The ICT industry will be under pressure for at least another year as companies keep a lid on costs, despite signs that the global economy is picking up.
Just over a year ago, the US market spun out of control, sending ripples through the rest of the world. SA entered a recession this year, and ICT firms came under pressure as spending eased off as companies delayed investments.
Finance minister Pravin Gordhan pointed out the consequences of the global meltdown in his mid-term budget speech earlier this week. “In SA, 500 000 people have lost their jobs. The Unemployment Insurance Fund, under [labour] minister [Membathisi] Mdladlana's trusteeship, has seen monthly claims double since April last year.”
However, he added: “There is some glimmer of hope - the leading business cycle indicator has improved by 6.8 percentage points since its low-point in March and there is renewed buoyancy in the markets.”
Some hope
Economist Russell Lamberti, from ETM, says signs of recovery will start flowing through the market towards the end of this year, but a complete upwards swing will not be seen until the third quarter of next year. “But, if there is another major mess, throw everything I say out of the window.”
First National Bank chief economist Cees Bruggemans says a gradual recovery started in the second quarter of this year. But he cautions that growth may not remain gradual, as consumers and businesses around the world are still shaken and “uncertain about the future”.
Hard hit
Recent company results have pointed to the effects of the global meltdown. This month alone, at least three ICT companies have said the economy has taken its toll.
SA's largest cellular operator, Vodacom, expects to report a drop in headline earnings per share for the half year next year, as the tough environment hampers growth. Headline earnings per share would be between 10% and 20% lower for the six months to September, and earnings per share would drop by between 95% and 105% when it reports next month.
Technology business Altron says the recession has had a significant impact on its latest set of results. Its interim results to August were disappointing, with net profit almost halved to R405 million, from R800 million in the previous year.
Revenue lost ground, and was R1 billion lower than the previous year, and headline earnings per share - a key indicator of profitability - dropped from 192c to 93c.
Investment holding company MICROmega grew revenue 2% in the half year to June, but headline earnings per share more than halved. The company, which has interests in several sectors, including IT, said earnings per share were down 70%, to 11.52c, while headline earnings per share dropped 52%, to 11.34c.
Bouncing along
Westcon CEO Jacques Malherbe says: “On the whole, I think we will be bouncing on the bottom for another year.”
He says growth of the industry will be flat during the next 12 months, and the general reseller community will keep living from hand to mouth. “Most of the big projects being executed now were initiated up to 18 months ago. So where are the new big projects? I don't see much in the pipeline,” Malherbe adds.
“The present government's cooling attitude towards ICT, coupled with the disruption at SITA, will keep on impacting resellers and vendors focused on the public sector market. Cisco owns about 70% of this network infrastructure market, so they must be feeling the pinch although I don't have numbers to back this statement up,” Malherbe adds.
In addition, he explains, the 2010 Soccer World Cup will disrupt the economy, which will result in productive work days shrinking by about 90 days.
Hubert Wentzel, divisional director of EOH Consulting, says he does not have clear insight into when the crisis will end. “If I knew this, I'd be rich... I don't think anyone really knows and even the financial analysts have conflicting views.”
He adds that the general consensus is that the recession appears to be flattening out, but the recovery will be gradual. However, ICT companies will not immediately feel the pressure ease. “Many companies have deferred spending on IT projects to protect their cash flows, so some of those strategic projects that have already been 'agreed' might stimulate recovery in the IT sector.”
Wentzel says, as a result, growth will be slow, if it happens at all. Sadly, he adds, the crisis has meant that some companies have had to close down, and retrenchments are still happening in the ICT sector.
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