For the IT sector, hit by a spate of liquidations, collapsing share prices and financial losses, 2001 was not a good year.
By the end of November, the JSE`s IT index had lost more than 64% since the beginning of the year. It lost 21% the previous year.
The year started bullishly enough, with the sector rising to 906 points in late January from a close of 780 at the end of last year, but by the end of February, it had already dropped to 718. The January peak was to become the highest close of the year.
By 30 November, the IT index was down to just 279 points.
The year`s greatest shock locally was the news from Dimension Data in July that its margins would slip as a result of pricing competition in its products market. The group`s share plummeted from R30 to R15 that month, dragging the index down 34.11% over the same period.
When the group lost its coveted place in the UK`s elite FTSE 100 index, it became clear that it had a huge job ahead of it if it wanted to restore market confidence. The share dropped further during the rest of the year, hitting an intraday low of 765c in mid-October. Thanks to better than expected results from Cisco and after the market digested the DiData results, the share began to recover. It was trading at R14.50 this week.
Dimension Data was by far not the only company reporting less than ideal financial results this year. IT and related companies reporting good growth formed a minority. AST Group, Comparex Africa, CS Holdings, ERP.com and the unlisted IQ Business Group were among the profit-makers. However, even most of the profitable companies admitted they had experienced a tough market.
The tough trading conditions proved far too difficult for some industry participants to bear, resulting in a spate of liquidations. The most significant local IT liquidation of the year took place in October, when Siltek closed its doors, sending shockwaves into an already jittery market.
Other liquidations included Accord Technologies, which had been labouring under high debt levels attributed to a R36 million settlement with the revenue service, Infiniti, MMW, and Planit. The poor health of online advertising was also reflected in the liquidation of unlisted Real Media, an advertising agency focusing on the Internet.
That the glory days of IT are over is evidenced by the fact that the industry has not been immune to the wave of retrenchments globally. Dimension Data cut 1 568 jobs, representing 14% of its workforce. Retrenchments were also announced by I-Fusion and Zaptronix, among others.
The September terror attacks in the US and subsequent strikes against Afghanistan have also taken their toll on the global economy. This is doubtless having an effect on the IT sector as well as others, and analysts expect many IT companies reporting dismal results next year to attribute their figures at least in part to the events of September.
Yet, despite the current conditions, many IT companies are beginning to experience an upturn in sales, with several predicting a return to profitability in the next year. But with the IT index losing 64% in just a year, and 70% over the past two years, the companies have a hard job ahead of them if they hope to infect investors with the same degree of confidence.
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