2010: A curate's egg of a year

On the surface, 2010 has been a good year for the ICT industry, with improvements in the financial indicators; growth rates returning to positive territory; and a significant uptake in merger and acquisition activity, which has been coupled with a healthy return to positive movements in the private equity and IPO arenas. However, the demise and de-listings of many companies, specifically in the local market, is a cause for concern going forward.

In the US, the technology-heavy Nasdaq seems to be ending the year at over the 2 600 level, up nearly 15% since the beginning of the year, and at the levels last seen in late 2007.

The worst of the recession seems to be over.

Paul Booth, MD, Global Research Partners

In a similar way, the JSE looks like closing the year at about the 31 500 level, again up about 14% for the year and back at early 2008 levels. In the annual shuffle of the Nasdaq-100 index, Akamai Technologies, F5 Networks, Micron Technology and Netflix have now been included, although Logitech International has been dropped; nevertheless, overall this is a strengthening of the ICT component of this index. In addition, Cablevision Systems, F5 Networks and Netflix have joined the S&P 500, while Eastman Kodak has been removed.

As a direct result of the recent economic issues, the ICT industry in 2009, both locally and worldwide, went into negative growth territory, but has recovered as this year has progressed, and has shown a modest but positive growth. However, it was still below that projected at the start of the year. However, global growth rates for 2011 are expected to be positive and above GDP growth levels, with the South African ICT market rising by between 3.5% and 4.5%.

From an executive perspective, cost containment/cutting is still of paramount concern and one that is often linked with a drive for increased efficiency and productivity. In addition, the areas of governance, compliance and disaster recovery/continuity are still very much a focus, and 'green' issues are becoming more urgent. However, the advent of cloud computing represents a major opportunity for businesses going forward, and potentially could free up spend for new competitive initiatives.

Also, consolidations continue apace, a healthy sign, particularly with many new start-ups appearing in new niche markets, and the increased private equity activity focused on the SME sector.

This year has not been a good one for JSE-listed ICT companies, with only two new entrants, that of the PBT Group following a reverse listing into Wooltru; and Mvelaserve, the result of some unbundling within the Mvelaphanda group.

Unfortunately, several companies have disappeared from the JSE/AltX. Alliance Mining, Beget Holdings, Faritec and Square One all went into liquidation, while DTH and TeleMasters have been privatised. Dynamic Cables and Cape Empowerment Trust merged into a 'new' Cape Empowerment entity. Jasco is in the process of taking over Spescom in a move that will see the latter de-listed. Dialogue Group, following the sell-off of all its operational units, including ContinuitySA and CallForce Direct, is likely to de-list in the New Year. Labat Africa is planning to exit the industry, and Dimension Data was acquired by Japan's NTT Group.

In addition, there were several other private company liquidations such as those of Eclipse Networks and Goal Technology Solutions. Channelware, part of MB Technologies, closed its doors; and Ingram Micro, Progress Software and TeleTech, among others, withdrew from the country. After the changes mentioned, there is now only one ICT listing left in the Development Capital and Venture Capital sectors of the JSE, that being Stella Vista, a company that cannot continue on its own for much longer.

Although our local stock prices have moved from the lows of 2008, an analysis at the end of November suggested that of the +/-50 technology-orientated shares listed on the JSE and AltX, four are still trading at 10c or below (Ifca Technologies, Stella Vista, TCS and Zaptronix), which is two less than last year. However, over 37% of the ICT-orientated shares are now trading at over R2, an improved situation over 2009. In addition, 13 (excluding conglomerates) of these organisations have market capitalisations in excess of R1 billion, a figure slightly up from last year.

On the empowerment front, despite the ICT BEE charter still not being finalised, BEE activity has continued apace with investments in, for example, Atos Origin SA, Business Connexion, CSC South Africa, KSS Technologies, MTN, Vodacom and Westcon SA. The market is also awaiting the identification of the black-owned companies that will participate in the R472 million investment that Microsoft has made available.

On the merger & acquisitions front, there were several deals involving Datatec, including the acquisitions of Biodata, ICT Group (India), Network Infrastructure Corporation and Touchbase Singapore, and the remainder of Westcon it didn't already own. Dimension Data expanded its international reach, most of which was prior to the NTT deal; Naspers invested in Russia's Digital Sky Technologies, a move that sees it now having shareholdings, some indirectly, in Facebook and Groupon; Investec bought the 45% stake in MB Technologies that was previously owned by Leo Baxter; BankServ bought Document Solutions International; Pinnacle Technology snapped up Axiz to create SA's largest distribution company; AdaptIT bought the remainder of ITS it doesn't already own; and Deloitte snapped up Cyan ES, a local technology company. In addition, American Tower Corporation bought Cell C's towers for $430 million, and part of MTN Ghana's infrastructure for $428.2 million.

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 BTG, Citrix Systems, Dialogue Group, EMC, Google, HP, iBurst, ICASA, Intelsat, Oracle, Reunert, SAS, Sentech, SITA, Software AG and Telkom SA. We await with interest the new group CEO appointment at MTN and the new permanent CEO at Telkom SA.

Other major events included the investment by Angus MacRobert, ex-CEO of Internet Solutions, in several small ICT companies; the investment by Cell C, Convergence Partners and Internet Solutions in FibreCo; the disposal by Vodacom of its stake in iBurst; SA's newest fibre optic network; the acquisition by MB Technologies of Ingram Micro's shares in its local joint venture; the name change of GijimaAST to Gijima and the loss by that company of its 'Who am I Home Affairs' contract; the name change of Siemens Enterprise Communications to Nashua Communications; the proposed name change of Simeka Business Group to Morvest Business Group; the settlement by Telkom SA of its litigation with Telcordia; the announcement by Telkom SA that it wants to dispose of its CDMA operation in Nigeria (ie, part of Multi-Links); and the formal launch of Broadband Infraco, the government's wholesale telecommunications company.

On the ICT media front, there was the demise of CRN, Digital Life magazine and SA Computer Magazine; and of course, there was the usual flood of journalists 'job-swapping'.

From an awards viewpoint, the key 'winners' included Mark Levy, joint-CEO of Blue Label Telecoms, as IT Personality of the Year 2010, and Patrick Monyeki, a director on the De Beers Group Services Board, as the Visionary CIO of 2010.

The African scene was dominated in 2010 by the availability and exploitation of the Eassy and Seacom submarine cables and by the news of additional cable plans that will come to fruition over the next couple of years, such as the MainOne initiative. These changes also impacted the African landscape regarding its use of satellite technology, since the use of fibre was often a better economic proposition.

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 Business Connexion (Kenya), BizDataSoft Solutions (Gambia), Eaton Telecoms (Tanzania), IBM (Ghana) and Qualcomm (Nigeria); Bharti Airtel acquiring the African interests of Zain and Telecom Seychelles; Etisalat buying Alheri Mobile (Nigeria); France Telecom taking a 40% stake in Meditel (Morocco); LAP Green Network (Libya) acquiring a 60% stake in Sotel Tchad (Chad) and a 75% stake in Zamtel (Zambia); Qtel buying a 50% stake in Orascom Tunisia; Safaricom (Kenya) purchasing IGO Wireless and Instaconnect; VimpelCom buying Weather Investments and thus a stake in Orascom Telecom; Vodacom Gateway Mauritius acquiring AfriConnect Zambia; and Movitel, a consortium that includes Viettel, a Vietnamese telecommunications company, winning the third mobile licence in Mozambique. In addition, the tender for Nitel was awarded to a consortium that included China Unicom, although at the time of compiling this article, the required deposit of $750 million has still not been paid and was overdue.

Key CEO/MD appointments included those at Safaricom, Vodafone Ghana and Airtel Uganda; while several regional positions for many of the multinationals were filled by the promotion of the relevant South African incumbents.

Other major events included the listing of Tunisie Telecom and Globacom (Nigeria) winning licences in Gambia and Senegal to add to the others it already has on the continent.

Unlike last year, 2010 has seen the ICT industry returning to a more normal-type situation that includes significant merger and acquisition activity, a growing private equity involvement and an increased number of IPOs and planned IPOs on various exchanges around the globe.

Twelve of the top ICT companies have each been involved with a significant number of acquisitions, including several valued at above $1 billion. These 12 companies are Apple, CA Technologies, Cisco, EMC, Google, HP, IBM, Intel, Microsoft, Oracle, SAP and Yahoo, with Google topping the list with over 40 such activities. Key deals from these 12 included Cisco buying Tandberg; EMC acquiring Isilion; HP taking over 3Com, 3Par and Palm; IBM acquiring Sterling Commerce; Intel purchasing McAfee and the wireless business of Infineon; Oracle buying Art Technology Group; and SAP acquiring Sybase. Other key takeovers included Novell by Attachmate ($2.2 billion); Quest Communications by CenturyTel ($10.6 billion); and VeriSign's authentication business by Symantec ($12.8 billion). In addition, Etisalat has signed a preliminary agreement to acquire a majority stake in Zain.

Significant private equity activity has again emerged, with several technology deals that included the Carlyle Group acquiring CommScope for $3.36 billion and Syniverse for $2.6 billion.

In addition, the IPO activity has also started to move again with some significant listings, including the new entities arising from the split of Cable & Wireless and Computer Warehouse. Other IPOs included those of Elpida Memory; Kabel Deutschland; KKR, one of the world's largest private equity groups; Mail.ru, a Russian Internet group in which Naspers has a shareholding; NXP, the semiconductor arm of Philips Electronics; TDC, the Danish telecommunications company (Europe's fourth largest public stock offering of 2010); and Axiom Telecom, a Middle East mobile phone retailer. On the flip side, there were only a handful of companies applying for Chapter 11 bankruptcy protection, FairPoint Communications being the most significant.

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

Major international appointments included new CEOs at China Mobile, France Telecom, HP, Lexmark, LG Electronics, Nokia, SAP, Samsung Electronics, SanDisk, T-Mobile USA, Tech Mahindra and Zain. There was also the appointment of Michael Capellas, the ex-CEO of Compaq and MCI, becoming the CEO of Arcadia, the cloud-orientated joint venture between Cisco and EMC.

Other major international activities included numerous 'anti-trust' activities/issues involving Google and IBM; the name change of CA to CA Technologies; Nortel finalising the disposal of its remaining assets; Samsung Electronics overtaking HP to become the number two ICT company behind AT&T; Samsung claiming the number two slot in the mobile handset market, and ZTE making it into the top five; the emergence of CDC Software (China) as a major player in the software market; Nokia re-taking control of the Symbian operating system; Oracle winning the world's largest-ever copyright infringement case ($1.3 billion) against SAP; and Steve Jobs being named CEO of the decade by MarketWatch, a wholly-owned subsidiary of Dow Jones.

Internationally, the next year will see a continuation of the consolidations that have been particularly prevalent over the past two or three years, and I would not be surprised if names such as Adobe, Ariba, Brocade, Corel, Nuance Communications, Red Hat, SCO, Symantec, Tibco Unisys and Yahoo, to name but a few, will either cease to exist or will have been acquired by larger players during the year.

Also, 2011 is likely to see a larger number of IPOs, including those of Hitachi Global Storage Technologies, Nokia Siemens Networks and Skype; while it is also possible that IPOs from some social media companies may materialise, such as China's Oak Pacific Interactive. In addition, Motorola is splitting into two publicly-quoted entities in January, called Motorola Mobility and Motorola Solutions.

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, some of the other undersea cables should become operational; several telecommunications IPOs will take place, including those by al Madar (Libya), Libyana (Libya) and Telecel (Zimbabwe); and the dispute that Vodacom has with its partner in the DRC should be resolved.

Locally, next year should see the resolution of the 'abuse of dominance' case against Telkom SA; further clarification of the future of Sentech and Telkom SA; a possible IPO from iBurst; and the possible disposal by Cell C of its stake in Virgin Mobile SA.

The worst of the recession seems to be over, but 2010 was still a tough year for users and vendors alike. 2011 will see some form of 'normality' return to a market that is likely to be very active, although one that will certainly have its ups and downs. Nevertheless, 2011 will be an exciting year for the industry, especially locally, if government stops interfering and deregulation in the telecommunications sector is encouraged.