INTERVIEW - Microsoft's Serbian Arm Sees FY 2010 Turnover Little Changed Despite Crisis

“Our fiscal year begins on July 1 and ends on June 30 of the following calendar year. We closed our 2009 fiscal year with a turnover of some $45 million,” Zivanovic told SeeNews in an interview.

“We posted solid results in the first half of the [2009] fiscal year, that is between July 1 and November, 2008. We began to feel the effects of the financial crisis in December and since then have been detecting negative sales trends.

“We project that the trend will be reversed in this calendar year, that is the negative trend will continue in the first half but the return of the positive trend will be felt around the New Year,” Zivanovic explained, adding that Microsoft Software's sales dropped around 40% in the company's 2009 fiscal year.

“But all our partnerships with the big companies have remained intact," he added: 

The company generates turnover through a network of partnerships, that is by collecting fees on the basis of actual sales, Zivanovic said.

“It is difficult to calculate a precise turnover figure as many products arrive on the Serbian market with pre-installed Microsoft software and as such it is not identified as local revenue.” 

Microsoft Software, which employs about 100, comprises two parts – a retail marketing segment and a development centre that produces software solutions.

The company had to shelve plans to develop two more teams this year within the development centre as a result of the crisis, Zivanovic said without disclosing the size of the planned investment.

“We planned to hire 20 more people for the teams. We have not given up on these plans. They are simply on hold for now,” he said.

The biggest challenge before Microsoft’s operations in Serbia is battling software piracy, Zivanovic said. Besides IBM and Oracle, software piracy is considered the company's biggest competitor.

The government in Belgrade loses about $72 million a year as a result of software piracy, and some 74% of all software sold in Serbia is illegal, Zivanovic said, quoting a 2008 software piracy study by International Data Corporation.

“Piracy is our Achilles' heel. We started operating in Serbia in 2001 when piracy, according to our estimates, was 99%.”

“If the government loses about $72 million a year, it is safe to assume that we lose five times this amount annually,” Zivanovic said. 

It doesn’t help, Zivanovic added, that neighbouring countries are reporting bigger drops in software piracy rate than Serbia.

“Russia, as well as countries in the region, has less piracy than we do. If I tell you that Serbia, only five years ago, was on a par with others, even doing better than others, then this is a truly sad fact.”

What further slows the growth of the IT sector in Serbia is the shortage of much-needed government investments in this area, Zivanovic said, adding that Serbia invests yearly about 60 euro per capita of its population in the IT sector.

“This sounds great when you consider that only a few years ago the annual investment was 10 euro per capita. But when you look at Croatia, its government invests 180 euro per capita in this sector. Slovenia invests more than 300 euro per capita, EU more than 800.”

“The IT sector is very neglected here,” Zivanovic said.

“Desktop ownership in Serbia is 0.4 personal computer per capita. When you compare this to developed nations, whichever one you pick, the ownership rate is 1.5 personal computers per capita.”

Microsoft Software holds more than 90% of all desktops, laptops and software in the country, including legal and illegal ones, according to internal company surveys, Zivanovic said. 

($=0.6827 euro)