On the back of SA's economic double-whammy, analysts are not surprised at the slowing financial growth of technology firms.
According to Econometrix senior economist Tony Twine, ICT plays primarily in the business space as a service and is considered a derived demand. With companies looking to tighten belts under the global economic crisis, he says, it is not surprising that ICT has taken a knock.
While it is more prominent in the technology space, telecommunications organisations will also be cautious over the next year, Twine notes. “Businesses typically spend more on telecommunications than the individuals. You and I may not change our communications patterns, but businesses certainly will,” he explains.
However, he says there is a ray of hope for businesses playing predominantly in the public sector. “For the consumption side of government, ICT is in a good place and some player will definitely benefit. There is another side though.”
He adds that companies playing in the investment side of government may have to wait longer than usual to clinch those contracts.
The bitter pill
Tech businesses, like Business Connexion (BCX), Dimension Data (DiData) and Faritec, all released results that were lower than expected over the last few weeks.
Frost & Sullivan industry analyst Lindsey Mc Donald confirms the sector slowdown is not a surprise.
SA has come through a double-whammy economically. First, the electricity crisis, volatile markets, increased interest rates and petrol hikes. All followed by the global crisis.
Lindsey Mc Donald, industry analyst, Frost & Sullivan
“SA has come through a double-whammy economically. First, the electricity crisis, volatile markets, increased interest rates and petrol hikes. All followed by the global crisis.”
She says most analysts only expected to see the effects of SA's economic situation last year to reflect six months later. “The concern may be that we will only see the true reflection of the global meltdown in the next set of results.”
Hope on the horizon
According to Mc Donald, BCX is in the best position of all the technology companies. “The results had a lot to do with the cost of the company's revitalisation programme. It is, however, a more streamlined business than it was. This will put it in a good position for the year ahead,” she explains.
While she says Frost & Sullivan was disappointed with DiData's results, the company seems to be stronger than the results show. Mc Donald points out that the company's surprising acquisition of Teksys is an indication that it is still in a favourable position.
Mc Donald agrees with Twine that certain companies playing in the public sector will be better off this year. As a case in point, GijimaAst showed slowed, but strong, growth this year.
Telling telcos
Telecoms businesses have yet to report a slowdown, although many are expected to do so over the next few months.
MTN recently decided to drop the BEE transaction tagged to the unwinding of investment business Newshelf, due to economic concerns.
Meanwhile, Datatec's subsidiary is mulling job cuts on the back of slowed growth. However, the larger telecoms businesses are still maintaining annuity income, which most analysts say will keep the companies afloat.
IDC analyst Richard Hurst says there may well be consolidation in the telecoms space this year. “Companies that don't manage to float will need to cling to companies that do.”
He says that, while there is an expectation for telecoms companies to slow this year, there may be a recovery in sight. “Businesses will want to make better use of communications services, like video conferencing over physical travel,” he explains.
All the analysts agree 2009 will be a tough year for the ICT industry.
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