Market Monitor - ICT Industry - Italy

Market performance snapshots

Italy

• A modest rebound expected in 2015
• IT investment by Italian SMEs still low
• Payments take between 60 and 90 days on average

The ICT sector accounts for 1.6% of the Italian economy, with approximately 130,000 companies and 600,000 employees. In 2013 and 2014, ICT sales contracted 4.3% and 3.7% respectively as the Italian economy was in recession and public as well as private spending decreased. In 2014, the tablet segment recorded a 8% year-on-year decrease due to lower household spending and increasing market saturation. In the business segment, the two segments of server and storage devices recorded slight positive performances, with sales up 8% and 2.6% respectively.

According to the Italian Statistics Institute (ISTAT), in Q4 of 2014 the production of computers, electronics and optical products rebounded 9.6% compared to the previous quarter, and 4% year-on-year. In combination with a forecast rebound of the Italian economy (up 0.7%), the ICT sector is expected to record modest growth of 0.6% in 2015.

In the business-to-business segment, IT investment is mainly made by larger companies, accounting for about 60% of the total IT domestic expenses. In 2015, IT spending in this segment is expected to rebound, while the IT spending capacity of SMEs remains subdued, a consequence of still restricted access to bank loans for smaller businesses. This also seriously limits SMEs investments into cloud computing. In the public and health services sectors, IT spending will continue to be affected by austerity measures. The consumer segment could be positively influenced by the diffusion of new appealing ICT devices and the growing importance of e-commerce business, which is still at an early stage in Italy compared to other European countries.

Some of the main domestic IT distributors have started to introduce their own brand products (tablets/smartphones) in the market in order to increase margins and counter the fiercecompetition in the ICT retail and distribution segments. However, in most ICT segments margins have remained stable over the last 12 months. Payments in the ICT sector generally take 60- 90 days, and there has been no significant increase in notified non-payments. ICT insolvencies decreased in the second half of 2014, and are expected to level off in the coming months. Overall, the amount of business failures is rather low compared to other Italian industries.

Our underwriting approach remains relatively open for ICT. However, smaller players have to be monitored more closely, as they are more exposed to financial distress related to working capital requirements, especially when depending on large clients and the public sector. Mainly smaller ICT resellers will remain under pressure due to price competition and slim margins. Thesegment of software consultancy and supply is also more closely monitored, given that there have been more credit insurance claims in this subsector than in other segments.