Ouch!

2008 was undoubtedly a turbulent year for all industries, including the ICT sector. In the US, the technology-heavy Nasdaq seems to be ending the year under the 1 600 level, 40% below the level ruling at the beginning of January.

Similarly, the JSE All Share Index is looking to finish at about 20 000, almost 30% below its level at the beginning of the year. Nevertheless, these numbers are still up (10%-15%) from the lows experienced in October/November.

Despite the recent economic issues, the ICT industry worldwide in 2008 continued to grow at between 5% and 6%, with the local ICT industry achieving a slightly higher figure. However, growth rates for 2009 are expected to be down to about 2.5% worldwide and to between 3% and 4% locally.

From an executive viewpoint, the top user ICT concern remains the areas of governance, compliance and disaster recovery/continuity, which is not surprising since the market is expecting more legislation within these areas, especially in the financial services market, following the economic downturn that seems to have been triggered by this sector.

In addition to this major concern, green issues and the mobilisation of applications continue to be of significance. From a research perspective, one of the most interesting trends is the significant growth in the software as a service (SaaS) market, which continues to outperform any other, and is expected to have a dominant role within a few years.

The number of new listings has shrunk significantly both globally and locally, the number and size of private equity deals has also diminished, while consolidations continue apace, especially within the areas of IT services, security and telecommunications.

As has been the case for the last couple of years, this year has seen few new listings on the JSE and AltX; but fortunately, there have been few casualties. However, this year has seen a significant acceleration in the number of international companies establishing a local presence; and, as in 2007, there has been a move by listed and non-listed organisations alike to embrace the principles of black economic empowerment (BEE).

Unlike the last few years, our local stock prices have suffered with the current economic downturn. An analysis at the end of November suggested that of the approximately 53 technology shares listed on the JSE and AltX, four are trading at 10c or below (Beget Holdings, Ifca Technologies, Labat Africa and Zaptronix) and just over 50% of them are trading at over R1; a stark contrast to the situation 12 months ago. In addition, only 11 of these organisations have market capitalisations in excess of R1 billion.

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 12 months ago. However, this has not slowed BEE activity and we have seen investments, for example, in ACI SA, BCX, BT Group, ConvergeNet Holdings, dns telecom, EMC, FoneWorx, Goal Technology Solutions, Itec Tiyende, ITWeb, Micros Fidelio, Nokia Siemens Networks, PC-Ware, Praxima, Psitek, Tellumat, Vodacom and Vox Telecom, to name but a few.

The new listings this year include Net 1 UEPS Technologies (was already listed on Nasdaq), Poynting Antennas and TCS. Adobe, Check Point Software Solutions, Comsys, Cyret Technologies, Foxcom, Open-Tec, PrimeTel, Red Hat, RSA (part of EMC), Sitecom, Sophos, StreamServe, Tandberg and TomTom have established a presence in SA for the first time. In addition, Probability, an online gaming company, announced its intention to enter SA. The de-listings included Bytes Technology Group (acquired by Altron), Cyberhost (exited the ICT business) and SAB&T Ubuntu (acquired by Simeka).

On the mergers and acquisitions front, we saw multiple acquisitions and investments from Altron Group (including Bytes Technology Group), Datatec (including Inflow Technologies - India), Dimension Data (including Datacraft), MTN (including Verizon Business), Naspers, Simeka (including SAB&T Ubuntu), Vodacom (including StorTech and Gateway Communications) and Vodafone (an additional 15% in Vodacom). Other major local mergers, acquisitions or investment activities included S-Tec by Vox Telecom, Computer Software Consultants by UCS, MIS Corporate Defence Solutions (UK) by SecureData, Tier One Electronics by Mustek, and Ubushu by Faritec.

Key appointments during the year included new country managers/GMs/CEOs/MDs at Acer, Alliance Mining, Annex, Datacentrix, EMC, Epson, Front Range Solutions, Fujitsu-Siemens, Huge Group, Ifca Technologies, Ingram Micro, Intel, Lefatshe, Lexmark, LG Electronics, MICROmega, Microsoft, MicroStrategy, Motorola, Nashua Mobile, Novell, OneCall Solutions, Open Text, Plessey, Powertech IST, Saab, SAP, SITA, Software AG, Sun Microsystems, TallyGenicom, Virgin Mobile and Vodacom.

On the ICT media front we saw the introduction of net.work (a combination of CBR Africa and Network Times); another online news site, newstoday.co.za; the demise of CIO Africa; and of course, there was the usual flood of journalists job-swapping.

Other major events included the battle against the Department of Communications for the right of VANs to self provide; the sell-off by Telkom SA of an additional 15% of Vodacom to Vodafone; and the postponement by Naspers of its auction for MWeb South Africa.

In addition, there were the name changes of DVT to DTH, Synergy Computing to Synergy Business Intelligence, and TeliMatrix to MiX Telematics.

From an awards viewpoint, the key winner was Mardia van der Walt-Korsten, CEO of T-Systems, as IT Personality of the Year 2008.

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, particularly from a telecommunications perspective.

Major activities included a successful IPO from Safaricom, which also acquired One Communications; Altech made several investments, including that of Infocom, Kenya Data Networks and Swift Global; France Telecom bought Hits Telecom, Uganda; Dimension Data invested in Accelon (Ghana and Nigeria) and SRC (Angola); MTN bought Afnet and Arobase Telecoms (C^ote d'Ivoire); Millicom gained the third operating licence in Rwanda; Smile Communications obtained a licence in Uganda; Vodafone bought a major stake in Ghana Telecom; and Telkom SA bought MWeb Africa and MWeb Namibia. On the downside, Nigeria lost its NIGCOMSAT-1 satellite and the Orascom/Telecom Egypt joint venture in Algeria was abandoned.

Key CEO/MD appointments included those at Africa Online, Botswana Telecommunications, Gamtel/Gamcel, Telkom Kenya and Zain Kenya. Several regional positions for many of the multinationals were filled by the promotion of the relevant South African incumbents.

One of the most interesting trends is the significant growth in the software as a service market.

Paul Booth, MD, Global Research Partners

Internationally, this year has been characterised by few IPOs, comparatively limited activity by private equity groups, and a few key acquisitions such as those of Alltel by Verizon Communications ($28 billion), BEA Systems by Oracle ($8.5 billion), Cognos by IBM, EDS by HP, and Iomega by EMC.

There have been multiple takeovers by 10 of the larger ICT companies, including Accenture, AT&T, BT Group, Cisco, EMC, Google, HP, IBM, Microsoft and Oracle; many consolidations, particularly in the IT services, security and telecommunications arenas; and no end in sight to the battle between Google and Microsoft.

The security market became the focus of consolidation in 2008, with numerous activities, including the acquisitions of AirDefense by Motorola; Identum by Trend Micro; MessageLabs by Symantec; Motorola's Biometrics unit by Safran SA; Secure Computing by McAfee; and Utimaco by Sophos.

The consolidation within the IT services market continued apace with Accenture, Affiliated Computer Services, Capgemini, Cognizant Technology Solutions, CSC, EDS, Fujitsu Services, Infosys Technologies, Logica, Perot Systems, Satyam Computer Systems, Sopra Group and Tata Consultancy Services and many of the smaller players all making smallish acquisitions to consolidate their portfolios. In a similar way, the telecommunications companies were also enhancing their IT services offerings, with the BT Group being particularly prominent in this regard.

In the telecommunications space, we saw much acquisition/investment 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 US-based CenturyTel's $5.8 billion acquisition of Embarq; Etisalat's investment in Swan Telecom (India); India-based Idea Cellular's investment in Spice Communications (India); and Saudi Telecommunications 35% investment in Oger Telecom, the owner of Cell C.

Apart from the above, other major acquisitions/mergers included that of Brocade by Foundry Networks; CNET Networks by CBS; Diebold by United Technologies; Packeteer by Blue Coat Systems; and Symbian by Nokia.

Major international appointments included new CEOs at 3Com, Adobe, Alcatel-Lucent, AMD, Atos Origin, Avaya, BearingPoint, BT Group, Corel, Motorola, Red Hat, Samsung Electronics, Sprint Nextel, Symantec, Telefonica, Unisys and VeriSign. Yahoo is looking for a replacement for Jerry Yang, its co-founder and CEO, who recently resigned.

Other major international activities included the win by Sony's Blu-ray technology over Toshiba's HD DVD format; the demise of two of the US's largest technology retailers, Circuit City and CompUSA; a major shake-up of the Chinese telecommunications companies; the name change of Matsushita Electric to Panasonic; the end of the Fujitsu Siemens Computers joint venture; the exit by Siemens from the telecommunications market and much of the IT market; the creation of a joint venture between Symantec and Huawei; the spin-off by EMC of VMware prior to its listing; and the entry by Oracle into the hardware business.

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 those companies with plenty of cash will take advantage of any acquisition opportunity that presents itself, as market capitalisations are currently low. I suspect, for instance, that 3Com, Ariba, Borland, Corel, Nortel Networks and Unisys, to name but a few, will either cease to exist or be acquired by larger players during the year.

In Africa, the Middle East-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.

Locally, next year should see the resolution of the arivia.kom affair; the listings of Vodacom, the IT interests of Sekunjalo and maybe a couple of other companies; the sell-off by Telkom of most of its interest in Telkom Media; formal bids for Telkom itself, probably from outside the country; resolution of the state of the four technology companies still listed on the DC/VC sectors; and further penetration in the global mobile space by both MTN and Vodacom.

The full impact of the current economic crisis on businesses is still to bite, so I expect 2009 to be tough with many ICT companies struggling to survive.