Market Monitor ICT Germany 2017

Market Monitor

  • Germany
  • Electronics/ICT

06 juin 2017

Despite continued sales growth, most German ICT businesses operate on very tight margins due to fierce competition and price erosion in most subsectors.

 

  • According to the German Federal Association for Information Technology, Telecommunications and New Media (BITKOM), overall consumer electronics/ICT sales increased 1.0% in 2016, to EUR 159.3 billion. This trend is expected to continue in 2017, with a 1.3% growth rate forecast.
  • While turnover in the consumer electronics and telecommunications segments is expected to decrease further after declining in 2016, IT sales (IT hardware, software and services) are forecast to increase 2.7%. Within this segment, software sales (up 6.3%) are expected to be the main driver of growth as in previous years.
  • Despite continued sales growth, most businesses operate on very tight margins due to fierce competition in all subsectors. This, together with sharp price erosion, lead to an on-going trend of consolidation. Unless they are well-established in niche products, smaller companies are – and will continue to be – the losers in this cut-throat environment.
  • On average, payments in the ICT industry take between 30 and 60 days. Due to the more difficult market conditions, (e.g. price wars) payment delays and insolvencies are expected to increase slightly in 2017 (in 2016 ICT business failures decreased 6%).
  • In general, our underwriting approach for the ICT industry is neutral. As ICT is a very fast and innovative industry with sharp price erosion and high competition, we require comprehensive information (e.g. interim figures, cash budgets, overview of bank lines etc.) on each company we underwrite.
  • Several ICT businesses like IT-distributors of tablets and mobile phones have been involved (sometimes inadvertently) in missing trader intra-community (MTIC) fraud cases (i.e. the exploitation of the VAT rules which state that cross-border transactions between EU member states are zero-rated for VAT purposes). We are particularly cautious about this, as even innocent businesses caught up in a so-called “VAT carousel” can be left bearing significant tax liabilities, leading to liquidity issues, “freezing” of accounts by tax authorities as well as the negative effect of losing sales to customers that are cautious of buying from prosecuted suppliers.

 

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