In 2001, former IBM chairman Louis V Gerstner declared that the future technology market belonged to companies that could "deliver it all". Merely tagging on the title "value added supplier" to glorify box-pushing operations was no longer enough.
Profit setbacks have further focused the minds of many groups that once wallowed in the distribution comfort zone .
Didata, foremost in the SA investor's eye, is applying its "DD Way" to break out of the value added mould. In that mould, three-quarters of its revenue rested on nonrecurring sources in the year to September 2002.
But even the bright new world of services has its dark alleys. Big Blue learnt this the hard way when it set out on the services road in 1995, says Mark Harris, IBM's country GM in SA. "A bad service contract or acquisition can set you back years."
For confirmation, investors need look no further than AST. Once one of SA's most promising service groups, it now stretches out a recapitalisation begging bowl, after what management terms the negative effects of a too-aggressive and unsustainable earnings and revenue growth strategy.
The scramble into services is decreasing profit margins. "It's fair comment that service margins are under pressure," says Glotec CEO Ray Leonard.
In outsourcing contracts, service providers commit to reducing a client's costs, says Siemens Business Services' CEO in SA, Robert Gögele. "You start off at about a 6%-7% margin and, if the job is done well, margins can increase to as high as 20% over a number of years."
"In fact, so many companies are entering services that it could start benefiting margins in other, depleted sectors," says Aplitec CEO Serge Belamant.
PC manufacturer and equipment distributor Mustek is proving this point. In the six months to December 2002 its Mecer PC division romped home with a 48% higher pretax profit. Rectron and Brother distribution subsidiaries, which benefited from Siltek's demise, produced an even more dramatic 74% increase.
As always, there will be some that make it and some that advance no further than the hype stage.
Perhaps Didata will be successful. But facing up to the likes of IBM on the global stage is risky.
It may make sense to stick with smaller, SA-focused, dividend-paying service groups such as EOH, Compu-Clearing and ERP.Com .
