It has been more than five years since the excesses of the late 1990s that led to the biggest stock market bubble in history, but it is only now that the IT industry is finally shaking off the last vestiges of the hangover from that period.
There are signs of life across the sector, though not all companies are benefiting equally from a growing demand for IT products and services. And a mixed earnings picture that is emerging internationally is again casting some doubt over the sector's prospects.
IBM, the world's biggest computer company, in April released results that missed Wall Street expectations. And Microsoft, the world's largest software company, also missed earnings' estimates in May.
The Nasdaq, the tech-laden stock exchange, is nearing 12-month lows amid concerns about the state of the US economy and question marks over the levels of IT investment by business.
Research by International Data Corp (IDC), released in early May, paints a generally positive picture of IT spending. It says expectations by IT buyers may have run up too high, but these have subsequently fallen back into line with global macroeconomic conditions.
"For much of the past six months, user expectations were overly optimistic," says IDC chief research officer John Gantz. "But slowly the outside world seems to have sunk in . . . Corporate profits are good, but not that good. Consequently, the IT spending climate is good, but not that good."
What's gratifying, says Gantz, is that users seem less concerned about cutting IT costs than replenishing needed infrastructure and investing in IT that grows revenues and productivity.
Despite some despondency about the industry internationally, executives in SA's IT sector appear fairly upbeat about market prospects, but caution that margins will probably remain under pressure for the foreseeable future.
Bytes Technology Group CEO David Redshaw says competition is cut-throat and is likely to remain so. Technology buyers are still reluctant to spend unless they have to, he says. This, he says, is surprising, given that the strength of the rand means imported technology is the cheapest it has been in years. "Perhaps this means companies don't expect the rand to weaken against the dollar in the next year or two."
The good news is that Redshaw expects the level of demand for IT products and services to remain relatively stable. "The IT sector has matured considerably since 2000," he says.
Despite this, the industry is producing mixed signals for investors, says Business Connexion deputy CEO Benjamin Mophatlane. "The message at the beginning of the year was that the upturn was on its way. [With IBM's earnings upset] one now has to ask if there is an upturn or if we are still a long way from it."
Mophatlane says the head-hunting of staff has increased in recent months. This is usually a sign that there is an upturn in the market. "But you have to look at this in the context of what is happening in the rest of the world, such as IBM's poor financial results," he says.
Investors, Mophatlane says, will be looking for signs of a sustained upturn in the financial results of SA's biggest IT companies, especially Datatec, Didata and Business Connexion.
The signs are good. Both Datatec and Didata beat analyst expectations when they reported financial results last month and their shares jumped higher in response. Investors are likely to remain cautious, though, until technology companies demonstrate ongoing earnings momentum.
SA's hardware vendors, particularly PC suppliers, continue to do well, lifted by strong demand. This is reflected in their share prices. This year's top IT company, for the second year in a row, is Mustek, which makes the popular Mecer line of desktop, notebook and server PCs. Its performance reflects the PC replacement cycle as big companies and government institutions replace ageing equipment.
Mustek CEO David Kan says new technologies, being introduced now, are likely to keep demand for PCs at robust levels. The move to 64-bit computing, for example, will be a key driver, particularly from next year when prices - which are still relatively high - should begin to fall.
A 64-bit microprocessor can process data much faster than older 32-bit processors. The introduction of a 64-bit version of the Windows operating system and of 64-bit applications will boost demand for new hardware, he says. The new technology means computers equipped with the right software will run significantly faster than today's machines.
Another technology that should lift PC sales is "dual-core processing". This refers to an integrated circuit, or silicon chip, that has two physical processors on it. Made by semiconductor firms Intel and AMD, these chips are well-suited for multitasking and enable software applications that have been designed for them to run much faster.
Longhorn, the codename of Microsoft's long-delayed next version of Windows, will also help lift computer sales when it is introduced next year, Kan says. He expects PC sales to grow by about 10% in 2005, but new hardware technologies, together with Longhorn, should lift growth above that in 2006.
He expects the PC replacement cycle - the average period it takes to replace a PC with a new one - could quicken as people upgrade to these newer technologies. This, he says, could have a huge impact on PC sales.
Despite the growing interest in Linux, the "free" alternative to Windows, Kan does not expect it will have any discernible impact on sales, particularly on the desktop. "Linux on the desktop will struggle," he says. "People will battle with driver support and become frustrated with it."
However, open-source software, such as Linux, is gaining a stronger foothold in the back office, on the server computers that run companies' business applications and databases.
US software vendor Novell, which has refocused its business on open source in recent years, is pushing hard to get the software installed in key SA sites. It recently won an important deal with the SA Revenue Service to deliver a solution that would allow the taxman to run its SAP enterprise applications on its SuSE flavour of Linux.
Though the inroads made by open-source software have been minimal so far, it's a trend that should be watched in the next few years.
Ultimately, though, it could be policies and regulations, not technologies, that determine the real course of the IT sector in SA in the next few years.
Arguably the most important development for the sector is the information & communications technology (ICT) empowerment charter, which is being finalised by government and other stakeholders. This document, though destined to be controversial, will finally provide clarity to companies about what they need to do in terms of empowerment. The sector has been slammed in the past for being slow in transforming. Critics say the industry is still too white (and too male).
