2011: The ICT year that was

Generally, 2011 has been a good year for the ICT industry, although the financial indicators have seen heavy fluctuations in their values. There has been a significant uptake in merger and acquisition activity, which fortunately, has also been coupled with healthy movements in the private equity, IPO and start-up arenas.

However, the demise and de-listings of many companies, particularly in the local market, is a major cause for concern going forward.

The demise and de-listings of many companies, particularly in the local market, is a major cause for concern.

Paul Booth, MD, Global Research Partners

In the US, the technology-heavy Nasdaq is currently about the 2650 level, the same level at which it started the year; while the JSE is between 32500 and 33000 levels, 2% to 3% above where it started the year.

Despite the continuing economic issues, the local ICT industry has seen positive growth during the year, albeit lower than that originally predicted, but still above GDP growth levels. Also, from recent surveys by at least one of the major research companies, the majority of IT budgets have either increased or stayed at 2010 levels. Nevertheless, the drive for efficiency and productivity still remains, and the areas of disaster recovery and business continuity, governance, and security are still very much in the focus of many organisations.

From a technology perspective, cloud computing and social media, coupled with the move to mobility and the proliferation of devices, and the consequential 'big data' issues arising from this, heads up a long list of opportunities for the foreseeable future.

This year has not been a good one for JSE/AltX-listed ICT companies, with no new entrants and several de-listings. Dialogue Group was broken up and its various units sold-off separately, and it was subsequently de-listed.

Paracon was snapped up by Adcorp and subsequently de-listed. Spescom was acquired by Jasco and de-listed. Most of the UCS group was taken over by Business Connexion and the remainder privatised and thus de-listed. Vox Telecom was also privatised and de-listed, with Investec becoming one of its major shareholders.

Ifca Technologies has exited the industry and is likely to be de-listed or the subject of a reverse take-over in the New Year, along with Telemasters, which is expected to be privatised. However, Simeka Business Group became Morvest Business Group and its listing was transferred to the main board from AltX.

In addition, there were several other private company closures/liquidations, including Dealify and Zappon; BCX liquidated 60 of its dormant companies; and Progress Software withdrew from the country. After the changes mentioned, there are now only two ICT listings left in the Development Capital and Venture Capital sectors of the JSE, those being Stella Vista and Labat Africa, respectively, both of which are likely to be involved in some form of a merger or acquisition in 2012.

However, AOC, Avanade, Exinda, Huawei Symantec, NetApp, Oniqua Enterprise Analytics, RiT Technologies, Ruckus Wireless and StorageCraft Technology (via a distributor) established a permanent presence in South Africa for the first time.

Although local stock prices have generally moved from the lows of 2008, an analysis at the end of November suggested that of the approximately 45 technology-orientated shares listed on the JSE and AltX, six are still trading at 10c or below, which is two more than last year. However, almost 50% of the ICT-orientated shares are now trading at over R2, a much improved situation over 2010. In addition, 13 (excluding conglomerates) of these organisations have market capitalisations in excess of R1 billion, a similar figure to last year.

On the empowerment front, despite the ICT BEE charter still not being finalised, BEE activity has continued, albeit slowly, with investments in, for example, many of the Altech companies, CSC and Weston SA.

On the merger and acquisitions front, there were several deals involving Altech and Datatec and its subsidiary Weston. These included Eyenza Mobile Money, SetOne and Swist Technology Solutions for the former; and Cornwall Energy Associates, Direct Visual, entrada Kommunikations, Inca Software, Netarx and Sentronics SD for the latter. In addition, Altech saw a strategic investment in it from Intel Capital.

Other deals during the year included BCX acquiring most of UCS, Cell C disposing of its share in the joint venture with Virgin Mobile and replacing it with one from Red Bull; Cape Empowerment disposing of its stake in Dynamic Cables; EOH buying Belay, Stanley Security Solutions and TSS Managed Services; Gijima taking over African Legend Indigo's BMC Business Service Management unit; Mustek disposing of Corex IT Distribution; Naspers making additional Internet-orientated investments in Russia and Turkey; PBT acquiring Prescient Holdings in a reverse takeover deal; Remgro disposing of its stake in Tracker; Reunert buying ECN Telecommunications; Tata increasing its stake in Neotel to 62%; Visa purchasing Fundamo; and World of Avatar buying FireID, FSMS and MiX Telematics.

Other major events included the investment by Angus MacRobert, the ex-CEO of Internet Solutions, in several small ICT companies; the announcement that SA is to use the European DVB-T2 digital standard to migrate from analogue broadcasting; Calico Investments taking a 45% stake in Virgin Mobile SA following the disinvestment by Cell C from its joint venture; an Old Mutual deal (R2.49 billion) with Telkom SA, Nashua and Dimension Data for the management of the communications tower of Old Mutual's South African IT estate; and the resolution of the Home Affairs situation with Gijima.

Key appointments during the year included a new minister for the Department of Communications and new country managers/GMs/CEOs/MDs at many companies, including Cisco, Citrix Systems, Digicore, IDC, Jasco, LG Electronics, MiX Telematics, MTN, Nashua Mobile, Neotel, Oracle, Rectron, Reunert, Samsung Electronics, SITA, Sybase, Telkom SA and Vodacom SA. Also, and unfortunately, David Redshaw, the former CEO of Bytes Technology Group, passed away.

From an awards viewpoint, the key 'winners' included Asher Bohbot, CEO of EOH, as the CSSA 2011 IT Personality of the Year, and Sandi Macfie, the CIO of Southern Sun Hotels, as the 2011 Visionary CIO of the year.

The African scene was again dominated in 2011 by the availability and exploitation of the various submarine cables that now serve the continent, including the WACS one that has now landed; and by the news of additional cable plans that will come to fruition over the next couple of years, such as the Glo 1, MainOne and Wasace initiatives.

As was the situation last year, there are still no IT companies listed in the current 'Top 500 Companies in Africa' list from outside SA, and still only a handful of telecommunications companies included. However, ICT activity on the continent continues to grow, with significant involvement continuing to come from the Middle East and India, particularly from a telecommunications perspective.

Major activities included the opening of offices elsewhere in Africa by 4most (Botswana), AdaptIT (Sierra Leone), Advanced Channel Technologies (Mozambique), Computer Warehouse (Ghana), HP (Tanzania), IBM (Angola, Senegal and Tanzania), Motorola Solutions (Egypt), RAD Data Communications (Nigeria) and Wavetec (Kenya).

American Tower Corporation took over MTN's towers in Ghana; Garmin took over its southern African distributor; Helios Towers acquired the 729 towers of Millicom International's DRC operation; Intel bought SySDSoft (Egypt); Huge Group disposed of its stake in TelePassport Communications (Namibia); Investec and Nedbank bought Powercom (Namibia) from Orascom Telecom; iWay Africa acquired Afsat Communications; MTN formed a joint venture with American Tower to manage the former's sites in Uganda; Telkom SA sold off its Nigerian Multi-Links operation for only $10 million, a fraction of the price it paid for it originally; and Safaricom and Telecom Kenya formed a joint venture in Kenya to manage their tower businesses. However, the Nitel situation is far from resolved and may not even be sorted during the coming year.

Other major events included the rebranding of C & W's operations in Africa to Afinis Communications, and of Zain to Airtel following Bharti's acquisition of Zain's telecoms interests in Africa; a major deal between Bharti and IBM for its African operations; the launch of the New Dawn satellite, a joint venture between Convergence Partners and Intelsat; Egypt putting on hold the awarding of its fourth mobile licence; the 49% investment by France Telecom in Congo China Telecom; the withdrawal of Blue Label Telecoms from Nigeria; the opening of a new operation by MTN in South Sudan; and the takeover of Orange Tunisia and Uganda Telecom by the respective governments.

Key CEO/MD appointments included those at Airtel Chad, Airtel Kenya, Airtel Rwanda, HP (EMEA), Kenya Data Networks, Mobinil (Egypt), MTN Cameroon, MTN Ghana, MTN Nigeria, MTN Zambia, Orascom Telecom, Seacom, Telecom Egypt, Tunisie Telecom, Vodacom Ghana and Vodacom Tanzania, while several regional positions for many of the multinationals were filled by the promotion of the relevant South African incumbents

In a similar way to last year, but to a much greater extent, 2011 has seen the ICT industry showing all the healthy signs of a developing industry, which includes a significant number of mergers and acquisitions, growing private equity activity that includes both investing and selling deals, and an increased number of IPOs and planned IPOs on the various exchanges around the globe.

Sixteen of the top ICT companies have each been involved in a significant number of acquisitions, generally small ones, although a handful was valued at above $1 billion.

These 16 companies are Accenture, Adobe, Arrow Electronics, CA Technologies, Cisco, Dell, DST Systems, eBay, EMC, Google, HP, IBM, Microsoft, Open Text, Oracle and Xerox, with Google topping the list with almost 20 transactions.

Key deals from these 16 include eBay acquiring GSI Commerce ($2.4 billion); Google acquiring over 100 patents from IBM; HP taking over Autonomy ($12 billion); Microsoft buying Skype ($8.5 billion); and Oracle buying RightNow Technologies ($1.5 billion).

Other key takeovers included Applied Materials buying Varian Semiconductor ($4.9 billion); AT&T acquiring T-Mobile ($39 billion), although this deal is still going through difficult times with the regulators, and may end up not being consummated; Atos Origin purchasing Siemens' IT solutions and services unit ($1.1 billion+); CenturyLink buying Savvis ($2.5 billion); Dell purchasing Compellent for almost $1 billion; Ericsson buying Telcordia for $1.2 billion; Level 3 Communications buying Global Crossing ($3 billion); Qualcomm taking over Atheros Communications ($3.1 billion); SAP acquiring SuccessFactors ($3.4 billion); Seagate Technology acquiring the HDD unit of Samsung Electronics; Texas Instruments buying National Semiconductor ($6.5 billion); Toshiba purchasing Landis+Gyr ($2.7 billion); Verizon Communications snapping up Terremark for $1.4 billion and acquiring significant wireless spectrum for $3.6 billion; Vodafone buying out its Indian partner, Essar ($5 billion) and selling off its interests in SFR to Vivendi ($11 billion); and Western Digital taking over the storage unit of Hitachi ($4.3 billion).

Significant private equity activity has again emerged, with several technology deals that included Apax Partners buying into Activant, Epicor and Patni Computer Systems for well over $3 billion; AXA Private Equity taking a 52.3% stake in Outremer Telecom, an alternative telecommunications operator in the French Overseas Region that includes Reunion; Bain Capital buying MYOB ($1.3 billion); Thomas Bravo acquiring Blue Coat Systems ($1.3 billion); Epic buying Ukrtelecom (Ukraine) for $1.3 billion; General Atlantic taking a 20% stake in Kaspersky; Golden Gate buying Lawson Software ($2 billion); Goldman Sachs investing $1.5 billion in Facebook; and the $950 million investment in Groupon by several investors, including Russia's DST, a company in which Naspers has a stake.

JP Morgan bought APAC Customer Services; a consortium that includes KKR and Silver Lake Partners purchased Go Daddy ($2.25 billion), a Web hosting company; KKR bought Versatel and Yageo ($1.6 billion), the latter in conjunction with Pierre Chen, the founder of the company; and Silver Lake Partners acquired Smart Modular Technologies (Brazil).

Other major international activities included IBM selling its remaining stake in Lenovo; the ongoing litigation between Oracle and both Google and SAP; the hiving-off to Accenture of Nokia's Symbian activities; the buy-out by Huawei Technologies of Symantec's share of their joint venture; the buy-out by Sony of Ericsson's share of their joint venture; HP turning its webOS software into an open source project akin to Google's Android; and the $4.5 billion acquisition by a consortium for Nortel Networks' patents that include Apple, EMC, Ericsson, Microsoft, Research in Motion and Sony.

In addition, there was significant IPO activity, including the new entities arising from the split of Motorola. Other IPOs included the listings of Active Network, Boingo, Freescale Semiconductor, Fusion-IO, Groupon, Imperva, LinkedIn, Magna Chip Semiconductor, Mail.ru, Nexon, Pandora Media, Qihoo 360, Renren, Tangoe, Tudou, Ubiquiti and Yandex, most of which were on either the NYSE or Nasdaq. On the flipside, there were only a handful of companies applying for Chapter 11 bankruptcy protection.

Major international appointments included new CEOs at Acer, AMD, Apple (following the death of Steve Jobs), BSNL (India), France Telecom, Google, HP, IBM, Inmarsat, Nokia, Philips Electronics, Tata Communications, Telecom Italia, VeriSign, Verizon Communications, and VimpelCom.

In addition, Robert Galvin, a long-time CEO of Motorola; Norio Ohga, the pioneer of the first CD, who was working for Sony at that time; Ken Olsen, founder and one-time CEO of Digital Equipment Corporation (DEC); Henry Taub, the founder of ADP; and Tom West, a project manager who developed many of Data General's small business computers, all passed away.

From an industry consolidation perspective, it was the IT services, security, semiconductor, social media and telecommunications markets that witnessed the most activity, and there are strong signs that these markets will continue to be the focus of many vendors over the coming months.

Also during the year, Samsung Electronics overtook HP to become the largest ICT company by revenue. Lenovo ousted Dell from the number two PC slot, and IBM gained the top server spot from HP.

Internationally, the next year will see a continuation of the consolidations that have been particularly prevalent over the past few years, and I would not be surprised if names such as Akamai Technologies, Brocade, Eastman Kodak, Nuance Communications, Red Hat, Research in Motion, Symantec, Unisys and Yahoo, to name but a few, will either cease to exist or will have been acquired by larger players during the year. The year will also see many new IPOs, particularly within the social media sector, and is likely to include Facebook, LivingSocial and maybe Twitter.

In Africa, the Middle East and Indian-based telecommunications companies will continue their penetration into the continent, and I would not be surprised by similar moves from both the BT Group and France Telecom. In addition, there should be a resolution of Vodacom's situation in the DRC.

Locally, next year should see the resolution on the 'abuse of dominance' case against Telkom SA, and some finality on the deregulation of the local loop; the acquisition by Telkom SA of some ICT companies; the possible investment by Korea Telecom in Telkom SA; a possible de-listing and maybe a break-up of the SecureData Group; and Business Connexion either merging with another similar entity, or being acquired by a telecommunications player.

Unfortunately, 2012 could well see an erratic start until the Euro crisis is resolved somehow. However, despite this, I still expect the ICT market to have positive growth, maybe as much as 6% or 7% worldwide, with the local market fairing a little better than this.

Nevertheless, 2012 will be an exciting year for the industry, especially in South Africa, if the government stops interfering and deregulation in the telecommunications sector is encouraged.