Next year looking brighter

As SA's economy moves into recovery, ICT companies can expect some relief as postponed projects start coming back onto the table, say analysts.

Statistics SA says the country's economy grew 0.9% in the third quarter of the year, an indication that SA is starting to come out of the recession.

SA's economy contracted by 7.4% in the first quarter of the year, and 2.8% in the second quarter, after the first decline in growth in a decade in the fourth quarter of last year.

Imara SP Reid analyst Warwick Lucas says next year is expected to be “reasonable” as projects that had been postponed due to the crisis are starting to be resurrected.

He says the financial services industry has started to recover, and this should flow through to increased spend, which will benefit the ICT sector. In addition, Lucas says, IT projects in the mining sector are “starting to come back onto the table”.

Next year could also see new listings on the JSE, as companies seek to raise capital to expand. “Businesses that have got good prospects, especially without access to capital, will seek it,” says Lucas.

“It's safe to say that it will be very tough in the first half of next year,” says Kaplan. He is hopeful the economy will start improving in the second half of the year.

However, Kaplan cautions that it is difficult to tell how long the trying conditions will last. He says companies that have come out of this difficult year in a stable position will do okay next year, and may even show an improvement in their results.

Companies in the sector have already indicated that market conditions will remain difficult. Last month, Business Connexion said “market conditions will remain tough during the coming year”.

Dimension Data CEO Brett Dawson says “much uncertainty remains over the resilience of the global recovery”. However, 2010 is expected to be an improvement on this year, and the company is hopeful it will again deliver growth.

Kaplan says the recent launch of Windows 7 will start to be felt in the marketplace in the second half of the year, as it could provide impetus for companies that have held off upgrading their equipment, and now need to do so.

But, he says, Windows 7 on its own is not going to cause a resurgence in the hardware sector.

Next year will also be the time for software-as-a-service to prove itself to smaller companies, says Kaplan. The concept of pay-as-you-use software will also aid firms in cutting costs, he adds.

The telecommunications sector will be interesting, as 2010 sees the start of interconnect rate reductions. Kaplan says associated services such as Internet service providers may come under pressure to also trim costs.

However, companies that react quickly to the change in rates could benefit. “It could be a good year for smaller, more nimble players,” he points out.

Globally, Kaplan expects to see more vendor consolidation, which will have a spill-over effect on local companies. He says some firms may have to adjust their business model, depending on who they were backing.