Market Monitor ICT France June 2018

Despite overall growth, many French ICT companies face structurally low margins, price pressure and an on-going consolidation process in the market.

According to the research institute GfK, in 2017 the French mobile phone market decreased 5.2% in volume in 2017, but sales rose 2.5% to EUR 8.3 billion due to higher prices (increased share of more expensive smartphones).

The French IT hardware market remains under pressure in 2018 after a turnover decrease of 4% to EUR 5.2 billion in 2017. Tablets and PC sales are severely impacted by competition from other devices such as smartphones, a high equipment rate, extended replacement cycles and pressure on prices due to shortage of some electronic components.

The IT software and services sector grew 3.4% to EUR 53.7 billion in 2017, according to the industry federation Syntec/IDC, benefitting from increased digital transformation projects by businesses, the upward trend of IT externalisation and cloud computing expansion. IT services will remain a main driver of growth in 2018, with an expected turnover increase of 3.6% in 2018. SMAC (Social, Mobile and Analytics in the Cloud) and SaaS (Software as a Service) technologies are expected to record further high sales increases.

Due to the shifting market conditions, many ICT businesses need to adapt their business model. Wholesalers increasingly try to move away from pure hardware selling, to offer more added value products and IT services in order to improve their profitability, as this offers higher revenues and better margins. However, such efforts are not easy to make and require highly skilled management and staff.

On average, payments in the French ICT sector take around 60 days, and we expect payment delays and insolvencies to remain low and generally stable in the coming months. That said, our underwriting position in the ICT segment remains generally neutral as sudden business failures cannot be ruled out due to the fast changing and very competitive market environment with strong price pressure.

Especially smaller ICT businesses with an unflexible cost structure and a concentrated customer or supplier portfolio could face difficulties, while many IT hardware wholesalers suffer from structurally tight margins and a low equity level.

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