The JSE`s IT sector lost 40% in the first half of this year and analysts are predicting continued falls in the second half.
This follows a plunge of about 60% in a tumultuous 2001 which it ended at 301 points. It closed at just 180 points at the end of last month.
While last year`s decline was in part the result of poor trading conditions, currency depreciation, weak earnings from previously stable companies and the effects of the 11 September terrorist attacks in the US, international accounting scandals and a hostile takeover bid have been added to the mix this year.
Analysts say corporate IT demand is still low and negative sentiment globally is also affecting the local market.
However, despite the overall performance of the sector, some IT stocks saw significant gains during the first half of the year.
Idion climbed 89% from 95c to 180c, although analysts point out that this was an artificial situation given the hostile takeover bid by Canadian group DataMirror.
Although analysts and DataMirror have predicted that the share price will fall in the wake of the bid closing, one analyst says while this may be the case, because the share is now so tightly held any fall will be on small volumes and is not likely to be significant.
This year ERP.com, which focuses on the implementation, integration and management of IT applications in an e-business environment, gained 40% from 35c to 49c, and Faritec, a provider of mid-range technology infrastructure and services, rose from 53c to 85c, a 60% gain.
FrontRange, the former Ixchange, increased 33% from 105c to 140c.
Other winners included Datacentrix, EC-Hold, EOH, MB Technologies, Mustek, Softline and Square One.
However, analysts warn that increases in the first half of the year do not guarantee a good share performance in the second. Global markets and economic conditions are still likely to play havoc with local shares.
In the US there are no signs yet that the bear market is coming to an end. The Nasdaq composite index fell this week to levels it has not touched since May 1997.
"US stock markets are definitely going to have an effect, especially on companies like Dimension Data, which are active globally," says one analyst. "I don`t believe Dimension Data has seen the bottom yet."
Dimension Data, which opened the year at 1 440c, lost 55% to close at 645c at the end of June. It had not seen these levels since 1996.
Datatec, which also operates internationally, lost 19%, from 2 020c to 1 640c. Another international group, Comparex, which was recently subjected to an institutional investor boardroom coup, saw its share fall 32%, from 1 140c to 780c.
The local market has also seen several profit warnings from IT companies recently which are also weighing heavily on the market. Among them are Comparex, Prism and Dimension Data subsidiary Datacraft Asia.
However, although analysts are bearish on the sector overall, they say there is still money to be made.
One analyst says it is still worth investing in the IT sector, although he cautions against rushing in at the moment because there is still a lot of downward pressure.
"There are about 30 or 40 technology companies on the JSE, but you have to be careful to take the right three," he says. "You also have to take a longer-term view, although many people might think it`s crazy to take a long-term view on IT at the moment.
"Datacentrix seems to be getting it right since it got rid of its e-ventures, but it is smaller now and no one seems that interested in it. I also like UCS. It is sitting on cash of more than R80 million and has a strong operating cash flow."
However, he cautions that UCS is a software developer, and the market seems more favourable to services companies.
Another analyst says some major stocks have been attempting to change their business models to focus on network services, but the benefits may be reaped only next year.
"I don`t recommend buying into the sector right now. It`s still too early to get in," he adds.
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