Putting Hungarian High Tech On The Map

Janos Kurti learned about disk drives the hard way. As an electrical engineer in Hungary in the 1970s, he repaired the Communist-era computers owned by a state-run electronics company. A Western ban on technology sales to the East bloc meant few spare parts, fewer manuals, and hours of tinkering.

Now, all that patience is paying off. Kurti boasts close to 2,000 customers for his high-tech business, Kurti Ltd., which recovers data from crashed hard disks. Although the company got off to a slow start in 1989, revenue is expected to double this year, to $8 million. Customers ranging from Swiss banks to the German Navy pay an average of $2,000 to rescue their data. "We always say we'll have a go," says Kurti's brother and partner, Sndor, who is a software engineer.

HIGHFLIERS. That mix of brain power and drive is creating something new in Hungary: small but viable high-tech companies. In the past few years, more than 1,000 startups have sprung up in areas ranging from computers to biotechnology. Most cater to their own market. But a growing number of highfliers are competing head-to-head with niche rivals in the U.S. and Japan. Says Esther Dyson, who runs a New York-based venture-capital fund specializing in East European technology companies: "There is no shortage of ideas. The potential for new tech startups is huge."

While Hungary isn't the only home to high tech in the region, it stands out because it had a headstart. Elite Hungarian universities have long produced exceptional scientists, including several Nobel prizewinners. In the 1980s, Hungary's attempts at economic reform allowed researchers to leave their labs and set up their own small businesses. Although many scientists left the country for better wages and labs after 1989, those who stayed behind have since gained free-market experience. They're beginning to make their mark.

Take Graphisoft. Back in 1982, Gbor Bojar, an enterprising mathematician, left the Hungarian Geophysical Institute and teamed up with a friend to design programs for three-dimensional screen displays. During years of working on programmable calculators and awkward Russian computers that kept breaking down, the pair learned to write extremely compact computer instructions. In 1983, executives from Apple Computer Inc. discovered Bojar at a Munich trade fair. They encouraged him to develop a program designed for architects using the Macintosh. Now, Graphisoft designs and markets ArchiCAD software used by architects around the world. Last year, sales totaled $12.5 million, mostly overseas. The company has units in the U.S., Germany, and Japan.

FLEXIBLE FIND. Then there's Gbor Proszeky. A mathematician and linguist, he set up a software maker called Morphologic in 1992 with friends from Technical University of Budapest. Morphologic won a contract with Microsoft to provide the spell-checker, hyphenation, and thesaurus programs on the Hungarian version of Microsoft Word, having provided similar programs for Lotus and WordPerfect. The underlying software was so flexible that Microsoft is talking with Proszeky about handling the versions in Polish and Romanian.

As the high-tech sector takes off, more venture-capital companies are piling into Hungary. That's critical, because banks charge 36% interest on commercial loans, making borrowing next to impossible for many entrepreneurs. The $120 million First Hungary Fund, for example, provided a crucial $16 million investment in Biorex, a pharmaceutical company created by Peter Literti, a leading research scientist. The money helped him to develop a compound to prevent the side effects of diabetes. It's undergoing trials in Britain. Says Peter Rona, chairman of the fund: "It was a long shot."

To be sure, Hungary's high-tech sector still faces its share of problems. Scientists often lack management and marketing expertise, and it can be an uphill battle convincing customers that Hungarian companies can outdo Japanese or American rivals. Even so, the Hungarian scientists that stayed behind are making an increasingly significant contribution to their economy. Not only are they providing jobs, they're also showing other fledgling entrepreneurs that Hungary can indeed find a niche in the world market for high tech.