German information technology (IT) market

The German information technology (IT) market is expected to reach of EUR 88.8bn in 2018, according to the German federal association for information technology, telecommunications and new media (bitkom). Bitkom divides the domestic IT market into software (2018e market volume: EUR 24bn), IT hardware (EUR 24bn), and IT services (EUR 40bn). While the hardware industry is expected to grow only slightly in FY2018e (0.9% yoy), IT services are expected to grow 110bps slower than nominal German GDP growth (2.6% yoy vs 3.7% yoy). The software segment is expected to continue claiming its role as the sector’s growth driver with 6.3% yoy expected growth, in line with previous years. In sum, the German IT market is expected to grow at 3.1% yoy in FY2018e. In a European context, Germany has had the single largest software and IT
services market in FY2017, (total volume EUR 62bn) followed by the UK (EUR 59bn) and France (EUR 54bn). The overarching player in the German IT market is software giant SAP (not rated). In FY2017, SAP’s German sales represented c. 15% of the total softwaremarket. The almost 50-year old software veteran established strong ties to theGerman industrial sector and can rely on a strong domestic ecosystem of around 700 partners that sell, implement, extend and run SAP solutions fortheir clients.As human resource is the critical input factor to the software / IT services industries, Germany provides an attractive business environment with an educated workforce (80%+ academics or vocational training) and moderate wage costs developments (Q2 2018 +2% yoy labour costs vs EU (28) of +2.6% yoy according to Eurostat). However, although Germany has the largest number of software developers in Europe (837k according to Stack Overflow) the war for talent rages, as talent shortage poses a problem to the whole industry.

Market drivers
Generally, the way how business is conducted is set to change fundamentally in many verticals. Players like Nemetschek and RIB Software focus on enhancing the productivity in the construction industry, for example. GFT Technologies provides services to the financial services sector in order to maintain the IT landscape, but also to drive innovation. “Hot” topics such as artificial intelligence, cloud computing, big data, internet of
things, blockchain and as a consequence of the digitalisation of business processes also cybersecurity determine the dynamic growth in the software and IT services market. The appeal of those topics is the possibility that new use cases not only change the business but improve the efficiency in many areas significantly. Furthermore, in some cases, these new technologies are the answer to changed regulation (energy transition, German “Energiewende”) or sector disruptions (e-mobility). Since the production process for an electric vehicle differs from that of traditional motor vehicles, software providers such as PSI Software deliver smart production solutions into the industry that undergoes structural change. Software AG targets the dynamic IoT market with annual growth rates in the relevant market in the mid-double digit range. Its industrial clients from the engineering and tooling industry are for example provided with real-time data analytics software that is an important component
of predictive maintenance applications. This application lets clients profit from enhanced internal efficiency and reduced costs. Cloud computing has already penetrated the German industry due to its appeal in terms of cost-effectiveness and flexibility. According to bitkom, two out of three German companies already implemented cloud computing solutions. But, there is still potential, especially for the financial industry, where still a lot of operations are run on mainframes. We regard the shift from mainframe to the cloud as a potential trigger for GFT Technologies.

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Simon Daniel

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