A tough but positive year
Amid harsh economic conditions, there is a long list of ICT opportunities for the foreseeable future.
2012 has been a good but tough year for the ICT industry, despite the financial indicators rising significantly. There has also been a substantial uptake in merger and acquisition activity that has been coupled with some healthy activity in the private equity, IPO and start-up arenas. However, the demise and de-listings of ICT companies in the local market is a major cause for concern going forward.
In the US, the technology-heavy Nasdaq is currently just below the 3 000 level, 14% up from the start of the year, although it did reach nearly 3 200 during the year; while over the same period, the JSE is at record levels and is up over 19.5% at over the 38 200 mark.
Despite the continuing economic issues, the local ICT industry has seen positive growth during the year, albeit lower than that originally predicted, but still above GDP growth levels. Also, from recent surveys by at least one of the major research companies, the majority of IT budgets have either increased or stayed at 2011 levels. Nevertheless, the drive for efficiency and productivity still remains a top priority and the areas of business intelligence/analytics; disaster recovery and business continuity; governance; and security are still very much in the focus of many organisations.
From a technology perspective, cloud computing and social media coupled with the move to mobility and the proliferation of devices and consequential 'big data' issues arising from this, heads up a long list of opportunities for the foreseeable future; and for many organisations the trading and/or protection of patents has become a major activity.
This year has not been a good one ICT-wise for the JSE and AltX as there have been two de-listings and no new entrants; specifically, African Cellular Towers went into liquidation and Ifca Technologies also withdrew from the ICT sector. In addition, PBT was the subject of a reverse takeover by Prescient and was subsequently transferred to the asset management sector of the JSE; and Trustco, which has a major ICT portfolio, was transferred from the African sector to the speciality finance sector of the JSE.
Nevertheless, this was a more encouraging situation compared to the previous few years. Also, on a positive note, there were a number of new direct entrants into the local market, including BenQ; Information Builders via InfoBuild; Jabra via Jabster Technologies, which in turn emerged from Kathea; Magic Software, following its acquisition of Magix Integration; NEC; Raystream; ReadSoft; Sky Vision Telecommunications Systems; and Trend Micro.
In addition, the two remaining ICT members of the DC and VC sectors, Stella Vista and Labat Africa respectively, still carry on alone, although this is likely to change during 2013. Finally, the Ideco Group, following a sell-off of part of its business, changed its name to the Muvoni Technology Group.
The local ICT stock prices have moved significantly from the lows of 2008, and an analysis at the end of November suggests that of the +/-40 technology-oriented shares still listed on the JSE and AltX, only three are still trading at 10c or below, an improvement from this time last year.
Nevertheless, over 60% of the ICT-oriented shares are now trading at over R2, a much improved situation over 2011. In addition, 17 (excluding conglomerates) of these organisations have market capitalisations in excess of R1 billion, again a much better figure than that of 12 months ago.
On the empowerment front, despite the ICT BEE charter finally being gazetted, BEE activity is still very slow, with few investments being announced. However, the good news was that the BEE investors in Dimension Data have, in the main, re-invested their monies back into the group, following the massive pay-outs that occurred during the year. However, the ICT charter will need to be reworked again to bring it in line with the new proposed empowerment codes.
On the mergers and acquisitions front, there were several deals involving the Altron Group, which includes Altech and BTG, Business Connection, Datatec and EOH. These included Alliance Business Solutions and Unisys Africa for the Altron Group; Integr8 and Quad Automation for BCX; Afina Group, Cibercall SA in Columbia and Ecuador, Comztek, Corpnet, PT Napoleon and Triple AcceSSS IT for Datatec, which, with the exception of Westcon, consolidated their African subsidiaries; and Airborne Consulting, Faculty Training Institute and Siemens' IT services arm for EOH. In addition, Altech sold off its interests in West Africa.
Other deals included AdaptIT buying out BIPS and Swicon360; Atio snapping up BCX's Avaya assets; FoneWorx merging with the Value+ Nettwork group of companies; Metrofile taking over Global Continuity SA; MICROmega Holdings acquiring MIS Consulting; and SecureData disposing of its UK operations.
Also, in its own inimitable way, Naspers continued to invest in various overseas Internet and e-commerce ventures, including Netretail Holding and Souq.com.
Other major events included two major outsourcing deals, one valued at R2.58 billion between Old Mutual and T-Systems for IT infrastructure management, and the other worth $220 million between BAT and BT Global Services; the accreditation by the Department of Communications of LAWtrust as the first supplier in SA of advanced electronic signatures; MTN entering the Top 100 brands list, the first entry into the list by any South African company; ConvergeNet Holdings undergoing a shareholders' revolt that resulted in a restructuring and appointment of new senior executives; Net 1 UEPS Technologies being probed by the US government regarding possible violations of its Foreign Corrupt Practices Act; MTN being taking to court in the USA by Turkcell regarding the former's tender for the Iran licence; a major spat between John Holdsworth (AppChat), the ex-CEO of ECN Communications and Reunert; Telkom being fined $449 million by the Competitions Tribunal for monopolistic practices; the announcement by Samsung that it is to locally manufacture computer monitors of 21 inches and above; and yet a further delay regarding the switch-on of digital TV.
Key appointments during the year included new ministers at the Department of Communications and the Department of Science and Technology, and new country managers/GMs/CEOs/MDs at many companies, including Acer, Cell C, Cisco, Dimension Data MEA, Gijima, IBM, Lenovo, MTN, Mxit, Nashua Mobile, Samsung, SecureData, T-Systems SA, Telkom SA, Toshiba, Virgin Mobile, Vodacom SA and Western Digital. Also, and unfortunately, Inana Nkanza (EMC), Roy Padayachie (Department of Communications) and Antoine Roux (Naspers) all passed away during the year.
From an awards viewpoint, the key winners included Rob Stokes, founder and CEO of Quirk, as the CSSA 2012 IT Personality of the Year; and Sello Mmakau, CIO at the Department of Home Affairs, as the 2012 Visionary CIO of the year.
The African scene was dominated in 2012 by the availability and exploitation of the various submarine cables that now serve the continent, a move that has been complemented by a significant amount of fibre-laying, particularly within landlocked countries. This has also been supplemented by the launch of several new satellites from Intelsat that will also help to serve the continent.
In its own inimitable way, Naspers continued to invest in various overseas Internet and e-commerce ventures.
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 still only a handful of telecommunications companies included. However, ICT activity on the continent continues to grow, with significant involvement coming from the Middle East and India, particularly from a telecommunications perspective.
Major activities included the opening of offices elsewhere in Africa by many local and international companies, including Cisco, Comztek, HP, IBM, Microsoft, Qualcomm and Sage Accpac; the disposal by Altech of its West African operations; the creation of a joint venture, Virgin Mobile MEA, between the Friendi Group and Virgin Mobile; the $335 million investment in MTN Nigeria by the Shanduka Group; the acquisition of Mobinil (Egypt) by France Telecom, which also took a 49% stake in Congo China Telecom; the establishment by Huawei Technologies of a global operations centre in Nigeria, one of only three worldwide, and a new network centre in Egypt; and the merger of the three CDMA operations in Nigeria, viz, MPS, Multi Links and Starcomms.
Other major events included the announcement that Convergence Partners was launching a $500 million African fund to invest in ICT on the African continent, and that an initial investment of $35 million had already been given by the IFC, an arm of the World Bank; and the announcement by Kenya that it will land a fifth undersea cable that will have more capacity than the combination of the other four.
Key CEO/MD/country manager/regional appointments included those at Acer, Airtel, Citrix Systems, Huawei Technologies, Kaspersky Labs, Kenya Data Networks, various MTN operations, MB Technologies, NEC, several Orange operations, RIM, SES, Software AG, T-Systems, Telecel Zimbabwe, Telecom Egypt, a number of Vodacom operations, and Westcon.
In a similar way to last year, but to a much greater extent, 2012 has seen the ICT industry showing all the healthy signs of a thriving and growing industry. There have been significant consolidations in the IT services, security, semiconductor and telecommunications markets, and for the first time, also in the social media space. In addition, several Chinese companies, such as Alibaba, Baidu, Huawei Technologies, Lenovo, Tencent and ZTE, are now making their mark globally, despite US concerns regarding the business practices of Huawei and ZTE.
Thirteen of the top ICT companies have each been involved with a significant number of acquisitions, generally small ones, although a few were valued at over $1 billion. These companies are Accenture, Arrow Electronics, Cisco, Dell, EMC, Facebook, Google, IBM, Microsoft, Intel, Oracle, SAP and Xerox; and included Cisco acquiring Meraki ($1.2 billion) and NDS ($5 billion); Dell buying out Quest Software ($2.4 billion) and SonicWALL ($1.2 billion); IBM purchasing Kenexa ($1.3 billion); Oracle buying Taleo ($1.9 billion); and SAP acquiring Ariba ($4.3 billion).
Other key takeovers included Alibaba acquiring 20% of its shares held by Yahoo for $7.1 billion; ASML buying Cymer for $1.95 billion; BCE acquiring Astral Media for $3 billion; CGI taking over Logica for £1.7 billion; Equifax buying CSC's Credit Services business for $1 billion; Hutchinson Technology taking over Orange Austria for $1.71 billion; Megafon purchasing Euroset for $1.3 billion; the merger of MetroPCS and T-Mobile USA in a deal that values the new entity at $26 billion; Micron Technology taking over bankrupt Elpida Memory for $2.4 billion; Softbank taking over Sprint Nextel for $20.1 billion; and Vodafone purchasing Cable & Wireless Worldwide for $1.7 billion.
Significant private equity activity has again emerged with several technology deals, including Bain Corporation acquiring Atento, Telefonica's call centre operations, for EUR1 billion+; Carlyle Group buying out Getty Images for $3.3 billion; Red Prairie taking over JDA Software for $1.9 billion; and Vista Equity Partners buying Misys for $2.01 billion.
Other major international activities included the EU taking a strong stance regarding Google, IBM and Microsoft; Am'erica M'ovil moving into Europe with investments in KPN and Telekom Austria; Elpida Memory, Kodak, LightSquared and Vivaro entering Chapter 11; the battle for control of VimpelCom between Telenor and Altimo; the investment in Sharp by Intel and Qualcomm; the launch by Microsoft of Windows 8 and Windows RT; and a raft of patent lawsuits involving Apple, RIM, Nokia and Samsung, some of which are destined to drag on for several years.
In addition, there was significant IPO activity, including the much-awaited but disappointing and contentious listing of Facebook, with other IPOs from AVG Technologies, Guidance Software, Palo Alto Networks, Ruckus Wireless, Splunk, Telefonica's German operations, Workday and Zynga.
Major international appointments included new CEOs at CSC, Foxconn International, Ingram Micro, Jabil Circuit, Millicom Cellular International, Pitney Bowes, RIM, SAIC, Samsung Electronics, SGI, Sony, Vivendi, VMware and Yahoo; the announced retirements of Bill McCracken, CEO of CA Technologies, and Paul Otellini, CEO of Intel; and the deaths of Steve Appleton, CEO of Micron Technology; and Rob Pullen, CEO of Tellabs.
Finally, during the year, Lenovo ousted HP from the number one PC slot; Samsung consolidated its position as the number one ICT company by revenue and the top smartphone player; and Google's Chrome took over the number two browser slot from Firefox.
2013 and beyond?
Next year, the international scene will still see a continuation of the consolidations that have been particularly prevalent over the past few years, and I would not be surprised if names such as Brocade Communications Systems, Kodak, Nokia Siemens Networks, Nuance Communications, RIM, Unisys, to name but a few, will either cease to exist or will have been acquired by larger players during the year. The year will also see many new IPOs, particularly within the social media sector, and is likely to include Avaya, Intelsat, Telefonica's Latin American operations and Twitter. I also expect some major announcements from EMC/VMware that will see the establishment of a new company that will house various assets from both EMC and VMware, and resolution of the $2.7 billion court ruling in Mexico against Yahoo.
In Africa, expect Altech to make some changes within its East African operations; further offices opened by many of the 'big boys' such as Google, HP, IBM, Intel, Oracle and SAP; a buyer for Vivendi's stake in Maroc Telecom; and the possible merger of Bharti's Indian and African operations. In addition, there should be a resolution of Vodacom's situation in the DRC and MTN's situation in Swaziland.
Locally, activities focused around Telkom SA will be prevalent, along with the possible acquisition of either 8ta or Cell C by Bharti Airtel. Unfortunately, there could be further de-listings, as a result of takeovers/mergers, from companies such as SecureData, Stella Vista, TCS and Zaptronix.
The ICT industry is alive and kicking, despite only growing at a slow pace in 2012, probably at a little above GDP numbers. However, I expect this to improve slightly in 2013 with the local market growing at over 6%, and Africa as a continent at an even higher rate.
However, the local situation regarding Telkom SA needs to be resolved quickly and in the interests of the country and business as a whole.