DiData faces uncertain future

By Candice Jones, ITWeb online telecoms editor

Johannesburg, 13 Nov 2008

JSE-listed Dimension Data's (DiData's) year-end results, for the year ended 30 September 2008, proved to be exceptionally strong. However, under the current global economic crisis, the company's future is uncertain.

According to Irnest Kaplan, MD of Kaplan Equity Analysts, for a company of DiData's size to boost its revenue by 19.5% “demonstrates it has done all the right things”. Kaplan says this year-end is a far cry from five years ago, when the company felt severe pressure in various business sectors.

“DiData did far better than expected. Much of the company's growth can be attributed to the new management,” he adds.

The group's 19.5% revenue increase led to a total of $4.5 billion, with gross profit lifting 19.7%, to $973.3 million. DiData's margins remained strong, climbing 4%, against a 3.3% growth in the same period last year.

Tough future

However, on the back of the current economic crisis, the company appears to be concerned that the next year's results will not prove as significant as these.

“The global crisis of confidence, which started in the financial markets, is now undermining demand in most industries. Within this environment, we expect the IT infrastructure market to be slower in general and that we will be affected accordingly,” DiData CEO Brett Dawson explained in the financial report.

The company said it has started to counter the effects of the climate by tightening investment and expenditure to match its short-term view of the market conditions. “We will continue to re-evaluate and adjust these on an ongoing basis,” added Dawson.

Kaplan says through no fault of the company's management, the economic crisis will have an impact on DiData. However, he notes the company seems uncertain as to what that impact may be.

“It has nothing to do with the capability of DiData; very few people are certain how the macro-economic environment will affect the various companies,” he adds. Kaplan says both the company and investors are concerned that many companies will pull back on spending, which will affect several of the company's products and services.

Just a valley

Although it is not yet clear which services will be affected, Kaplan says the company will still come out the other side.

Kaplan says for the next two or so years, DiData will have to tighten its belt, but is by no means in danger of shutting its doors. “The company is following a path that will lead to a valley. No one knows how big that valley will be, or whether they will have to walk all the way around, but it will come out on the other side.”

He is positive the company will emerge from the financial crisis, perhaps even in a stronger position than before. “Smaller businesses will become insolvent, whereas DiData won't. With fewer competitors, the company will most likely emerge in a far stronger competitive position.

“For the current results, however, the company has done a fantastic job,” he concludes.