BUDAPEST, March 10 (Reuters) - Picked as one of Europe's 25 most promising high-tech firms, Hungarian software maker Cygron Kft had everything going for it -- except customers and sales.
Despite beating out almost 300 companies in a European Union competition, the three-employee startup was saddled with sales of $43,000 to fewer than 20 clients, until a Silicon Valley firm put money on the table.
San Jose-based Mindmaker Inc. bought Cygron last July and this year will ship a whopping 50,000 copies of DataScope, Cygron's data-processing software, to clients worldwide.
"The problem for Cygron was that their product was not marketed," Jozsef Kiraly, CEO of Mindmaker, told Reuters.
The company boosted Cygron's staff to 20 as part of a $15 million investment drive.
"We can build the company up to the level that is needed to do development with the speed required today," Kiraly said.
Mindmaker is one of a growing number of companies investing millions of dollars in Hungary's high-tech industry, putting the country on the map as a potential Silicon Valley in Eastern Europe.
Although global competition is keen for the riches that go with the technological revolution, Hungarians are not newcomers to the field.
Andy Grove, a native of Budapest before fleeing after the 1956 uprising, founded the U.S. giant Intel, which makes chips for 90 percent of IBM compatible computers worldwide. Hungarian mathematician Janos Neumann is considered to be the father of computers after his work in the 1940s.
Now multinational firms are picking Hungary to become their worldwide headquarters for research and development, while local success stories are proving Hungarians can produce software that can compete in the world arena.
HUNGARY'S SOFTWARE DEVELOPMENT POTENTIAL
Nokia will make Hungary its largest software development centre in the world after its Finnish headquarters when it completes a plan to hire 500 local software developers by 2001.
"We think that Hungary has the largest number of people we can hire," Gabor Elo, head of Nokia's Budapest research center, told Reuters.
A local leader, Budapest-based Graphisoft became the world's third largest maker of computer design software used by architects after former professor Gabor Bojar started the firm in 1982 by pawning his wife's jewellery for $5,000.
The company became the first software firm in Eastern Europe to make a public share issue last June, raising 92 million marks ($51.20 million) on Frankfurt's Neuer Markt. But the stock has taken a dive from its IPO price of 40 marks to around half that level.
Bojar said Hungary's strong tradition in mathematics helped to propel the company's success.
"The level of mathematical education in the secondary schools is still much higher than in the West," Bojar told Reuters from his headquarters in Graphisoft Park, a new office complex for high-tech firms that has been touted as a miniature Silicon Valley.
Hungary has produced a string of Nobel Prize winners in maths and science. Albert Szent-Gyorgyi earned one in 1937 for discovering Vitamin C and economist Janos Harsanyi won the prestigious award in 1994 for his contribution to game theory after emigrating to the United States.
Unlike Graphisoft, local image recognition software producer Recognita decided to sell itself to market leader Caere of the United States for $3 million in order to expand its sales on western markets.
"We definitely had extremely good technology but we didn't have the chance to penetrate much more heavily into the world market," said Akos Reszler, CEO of Recognita, whose leading product, Recognita Plus, dominates Eastern Europe, Greece and Turkey with a market share of more than 80 percent.
"What we got from the new owner were much bigger chances for earning revenue and profit," Reszler said.
Last year Recognita's profit surpassed the previous year by more than 10 times to 310 million forints ($1.43 million) on revenues of 870 million forints.
Reszler said Recognita has become an engineering hub for Caere, developing three out of its seven new products.
"Software developers are very good here and are very competitive in terms of their educational skills and labour costs," said Reszler. They can cost one-third as much as in the West, he said.
HUNGARY'S DEFT TOUCH
Official figures are not available for how much money foreign firms have invested in Hungary's software industry. Graphisoft's Bojar put the figure between $200 and $300 million, not including the money raised by Graphisoft's share issue.
That is still a trickle compared with the $19 billion in foreign investment which Hungary has attracted since the fall of communism in 1989.
In a field where creative genius is just as important as technical rigour, Hungarians have an uncanny ability to come up with solutions that defy the textbook, said Gabor Kadas, CEO of Humansoft, a California electronic games developer which employs 30 software engineers in Budapest.
Once a vice president of a U.S. video game software maker visited Humansoft's Budapest offices to see how it was using mathematical formulas called algorithms to develop a 3-D engine for a game later praised in U.S., German and Japanese magazines.
The executive could hardly believe what he saw, Kadas recalled.
"He looked around the office and realised that we had absolutely no books and he asked, 'How did you come up with this technology?"' Kadas recollected during a phone interview from his San Mateo headquarters.
"We said if we use the algorithms that are common in the book, then we would come up with the same solution," Kadas said. "The whole idea was to do something different."
Reszler of Recognita said 30 to 50 software start-ups in Hungary have products that can sell abroad, a prerequisite to success in Hungary's miniscule domestic market.
However, many local firms are reluctant to sell a stake to foreigners for fear of losing control, Reszler said.
Mindmaker's Kiraly said Hungarian software developers like Cygron also have to learn basic techniques of quality control that a Western company can teach.
"As soon as they learn the quality requirements, they can compete with anybody in the world," he said.
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