Dimension Data's softer growth in profitability is an indication the weakening global economy will adversely affect IT companies that largely depend on good corporate profitability for growth, analysts say.
Yesterday, the South African-founded DiData (with its primary listing in London and a secondary in Johannesburg) said it expected profitability to grow at an annual rate of 13% for the six months to end 31 March.
While the group did not release any hard numbers, this growth rate falls well below the 16.6% growth, to $2.171 million, experienced in the same period in 2008.
Full-year revenue growth for the 2007/8 year was at 19.5%, to $4.5 billion, the networking and services group reported in its annual results in November.
According to the DiData statement, the Americas region has experienced a weak performance, especially in the US where revenues have declined. Revenues in all other regions increased in constant currency over the prior period. Gross margins were stable and operating profit improved in constant currency over the prior period.
The company says it has heightened its focus on containing discretionary costs and reduced its cost base in specific areas, most significantly in the US.
“It is not surprising that Dimension Data should be affected by the economic downturn,” says Daniel Malan, an analyst with asset management firm Regarding: Capital Management.
“There is a direct correlation between corporate profitability and how well the IT companies do. PCs (computers and networks) are funny things, because they do not have to be refreshed every year and it is one place where a corporate can sweat its assets. Corporates under pressure spell bad news for the IT sector,” he says.
Another analyst, who asked not to be named, says DiData is being affected by the downturn in the US economy, but that its broad international geographic spread should help it weather a global recession.
“Recessions are seldom spread evenly across the world so their large international footprint should help them. However, they will still have to continue to cut costs, as they have indicated, and this ultimately could mean layoffs and this is not good news for the overall sector,” he says.
In midmorning trade, DiData was trading little changed, at 519c, on the Johannesburg Stock Exchange.
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