Poland's 46 billion zł IT market faces the COVID-19 pandemic

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Poland's 46 billion zł IT market faces the COVID-19 pandemic

From 2017 to 2019, the IT market in Poland experienced positive growth. The market expanded thanks to a revival in public tenders following a lull in 2016, as well as positive macroeconomic and market factors. In 2020, PMR expects a noticeable recession in the market due to the COVID-19 pandemic. In the coming years, bolstered by companies’ experience with the crisis, rising GDP, and the continued development of digital business transformation, the IT market will return to a growth trajectory.

Making Up for Losses

Over the past three years (2017–2019), the IT market in Poland has been recovering from the losses it suffered in 2016 due to a slowdown in the public sector. During this period, in addition to a rebound in public tenders, the positive economic situation in Poland’s IT market was also influenced by:

the growing trend of in-house development, which contributes to the growth of body-leasing projects (rapid revenue growth)
the digital revolution in business (e.g., the cloud, data centers, mobility, cybersecurity)
GDP growth and a rebound in investment
The attractiveness of the Polish IT market from the perspective of domestic and foreign investors
the rapidly growing smartphone market, primarily in the B2C segment.

The IT Market in Poland

At the same time, between 2017 and 2019, the market was affected by negative factors —including spending cuts on IT in the public sector and financial difficulties faced by IT distributors (the introduction of the so-called reverse VAT mechanism and increased tax audits related to so-called “VAT carousels”).

Value (billion PLN) and growth rate (%) of the ICT market in Poland, 2018–2020

	2018s	2019s	2020p
Value	94.3	96.9	93.1
Dynamics	3.1	2.8	-4.0

s – estimate
p – forecast
Source: PMR, 2020

Growth Trends in the IT Market

The average annual growth rate of the IT market (CAGR 2010–2109: 6.8%) is significantly higher than that of the saturated telecommunications market (CAGR 2010–2109: –0.3%).

PMR data indicate that the IT sector’s share of the total value of the country’s ICT market in 2019 was 48%. The long-term trend favors the IT industry—by comparison, in 2010, this figure stood at 34%.

Currently, hardware is the largest segment of the IT market in Poland, while services rank second. In the hardware segment, the high market share is driven by the aforementioned sales of smartphones, whereas the growth in the use of cloud and managed services has been a major factor in the services segment’s market share in recent years.

Large companies remain the main consumers of IT services in Poland. By industry, the leaders are banks and financial institutions, as well as the telecommunications sector. Companies in the industrial and construction sectors significantly increased their IT spending last year.

The IT Market and the COVID-19 Pandemic

As the market grapples with the COVID-19 pandemic, a key question arises: to what extent will the market lose value, in which areas primarily, and what will its economic outlook be 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; nevertheless, the situation in the IT industry is, in many respects, more stable than in other sectors.

The pandemic will lead to a worsening macroeconomic situation in the country, resulting in companies cutting business costs, halting current investment projects, and postponing new ones—including those involving ICT solutions. In addition, COVID-19 will disrupt the natural business ecosystem—leading to business closures and a decrease in the number of new companies entering the market. It will most severely affect the revenues of IT providers in the services segment, primarily in the area of integration services. Interestingly, revenues from outsourcing services will remain slightly in the black.

In the software market, PMR expects, above all, a slowdown in large, new IT projects included in the schedules of corporations and large companies. Another threat to the market is the risk of bankruptcy for many small and medium-sized enterprises due to the current crisis. The decline in the value of the software market in 2020 will be offset to some extent by the growing importance of the cloud model.

In 2020, PMR also forecasts declines in most segments of the hardware market in Poland. Admittedly, in the first half of the year, the market will see a one-time “spike” in sales of desktops, laptops, and printing devices (driven in part by the government’s “Digital School” initiative) due to the lockdown and the shift to remote work and learning. However, for the year as a whole, sales of these types of devices will ultimately be in the red. On a full-year basis, the downward trend will also affect sales of servers and storage arrays. In 2020, smartphone sales will surge sharply in the hardware market.

The coming years will bring a rebound in the value of the IT market in Poland and an opportunity for IT product and service providers to recoup the losses incurred during the COVID-19 pandemic. Therefore, the market’s CAGR for 2020–2025 will be positive and, according to PMR Forecasts, will amount to 2.0%. COVID-19 has shown the direction businesses must take to avoid the negative consequences of similar events in the future. Digital transformation, the growing importance of the online channel, cloud computing, and the emphasis on secure remote access to resources will drive corporate investment.

In addition to the experiences related to the pandemic—which have been a driving force behind new investments and IT spending—the IT market in Poland will return to its natural and established growth trends in the medium- and long-term. The macroeconomic situation in Poland remains crucial to the market’s health, particularly given companies’ overall propensity to invest and the level of domestic demand. Therefore, the country’s growing GDP in the coming years will have a positive impact on the value of the IT market. The driving force behind the market will be the digital transformation of business and the Industry 4.0 concept, which build companies’ competitive advantage.

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 minimal—high service penetration and recurring subscription contracts will act as a strong buffer for the market. As a result, the compound annual growth rate (CAGR) for both markets will be at a similar level between 2019 and 2025—approximately 2%.

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