The long haul

For most industries, including the ICT sector, 2009 has been a year of recovery, albeit a slow and very tough one; but coupled with some significant and interesting consolidations.

In the USA, the technology-heavy Nasdaq seems to be ending the year at about the 2 200 level, 37.5% above the level ruling at the beginning of January. Similarly, the JSE All Share Index is looking to finish at about 27 500, almost 27% above its level at the beginning of the year.

However, these figures are still 12% (Nasdaq) and 5% (JSE) below those extant at the beginning of 2008. In the annual shuffle of the Nasdaq-100 index, BMC Software, SanDisk and Vodafone have now been included, thus strengthening the ICT component of this index.

As a direct result of the recent economic issues, the ICT industry worldwide in 2008 shrank several percentage points, although the local market managed to stay in positive territory. However, global growth rates for 2010 are expected to be positive, with SA getting back to between the 3.5% and 4.5% level.

From an executive viewpoint, the top user ICT concerns remain the areas of 'governance, compliance and disaster recovery/continuity', which is not surprising since the market is expecting more legislation within these areas; together with the issues associated with cost containment. In addition to these major concerns, 'green' issues and the mobilisation of applications continue to be of significance.

Nevertheless, the advent of 'cloud computing' represents a major opportunity for businesses going forward, although we need much more bandwidth locally for SA to be able to fully take advantage of this initiative.

As the markets continue to recover, we are starting to see some new listings and much more activity from the private equity companies, although generally, these deals are still smallish in nature. Also, consolidations continue apace, especially within the areas of IT services, security and telecommunications.

This year has seen only one listing on the JSE or AltX, ie, Vodacom; but fortunately, there has also been only one casualty, ie, Celcom (AltX), although Beget Holdings did transfer from the Venture Capital sector of the JSE to AltX.

Global growth rates for 2010 are expected to be positive.

Paul Booth, MD, Global Research Partners

In a quiet year, there have been a handful of new overseas entrants, eg, Computerlinks, Global360, F5 Networks, Kaspersky, Open-Tec, Orange, Trusted Logic and Yeahpoint, to the local market; however, even fewer have exited or ceased to exist and include AMD, PrimeTel and TallyGenicom.

Although our local stock prices have started to move from the lows of 2008, an analysis at the end of November suggested that of the +/-50 technology-orientated shares listed on the JSE and AltX, six are trading at 10c or below (Beget Holdings, Faritec, Ifca Technologies, Labat Africa, TCS and Zaptronix), which is two more than last year. However, over 35% of them are now trading at over R2, a much-improved situation over 2008. In addition, twelve of these organisations have market capitalisations in excess of R1 billion, a figure slightly up from last year.

On the empowerment front, the ICT BEE charter has still not been issued, despite the DTI's Code of Good Practice having been finalised over two years ago. However, this has not slowed BEE activity and we have seen investments, for example, in African Cellular Towers, Altech, Analytix, ConvergeNet, Kyocera Mita SA and Metrofile, to name but a few.

On the merger and acquisitions front, we saw multiple acquisitions and investments from the Altron Group (including NamITech, NuPay and Technology Concepts), Datatec (including ALI, NetStar and Westcon), Dimension Data (including BlueFire and Teksys), EOH (including CA South Africa and REO Consulting), MTN (including a merger of its carrier business with Belgacom's carrier business) and Naspers (including Bankier.pl and BuscaPe.com). Other major local mergers, acquisitions or investment activities included that of Faritec by Shoden Data Systems, Maringo by Jasco and Innovative Document Management by Metrofile.

Key appointments during the year included new country managers/GMs/CEOs/MDs at the following companies: Cell C, Department of Communications, Dialogue Group, Ericsson, Faritec, Google, HP, IBM, Intel, Internet Solutions, Lenovo, MB Technologies, MTN SA, SecureData, Sekunjalo Investments, Siemens SA, SITA, Symantec and Westcon.

Other major events included the re-absorption of Venfin (except its Di Data stake) into Remgro; the failure of MTN to secure a deal with Bharti Airtel; Telkom's disposal of its interests in Telkom Media and Vodacom; the lodging of a formal complaint with the Competitions Commission by Mustek against HP; the opening of telecommunications centres by Huawei and IBM; the name change of Pinnacle Micro to Pinnacle Africa; and the acquisition of arivia.kom (except Face Technologies and Computer Foundations) by T-Systems.

On the ICT media front, we saw the introduction of TechCentral; the demise of Computing SA, net.work, Smart Times and Strictly Business (MTN); the opening of an office by UK-based Informa Telecoms & Media; and of course, there was the usual flood of journalists 'job-swapping'.

From an awards viewpoint, the key 'winner' included Ivan Epstein as IT Personality of the Year 2009.

As was the situation last year, there are still no IT companies listed in the current 'Top 500 Companies in Africa' list from outside SA, and only a handful of telecommunications companies included. However, ICT activity on the continent continues to grow, with significant involvement continuing to come from the Middle East and India, particularly from a telecommunications perspective.

Major activities included the opening of offices elsewhere in Africa by SA-based BaVa Technologies, Continuity SA, and Metrofile; the availability of the Seacom undersea cable; Maroc Telecom taking over Sotelma; Millicom Safaricom acquiring Stream Data Networks; and Telkom SA acquiring the remaining outstanding shares in Multi-links (Nigeria).

Key CEO/MD appointments included those at D-Link, MTN Ivory Coast, Linkserve (Nigeria), Multi-Links (Nigeria), Telecom Egypt, Telkom Kenya, Visafone (Nigeria) and Zain Nigeria, while several regional positions for many of the multinationals were filled by the promotion of the relevant South African incumbents.

Other major events include a new tender for the acquisition of Nitel; the launch of Teams, in which Altech has a major interest; and the investment by Dimension Data in Telcom (Morocco).

Internationally, this year has been characterised by few IPOs; limited activity by private equity groups; a few key acquisitions such as those of 3Com by HP; Affiliated Computer Services by Xerox; Oce by Canon; Perot Systems by Dell; Sanyo by Panasonic; SPSS by IBM; Sun Microsystems by Oracle (assuming the EU issues are resolved) and Tandberg and Starent by Cisco; and the demise of several notable companies such as BearingPoint (the consulting arm of KPMG that was 'floated off' several years ago) and Nortel Networks.

Nevertheless, there have been multiple takeovers by of the larger ICT companies, including Apple, Cisco, EMC, Google, HP, IBM, Microsoft, Nokia, Oracle and Yahoo; many consolidations, particularly in the IT services, security and telecommunications arenas; and no end in sight to the 'battle' between Google and Microsoft. In addition the market is starting to see some consolidation among the social networking companies.

The security market continued to be the focus of consolidation in 2009, with numerous activities, including the acquisitions of Guardium by IBM; Mi5 Networks by Symantec; Nokia's security appliance division by Check Point Software Technologies; S7 Software Solutions by Blue Coat Systems; Solidcore Systems by McAfee; Steek SA by F-Secure; Trusted Logic by Gemalto; and VeriSign's managed security services business by SecureWorks.

The consolidation within the IT services market continued apace with Accenture, Capgemini, Cognizant Technology Solutions, CSC, Fujitsu Services, Infosys Technologies, Logica, Sopra Group and Tata Consultancy Services and many of the smaller players all making smallish acquisitions and thus consolidating their portfolios. In a similar way, the telecommunications companies were also enhancing their IT services offerings, including several activities by T-Systems (Deutsche Telekom).

In the telecommunications space, we saw much acquisition/investment/merger activity by the Gulf-based operators as well as the traditional European players such as the BT Group, France Telecom, Deutsche Telekom, Telefonica and Vodafone. Specific examples include the merger of Orange and T-Mobile in the UK; Sprint Nextel's acquisition of Virgin Mobile USA; and Vodafone Australia and Hutchison Australia merging their mobile businesses.

Apart from the above, other major acquisitions/mergers included that of AMR Research by Gartner; Borland Software and part of Compuware by Micro Focus; i2 Technologies by JDA Software; IDS Scheer AG by Software AG; MQSoftware and Tideway by BMC Software; Satyam by Tech Mahindra; Silicon Graphics by Rackable Systems; TallyGenicom by Printronix; and Vignette and Vizible by Open Text; the merger of NEC Electronics and Renesas to create the world's third-largest chipmaker; the sell-off by eBay of Skype; while Nuance Communications consolidated its position as the leader in voice recognition technologies following its purchase of various interests previously held by IBM.

Major international appointments included new CEOs at Epicor Software; i2 Technologies; Lenovo; National Semiconductor, Overland Storage; Patni Computer Systems; Qualcomm; Rogers Communications; Seagate Technology; SMIC, Toshiba, VimpelCom and Yahoo.

Other major international activities included numerous 'anti-trust' activities/issues involving IBM, Intel and Microsoft; Acer claiming the number two slot in the PC market from Dell; and Huawei Technologies becoming the second largest telecommunications equipment supplier.

Internationally, the next year will see a continuation of the consolidations that have been particularly prevalent over the past two or three years. I expect that those companies with plenty of 'cash' will take advantage of any acquisition opportunity that presents itself, as market capitalisations are still comparatively low.

I suspect, for instance, that 3Com, Ariba, Brocade, Corel, Palm, Tibco and Unisys, to name but a few, will either cease to exist or have been acquired by larger players during the year. Also, 2010 could see possible IPO from Twitter or one of the other social networking sites.

In Africa, the Middle East and Indian-based telecommunications companies will continue their penetration into the continent and I would not be surprised by similar moves from both the BT Group and France Telecom. In addition, we should see some of the other undersea cables becoming operational and the Zambian government disposing of its major stake in Zamtel.

Locally, next year should see the resolution of the new ownership of outstanding subsidiaries of arivia.kom; the possible listing of iBurst; resolution on the 'abuse of dominance' case against Telkom SA; Telkom SA making inroads into Zimbabwe, although the telco itself could well be an acquisition target; and significant competition in the 'broadband' market.

The worst seems to be over, but it is still likely to take several months for 'normality' to return. Growth in the international ICT market will return to positive territory, and locally, growth rates look like returning to levels of earlier years by mid-2011.