Software joins growth momentum

Software companies expect to benefit from an improvement in economic growth and increasing sales of computers this year.

The expected up-tick in software sales comes off the back of improved PC sales, as both Mustek and Pinnacle said earnings will show growth in the half-year to December. There were also improved sales of IT products through the tills in the last quarter of last year, as revealed by research from GfK.

Chris Gilmour, Absa Investments analyst, says software sales go hand-in-hand with hardware sales. He explains that running the latest machine is no good if the software is too out of date to take advantage of improved processing speeds.

He expects software revenue to grow this year, as the local economy is showing solid signs of growth, and people are starting to invest in new machines and hardware, an indication that the freeze in the replacement cycle may well be over.

Gilmour says the advantage of software spending being frozen during the recession is that companies can now leapfrog onto the latest available platforms.

SA expects 2.3% growth this year, with economic growth forecast to rise to 3.6%, by 2012. Finance minister Pravin Gordhan earlier this week said the economy shrunk by 1.8% last year, after five years of good growth, leading to the loss of 900 000 jobs.

Local software companies expect to benefit from the improvement in the economy. Leonard Rabotapi, marketing manager of Adobe Systems Africa, says “our outlook is positive and we are projecting growth for 2010”.

Microsoft concurs that things are looking up for the industry. Fred Baumhardt, specialist sales lead and CTO of Microsoft SA, says local product sales are “strong and healthy”.

Symantec also expects to see growth, particularly in emerging markets, says Robert Mol, director of product marketing for the Europe, Middle East and Africa market.

He adds that many of the company's product lines are “tracking considerably above our revenue projections”.

Baumhardt points out that software sales had started picking up before the launch of the Windows 7 operating system. He says sales experienced an up-tick in September and October, but these were mostly of enterprise products.

In the core software business, Microsoft's server and tools division is seeing growth, with enterprise software products like Windows Server 2008 R2, SQL Server 2008, and the Systems Centre line growing by double digits year-on-year.

Microsoft has been “blown away by the speed of South African uptake for unified communications, making Office Communications Server our fastest growing product ever in SA”.

The upward momentum continued with the release of Windows 7. “Our retail channel has their hands full, coping,” Baumhardt says.

International research company Gartner has said the IT industry is “exiting its worst year ever” and will return to growth this year, with IT spending forecast to total $3.3 trillion, a 3.3% increase from 2009.

Worldwide software spending was expected to decline 2.1% last year, but would bounce back to 4.8% growth this year. This upward trend is born out by recent figures from software companies.

In December, Adobe said revenue in the last quarter was down year-on-year, but had improved quarter-on-quarter. “We experienced an improvement in customer demand for our products in quarter four,” said Shantanu Narayen, Adobe CEO and president.

At the end of last month, Microsoft announced record revenue of $19.02 billion for the second quarter to December, which was a year-on-year increase of 14%. “Exceptional demand for Windows 7 led to the positive top-line growth for the company,” said CFO Peter Klein.

Windows 7 and Windows Server 2008 R2 launched globally on 22 October, and more than 60 million licences for Windows 7 were sold in the quarter, making the operating system the fastest selling operating system in Microsoft's history.

Symantec is also seeing an improvement in the software outlook. The company recently said its third quarter to January had seen a slight increase of 1% year-on-year in revenue.

“We are encouraged by the improving trends in our licence revenue and by the sequential stabilisation of our maintenance revenues. This led to better than expected sequential and year-over-year growth in both revenue and deferred revenue,” said James Beer, executive VP and CFO.