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Alviva struggles to meet demand as global chip shortage bites

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JSE-listed technology group Alviva’s financial performance was impacted by the global shortage of processors and components.

This emerged as the company on Monday announced its financial results for the year ended 30 June.

During the period, Alviva posted revenue of R15 billion, up 1% from the previous year. Earnings before interest, taxes, depreciation and amortisation (EBITDA) was R887 million, up 25%.

Says the Pierre Spies-headed company in a statement: “Alviva has shown great resilience in recovering from the effects of the lockdown experienced in the prior reporting period and operating in a constrained economic environment throughout the 2021 reporting period due to the impact of COVID-19.

“Sadly, the group has been unable to avoid the trauma that the pandemic has caused, and five of our employees have passed away as a result of contracting the virus.”

Revenue for the reporting period was approximately 1% above 2020, although the increase could have been substantially more if there had been an availability of product to fulfil the orders placed by the group’s customers, says the company.

“As mentioned in Alviva’s interim results announcement, as well as being well-publicised in the media, the worldwide shortage of processors and components significantly restricted the group’s ability to satisfy its customers’ demands for products.”

COVID-19 ramifications

Alviva CEO Pierre Spies.
Alviva CEO Pierre Spies.

Market analyst firm Gartner recently said the worldwide semiconductor shortage will persist through 2021, and is expected to recover to normal levels by the second quarter of 2022.

The research firm noted the COVID-19 crisis resulted in chip shortages, starting primarily with devices such as power management, display devices and microcontrollers, fabricated on legacy nodes at 8-inch foundry fabs, which have a global limited supply.

“Alviva had initially believed this would be of a short-term nature, but it is now anticipated that the product availability will only return to historical norms by the next reporting date,” says the JSE-listed technology group.

It notes the group managed its foreign exchange exposures exceedingly well, resulting in a gain on foreign exchange for the reporting period of R31 million.

As reported at the interim stage, it adds, cash flow management has been excellent throughout the reporting period and net finance costs showed a significant decrease of R41 million compared to the prior reporting period.

The ICT distribution segment recovered well with revenue, prior to the exclusion of inter-segmental revenue, up by 3% and EBITDA by 37%.

The ICT distribution segment is made up of Axiz, Obscure, Pinnacle and VH Fibre (VHF). The company says Axiz is the most significant of the businesses in this segment.

It notes Axiz delivered solid profits in an environment where product shortages and a substantial decrease in demand for enterprise products were the key features. Management of working capital was exemplary throughout and significant cash was generated, says Alviva.

It points out that Obscure enjoyed a much-improved performance compared to the prior reporting period, with revenue increasing by 50% and profit before tax increasing to R18 million, compared to R10 million in the prior reporting period.

Pinnacle had an excellent operating performance on the back of a few large enterprise deals and demand in the first quarter of the reporting period for work-from-home products, says Alviva, adding Pinnacle’s performance has been the stand-out feature of the ICT distribution segment.

In addition, it notes, Pinnacle has successfully implemented a new enterprise resource planning system, allowing it to take advantage of enhanced digital efficiencies and reporting.

It adds that much work has been done to restructure VHF’s business to its available market and the turnaround has been pleasing.

“VHF produced R10 million profit before tax for the reporting period compared to a breakeven in the prior reporting period.”

According to the firm, Datacentrix has had a challenging trading period, although it performed to expectations.

“The digital business solutions and managed services divisions exceeded their targets, but customers reduced considerably on their infrastructure spend, investing in work-from-home products. Tender activity, though, is at an all-time high and hopefully some of these will convert into sizeable commercial opportunities in the future.

“DG was unable to repeat the stellar trading it had in the prior reporting period, which had included a number of large one-off deals. Revenue decreased by 28% and profit before tax by 37%. Centravoice and IntDev, the connectivity and managed solutions unit, had plenty of challenges throughout the reporting period and managed to remain profitable, albeit marginally down on the prior reporting period,” says Alviva.

Product sale boom

On the renewable energy front, the company points out that Solareff grew revenue by 14% over the prior reporting period, although this was largely on the back of product sales rather than projects.

“Profitability recovered and the business is well-positioned with a good order book. GridCars has completed its rollout of charging stations on the major highways between Johannesburg, Cape Town and Durban. It remains loss-making but the amounts are insignificant.

Regarding applications and intellectual property, the company says Sintrex showed significant performance improvement, with revenue up 14% and profit before tax up 95% compared to the previous reporting period. Annuity revenue also increased by 16%, underpinned by long-term contracts with customers across various industries.

“The company’s investment in locally-developed products and services continues to satisfy the market demand for visibility products that focus on application performance, user experience, software-defined wide area networks, working-from-home and cloud-based technologies.”

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