The year that was

I believe we are experiencing another grudge cycle in the market, the first major one since Y2K. This time it is a series of activities, some of which benefit the bottom line, unlike Y2K, which was mainly an expense item. The cycle is oriented around governance, compliance, conformance and risk management that all organisations have to handle worldwide.

The ICT charter and various other black economic empowerment (BEE) developments, together with a host of activities within the telecommunications environment, have dominated the last year from a local perspective. We saw further consolidations worldwide, particularly within the IT services, satellite communications and wireless sectors, together with significant activities around a handful of multinationals, namely Cisco, HP, IBM, Microsoft and Oracle.

In the US, the technology-heavy Nasdaq is ending this year close to the 2 150 level, about 5% above the level this time last year, despite falling to lows of +/-1 850 around mid-year. Conversely, the JSE is running at all-time highs of approximately 12 500 and could push the 13 000 level in the weeks to come.

As has been the case since 1999, there were few new ICT listings on the JSE and/or AltX, but a large number of casualties through a combination of liquidations, consolidations, acquisitions and conventional de-listings.

2004`s key issue was the continued move, by listed and non-listed organisations alike, to embrace BEE principles, a situation fuelled by the imminent publication of the ICT BEE charter. The telecommunications sector also saw much activity.

Unlike last year, the share prices of many local technology stocks grew with the favourable business climate. An analysis at the end of November shows that of the +/-54 technology shares still listed on the JSE and AltX, only 11% (2003: 21%) were trading below 10c; another 15% at below 50c (similar to 2003); 3% below R1 (2003: 16%); but 37% now trading above R2, up from 30.5% last year.

On the empowerment front, we saw several drafts of the ICT BEE charter, which addressed the majority of concerns, although there are issues outstanding with respect to multinational companies. We saw BEE investments in Aberdare Cables, Altech Data, Asyst International, Atio, BTG`s SA operation, CCI, CommsCo, Computershare SA, CSC SA, Dimension Data SA, EPI-USE Systems, ERP.com, ExecuTrain, IFS Defence SA, MB Technologies, Metrofile, Prism (imminent), Rethink Management Consultants, Smartsource Corporate Training, Spescom, Striata and Tecor Group.

The ADIC SA was established, and we also saw a joint venture between Sifikile Investment Holdings and ADIC; the formation of Inkosa Consumables; and a BEE partnership between Orion Telecom and Tema Telecoms.

The telecommunications sector has been dominated by the lack of second national operator (SNO) progress and the liberalisation announcement.

The new listings, all on the newly created AltX, included DataPro via a reverse takeover of Casey and a subsequent transfer to the AltX, and Xantium Holdings.

Although the Comparex listing was terminated, it was replaced by that of Business Connexion. Unfortunately, the attrition list was again long and included Aplitec following its acquisition by US-listed UEPS; Aqua Online; CCN; Cycad; Intervid, which was absorbed into VenFin; IST, following a buyout by Ethos Equity; and Maxtec, following a buyout by its black staff. MGX`s shares traded again following a previous suspension, although a de-listing is expected in early 2005.

The shares of CS Holdings and Global Technology were suspended; EC-Hold and un-listed Maseco Bytes IT Solutions ceased operations and/or went into liquidation; and Bryant Technology and EduTech pulled out of the ICT sector.

Two key Accpac VARs, Lorge and JPC Computers, merged; Altech invested in Econet Wireless Global and took-over NamITech; Atio acquired UK-based X-Plor Holdings; the Connection Group acquired Beyond IT and several photographic entities; Comztek and Otex Concepts created a joint venture and formed Comztek Africa; BTG acquired CS Holdings; Datatec acquired UK-based Analysys and US-based Solution Technology; VenFin acquired DataMirror`s shares in Idion and Intervid; New Dawn Technologies acquired Iocore`s Oracle division; Nasdaq-listed Versant purchased Cape Town-based JDO Genie; Square One acquired Latitude; M-Five Software and ASD created a JV; Faritec acquired Nanoteq`s commercial security division; Paracon acquired Faritec`s contracting business and Time Quantum; TSS Business Services acquired Quartet Solutions; Vodacom acquired Smartcall SP (51%); Synergy Computing and Sunstone Business Solutions Systems merged; Johnnic Comms sold its electronic trading hub, TradeWorld, to Tactical Software Systems; M-Web bought ISP Tiscali SA; Vodacom purchased Tiscali`s cellphone business; Duo Solutions` reverse take-over of Zaptronix; and Thintana Comms sold its 30% shareholding in Telkom SA.

Key appointments during the year included new country/general managers at 3Com, Atos Origin, BenQ, Business Objects, Cisco, Computer Associates, FileNet, HP, Intel, McAfee, Sun Microsystems, Tibco and UUNet. New CEOs/MDs were appointed at Artec Computer Systems, Choice Technologies, CompuClearing, Corex IT Distribution Dynamics, Datacentrix, Datatec`s Westcon Group, Dimension Data, Elexir, FrontRange Limited, Grintek, Infowave, Interconnective Solutions, Labat Africa, Lava Systems Africa, Lechabile Storage Solutions, Metrofile, MTN SA and Software Futures.

Other appointments included new chairmen at CompuClearing, Digicore, Dimension Data SA, Elexir, Infowave, Labat Africa, Vesta Technology Holdings and Xantium Technologies; Moira de Roche as president of the CSSA; Jackie Manche as CEO of ICASA; Mosibudi Mangena as SA`s first minister of science and technology; and Lyndall Shope-Mafole as director-general of the Department of Communications.

Resignations included Enos Banda as interim chairman of the SNO; Izane Cloete as MD of Luso Computer Institute; Andrew Mthembu as deputy CEO of Vodacom; Dave Reddy as country manager of Veritas Software; Annette van der Laan as CEO of CS Holdings; and Graeme Victor as CEO of Global Technology.

FileNet, Software AG and Tibco opened South African offices, while NEC closed its local operations.

As to the ICT media, Johnnic Communications introduced CIO Africa, but otherwise the media market shrunk with the closure of CommsAFRICA, ComputerWeek Strategist and Platform as a separate publication (it will be incorporated in Finance Week in some form); and there was the usual journalist job-swapping.

Emtel in Mauritius launched Africa`s first 3G network service; Datatec sold its Australian and New Zealand Logicalis operations to IBM; Dimension Data sold Proxicom; Lechabile Storage Solutions was created; and Solution for Business Intelligence (part of ERP.com) and Lava Systems Africa, a distributor of Canadian-based Open Text, were launched.

Comparex changed its name to Business Connexion, Rand Worldwide SA became Automated Reasoning following a management buyout, and Sagent SA became Alicornio Africa.

Internet Solutions purchased two SAP services/consultancy entities, Core People and Iocore`s SAP division; the communications minister granted four telecoms licences for the rural areas; and Old Mutual Asset Managers and Tata African Holdings were named as the two contenders for the investor stake in the SNO.

As to awards, winners included Intelleca Voice & Mobile (grand prix winner in the 2004 Age of Innovation & Sustainability awards); Mthunzi Mdwaba (CSSA IT Personality of the Year); Deelchand Jeeha (African ICT Achievers Award for 2004); and Marina Bidoli (ICT Journalist of the Year).

From a technology perspective, the mobile/wireless explosion will continue, coupled with a strong move to notebooks/tablets from conventional desktop PCs.

Paul Booth, MD, Global Research Partners

This year has been characterised by a renewed flood of IPOs worldwide, although short of the dizzy days of the late 1990s, and consolidations within the IT services, satellite communication and wireless sectors.

IBM sold its PC business unit to China`s Lenovo Group and we saw the ongoing Oracle/PeopleSoft takeover saga.

Notable IPOs included China Netcom, Elpida, Google (one of the largest of the year), Hutchison Telecomms and Tata Consultancy Services.

In the IT services arena, there was significant consolidation among the European players, particularly within Scandinavia. Despite being some of the predators in 2004, Atos Origin and Capgemini now seem to be up for grabs, and in the US, EDS`s takeover of the Feld Group was one of the key deals early in the year.

Intelsat is in the process of a $5 billion acquisition from a four-party private equity consortium that includes both European and North American companies, BT Group`s holding in Eutelsat has gone to GS Capital Partners, and PanAmSat was sold off to KKR in a $4.3 billion deal. These three deals are the last of five that started last year with the sell-off of Inmarsat and New Skies satellites, and sees all the six main satellite companies now in private equity hands (the one company not mentioned above is SES Global, which has always been in private hands).

Cingular Wireless (a JV between BellSouth and SBC Comms) bought AT&T Wireless and it is rumoured that Nextel Comms and Sprint are to merge, a move that would consolidate their position as number three in the US wireless market behind Cingular and Verizon Wireless (a JV between Verizon and Vodafone).

The Oracle/PeopleSoft scenario has continued to drag on, with final resolution only likely at next year`s AGM scheduled for 25 March, despite obtaining over a 60% commitment from shareholders to its 'final` bid of $24 per share, although the offer is still open until the end of the year.

Lenovo Group`s acquisition of IBM`s PC business for $1.75 billion could be a wake-up call for other players in this market such as HP, but as yet it is too early to fully appreciate its implications. The deal gives IBM a strong Chinese presence and sees Lenovo`s move to the US, and a future listing in New York should not be ruled out. There are also questions as to exactly how the deal will affect the local marketing of the IBM PC range.

There were also numerous acquisitions by a handful of key IT players such as Cisco, HP, IBM and Microsoft. HP also announced a strategic partnership with British Telecom.

Other major acquisitions/mergers included that of Accpac by Sage, AFC by Tellabs, Artisan Components by ARM, AT&T Wireless by Cingular Wireless, DDI Pocket by Carlyle Group and Kyocera, Group 1 Software by Pitney Bowes, Infonet by British Telecom, Marcam by SSA Global, MGM by Sony, Symbian by Nokia, Telcordia by a private equity group and Telecom Italia Mobile by Telecom Italia.

Major international appointments included those of Rob Ashe as CEO of Cognos, Eva Chen as CEO of Trend Micro, Paul Ctellini as CEO of Intel, Dave Duffield as CEO of PeopleSoft, William Green as CEO of Accenture, Klaus Kleinfeld as CEO of Siemens, Michael Lawrie as CEO of Siebel Systems, William Lyons as CEO of AXS-One, Joseph McGrath as CEO of Unisys, Williams Owen as CEO of Nortel Networks, Gervais Pellissier as CEO of Bull, Kevin Rollins as CEO of Dell, Richard Rempleton as CEO of TI and Bill Watkins as CEO of Seagate Technology.

Resignations included Sanjay Kumar as CEO of Computer Associates, Paul Stodden as CEO of Siemens Business Systems, Ziggy Switkowski as CEO of Telstra, Godfrey Sullivan as CEO of Hyperion and Lawrence Weinbach as CEO of Unisys.

Retirements included Craig Barrett as CEO of Intel, John Rade as CEO of AXS-One and Tom Siebel of Siebel Systems.

Craig Conway, CEO of PeopleSoft, and Frank Dunn, CEO of Nortel Networks, were removed from their posts.

There was also the ongoing Unix intellectual property battle originally started by SCO; the European Commission ruling against Microsoft; Microsoft settled several outstanding matters including a $1.6 billion payout to Sun Microsystems; Microsoft paid a $32 million dividend, the largest ever made; Sony withdrew from the handheld PC market outside Japan; Cox Comms privatised; the French and German governments offloaded some of their investments in France Telecom and Deutsche Telkom respectively; Philips electronics sold off its shares in Vivendi; the EDS Agility alliance was created through EDS`s partnership with six of its vendor partners; Telcordia was sold off to a private equity group; most of the Japanese IT players returned to profitability; Commerce One filed for bankruptcy; and major accounting troubles at Nortel Networks could see the company de-listed from both the Nasdaq and Toronto Stock Exchange.

The conference/exhibition scene also changed dramatically with the permanent cancellations of Comdex and CeBIT America; and TECHXNY was replaced by C3 Expo, Corporate and Channel Computing Expo, scheduled to take place in New York in May 2005.

The Nasdaq 100 index saw a number of changes with its annual adjustments, which meant technology companies such as Compuware and Nvidia dropping from the index and companies such as Autodesk, Liberty Media International, LM Ericsson, ntl and MCI now being included.

Next year will see more BEE initiatives emerging, continuing activities associated with the latest 'grudge` cycle and corporates planning their moves following the telecommunications liberalisation.

I also believe we will see the strengthening of the IT components of some of the major conglomerates/investment companies such as Bidvest and VenFin, and see Telkom SA looking for suitable business-oriented acquisition targets in order to enhance its push into Africa and minimise the effects of the telecommunications liberalisation that will take place during 2005.

Hopefully, the telecommunications liberalisation will also encourage more international companies to use SA to locate their call centres, as well as provide a possible destination for host outsourcing contracts.

Many of the smaller ICT stocks, particularly those still listed in the JSE`s development capital and venture capital sectors, will sanitise their situation. Y3K has already announced its intention to move to the AltX, while Infowave, Labat Africa, Synergy and Zaptronix have all made rumblings about moving, leaving Beget, Integrear, Interconnective Solutions and Stella Vista to have their say on this matter.

Various hangovers from 2004 should be finalised early in the year, including Saab`s proposed acquisition of Grintek, and the cleanup of the Cape Empowerment Trust/Dynamic Cables situation.

Other matters to be wrapped up include: Logitech opening a local office; the publication of the 'final` version of the ICT BEE charter; the long-awaited IPO by Datatec`s Westcon Group; the details of the AST/Gijima Technologies deal; and the introduction of 3G services by Cell C, MTN and Vodacom.

I also hope the JSE will formerly de-list those companies that have been suspended for over 12 months, including CCG, Cyberhost, DNA, OAI, ShawCell and Siltek.

On the international front, we will not only see some growth in the IT sector but many new listings. However, I believe the consolidation trends, which started to manifest in 2003 and were also prevalent this year, will continue. From a company perspective, I believe Wanadoo`s shares will be de-listed following the buy-out of minorities by France Telecom; and we could see the sell-off of AT&T and Bull.

From a technology perspective, the mobile/wireless explosion will continue, coupled with a strong move to notebooks/tablets from conventional desktop PCs. I believe we will also see a larger role for smart cards and the use of RFID technology during the next few months, with Web services becoming a major requirement for many companies later in 2005. The growth in contract management and enterprise content management will accelerate. As far as voice recognition is concerned, we are still some way away and I don`t expect many major breakthroughs in 2005.

It should always be remembered that we are still in a technology capability high-growth phase with processing power doubling every 18 months, storage capabilities doubling every 12 months and bandwidth doubling every nine months.

Although 2004 was a difficult year for many organisations, 2005 will not necessarily be different. I predict that overall IT spending will be about 10% up on this year, but with much of it being diverted to the 'grudge` cycle issues. However, many large corporates may well take advantage of the impending telecommunications/networking liberalisation initiatives, which if the case, could push overall ICT spending up significantly, although my personal feeling at this stage is that this is more likely to occur in 2006.

As was the case in 2004, next year will be more selective and often focused on short-term projects that will quickly yield business benefits that can impact the bottom line. Fortunately, there are plenty of emerging technologies, outside the telecommunication opportunities already mentioned, that companies can examine from a competitiveness viewpoint and I`m sure astute executives will take advantage of these.