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The great re-emergence

Datacentrix has been sacrificing short-term profit for long-term sustainability. Now it's ready to stand tall. Has it built the right foundations?

By DJ Glazier, Contributor
Johannesburg, 29 Aug 2013
Ahmed Mahomed, Datacentrix, says because of the company's roots as a reseller, its corporate structure has tended to be very lean. Photography: Karolina Komendera.
Ahmed Mahomed, Datacentrix, says because of the company's roots as a reseller, its corporate structure has tended to be very lean. Photography: Karolina Komendera.

Datacentrix is most of the way through an adaptation process that will see it emerge as an entirely different entity from that of a few years ago. It's adapting from being a hardware reseller to a full-spectrum solution provider, from its heavy public sector reliance to a diverse client mix across many verticals.

Having been a mainstay on the local ICT landscape for longer than most of its peers (it has been listed on the JSE since 1998), this is a wholesale, dramatic reinvention.

A new Datacentrix is emerging, and it's pinning its ambitions on high-value managed services in the areas of data centres and cloud solutions, security solutions and data analytics, CEO Ahmed Mahomed tells Brainstorm. "

Its results for the year to end February 2013 were mixed. Revenue climbed 9% to R1.92 billion, and cash reserves rose to a very handy R274 million, but headline earnings per share were down 16%, and various pressures squeezed operating margins down from 8% to 6%.

The news of Pinnacle Holdings' intention to make an off-market acquisition of 30% of Datacentrix (subject to Competition Commission approval) returned some confidence to the market.

Mahomed says this R274 million deal is testimony to the solid fundamentals of Datacentrix. "It lends credibility to our business," he says, adding that the Datacentrix share price presented a compelling case for Pinnacle to invest, describing it as "very well-priced - certainly trading below what it should be trading at".

The Pinnacle buy-in is expected to have very little, if any, immediate operational impact.

Changing the mix

In his report for the financial year, non-executive chairman Gary Morolo admits that, in recent years the company has "consciously sacrificed current bottom-line growth in favour of improving the company's long-term growth and sustainability, by investing heavily in skills and competencies".

This repositioning to become a skills-led, services-led organisation is illustrated in its revenue splits. In 2009, infrastructure accounted for 90% of Datacentrix's business; by 2011, it contributed 56%; and now, it's only 37%. Last year, for the first time, managed services started contributing more than infrastructure.

We're smaller than some of the other players. I think that makes us more agile - decisions can be made faster.

Jan Dry, Datacentrix

Similarly, its client mix has shifted. The public sector, which once accounted for 40% of its 'sector-split', is now at less than 10%.

StrategyWorx CEO Steven Ambrose believes a radical shift in strategy is exactly what's required. "The market in which Datacentrix operates is undergoing massive change and restructuring. The services environment - including outsourcing - is contracting, and Datacentrix, along with its peers, is feeling the heat," he states.

Ambrose explains that the pool of potential clients has remained fairly static over recent years and both government and the private sector have slowed down their large IT projects in favour of cost cutting and, to some extent, data centre consolidation based on virtualisation.

Added to this is the heightened competition and thinning margins as incoming players like MTN, Vodacom and Telkom start offering data centre hardware services, Ambrose notes.

In the realm of data centres, Datacentrix is looking to carve out a new niche. As it continues to offer 'traditional' data centre and cloud services, it sees an opportunity to provide certain clients with 'modular' and 'cocoon' data centres. Far smaller than the larger option, the modular units fit easily into a car park or other area of a business' premises. The cocoons are even smaller - and are housed inside an existing office building.

Datacentrix's chief of technology consulting, Jan Dry, shows Brainstorm a concept modular data centre unit at his company's headquarters in Midrand. "While businesses start moving most of their applications to a cloud-based solution, we find that many of our clients don't want to lose physical control over some of their key applications," he says.

[PICTUE-RIGHT]This unit is 129m^2, with 28 racks, and 200kW of power. It could fit - for example - about 400 servers and five petabytes of data storage.

The advantages are clear. It's a data centre that costs tens of millions (rather than hundreds of millions); it takes weeks (rather than months or years) to deploy; no building authorisation is required; energy requirements are drastically reduced; and scalability is quick and flexible.

Niche plays like the modular data centres and its new security operations centre help to differentiate Datacentrix from the rest of the field, but Ambrose observes that Datacentrix will need to adapt quickly and broadly to the new realities of the South African ICT landscape. A stagnating economy and a limited talent pool continue to hamper local integrators and service providers, he argues.

Says Ambrose: "If Datacentrix can successfully expand into Africa, it should afford itself growth prospects well in excess of what is possible in South Africa, for the next five to 10 years. Installed infrastructure and systems in these territories are very low and need massive expansion to cope with the development of technology in these countries, notably in Kenya, Nigeria and Ghana."

Change in segmental contributions to earnings due to repositioning

Datacentrix has strategically repositioned itself in the market, moving from being a pure hardware supplier to a fully fledged systems integrator and solutions provider.

Dry says there are plenty of opportunities closer to home, within Datacentrix's historically wide base of mid-market clients (larger SMEs, up to the lower enterprise segment) as these clients start embracing hosted solutions and on-demand applications.

He believes one of the company's biggest strengths is its lean size and structure. "We're smaller than some of the other players. I think that makes us more agile - decisions can be made faster."

Mahomed echoes this, citing the fact that, with its roots in being a reseller, the Datacentrix corporate structure has tended to be very lean, and as growth has happened mostly organically, there are no non-core areas that need to be spun off. "Our cost structures are very good. The business has always been run in a very efficient way."

Ultimately, the next few steps the company takes are likely to either validate, or to nullify, the work that has gone into fashioning this new, diverse and revved-up entity.

First published in the August 2013 issue of Brainstorm magazine.

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