has affected the Ukrainian server hardware industry, resulting in a sharp decrease in sales in 2009 - 66% for X86 servers and 44% for RISC/EPIC servers. However, driven by the demand of energy efficient servers and the need to replace or upgrade systems, the market will recover.
A major trend in IT hardware sector is hardware rationalization allowing to lower energy costs, and maintenance and support charges.
Electronic components
Several leading international electronic component manufacturers such as Jabil Circuit Inc., Yadzaki, Flextronic and Tyco Electronics have initiated major manufacturing projects in Ukraine. When implemented at full scale, these projects will turn Ukraine into one of the leading suppliers of electronic components to the European Union electronic industry.
Communication Technologies Trends & Prospects
The Ukrainian telecom industry has shown stable growth for the past years, particularly in mobile wireless and data transfer. At the beginning of 2009, the market reached a degree of maturity. In the next few years, demand for telephony services is not going to grow as rapidly as before, and is expected even to decline as a result of the economic crisis.
Mobile wireless services is the largest segment (62.1%) of telecom industry in Ukraine. Data transfer services is the fastest growing segment (41% of growth in 2009, despite current economic situation). In
2009 OJSC Ukrtelecom expanded the broadband access network and installed over 80 thousands ADSL2+ gateways.
Major prospects in communications sector in Ukraine include 3G mobile networks development and 3G internet access services.
Mobile Telecommunications
GSM network of mobile operators cover most of the national territory, and mobile telephony is available to the mass market. Average spending on the service varies between $8 and $12 per month. Five Ukrainian GSM operators – MTS Ukraine, Kyivstar GSM (majority shareholder: Telenor), Astelit (majority shareholder: Turkcell, trade mark: Life), Golden Telecom GSM, and Ukrainian Radio Systems (majority shareholder: Vympelcom, trade mark: Beeline) service 55.5 million customer accounts (total Ukraine’s population is 47 million). Two leading operators MTS Ukraine and Kyivstar GSM service around 80% of the customers with other operators lagging far behind.
The economic crisis, with its expected reduction in consumer spending on telephony and the devaluation of national currency, hit Ukrainian telecom companies. Average revenue per user (ARPU) and average price for minute (APPM) have reduced.
On a positive note for operators, there is significant unsatisfied demand for broadband. The Internet Service Providers (ISP) market has, therefore, become attractive to mobile telephony providers. They are investing in 3G internet access services. The interest on the part of large telecommunications operators in the ISP market will change the market landscape.
Internet
The ISP market in Ukraine has a completely different structure from those of fixed-line or mobile telephony. The market is fragmented, and the state-controlled telecom company, UkrTelecom, is a monopoly which controls the backbone and most of the last mile infrastructure. Local ISPs are weak and have little chance of competing with telecom monopoly.
However, there are indications that the ISP market might be able to change, with telephony providers moving to the ISP market: the launch of 3G mobile network and consolidation of the industry. 3G is last mile technology, and mobile telephony providers rent backbone data transmission channels from state telecom monopoly. This is a bottleneck of the 3G operators’ business model which is focused on the development of the mass market. With a shortage of internet gateway capacity and the high cost of line rental, mobile operators could be able to build their own gateways and become completely independent. In contrast to local ISPs they have enough funding and political power to do this and will obviously become strong players on the ISP markets, competing with the established providers.
Unsatisfied demand for an affordable high speed access service represents an opportunity for further business growth. The appearance of mobile and fixed-line telephony operators on the ISP market could bring investment, reduce prices and also change the market landscape. In the first quarter of 2009 Internet penetration rate reached 25.7% and the broadband penetration rate was 3.8%. Geographic distribution of Internet users is uneven with Kiev, the capital, accounting for over 60%. Despite the global economic downturn, the number of household broadband connections continues to grow.
