The first month of 2003 has not been an auspicious one for the JSE`s IT sector as share prices have been depressed, not only by industry issues, but global factors as well.
The IT index has fallen to 4 632 points after starting the year at 4 772. The IT hardware index has dropped to 201 points from 210.
"The IT industry still has a lot of issues to contend with this year, including overcapacity and sorting out business after the heydays of the past few years," says Piet Viljoen, chief investment strategist at Investec Asset Management.
Viljoen says the IT industry remains a tough sector to be in with the distribution part probably being the toughest.
He says consolidation will continue with companies moving pieces around and trying to fit them in with other units in an attempt to make business sense.
"Many companies such as AST and Dimension Data expanded too quickly and are now involved in a lot of areas which are not generating cash and this will help the smaller companies."
Dimension Data`s share price has traded between 350c and 420c since 1 January. The JSE`s other flagship IT share, Datatec, has plunged to 606c from 720c registered on 20 January.
Comparex Holdings, which sold its cash-guzzling European operations, has managed to refocus, much to its major shareholders` satisfaction. Last year Investec, along with other asset management companies Alan Gray and Sanlam Asset Management, forced Comparex`s board to readjust its strategy. Comparex`s share price has seen substantial volatility ranging from its opening this year of 525c to a best level of 620c on 24 January. It has since dropped to 563c.
"However, one will also have to be careful of not equating a share price with just how well a business is being run this year," Viljoen says. "There are still a lot of issues out there affecting companies` shares that do not have a direct bearing on their businesses."
In a marked contrast from two years ago, a 12-month outlook for IT companies is considered to be too limited. "One now has to take a longer-term view of what the companies will be doing, especially in terms of generating cash," he says.
AST, which grew out of Iscor`s IT division, has recently announced a change in strategy designed to make the group more profitable. However, this has not helped its share price, which has fallen to 22c from 30c on 14 January.
"This is another victim of its own success. It expanded too quickly and now has to pay the price," Viljoen says.
Companies marked as budding starts by Viljoen and other asset managers are Datacentrix and ERP.com.
IT infrastructure supplier Datacentrix is trading 1c lower than its starting price of 131c this year after trading for a while at 135c.
E-mail business provider ERP.com has traded between 37c per share and 46c since the beginning of the year.
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