It's not the bubble days of the late 1990s, but business, though highly competitive, is good. Dimension Data chairman Jeremy Ord summed up the sector's mood when he said at the group's interim results presentation in May: "This climate has been very good for exceptional growth."

Share prices are up; margins, though still depressed, are climbing; earnings are soaring; and revenues are improving at the highest clip in years. Most IT companies, which were known for not paying dividends, have begun making modest annual payments to their shareholders.

The relative return to health of the technology industry is not restricted to SA. The Nasdaq composite index is at its highest level in years, and more than twice its level in late 2002. Technology shares elsewhere, including the London Stock Exchange, have run hard in the past 18 months.

The performance of some local IT shares has been spectacular. Datatec, a global services and networking distribution company and the top IT firm in this year's Top Companies, performed particularly well. Its share price has more than doubled since the beginning of last year - on top of even bigger gains in 2004 and 2005.

A R10 000 investment in Datatec in March 2003, when the company's share price bottomed out at R3,70, would have been worth a spectacular R110 000 in early May when the share price breached R40 for the first time since 2001. Further strong performance is expected from the group, which is listed on the JSE and on London's Alternative Investment Market (Aim). Its annual results, to February 28 2007, were due to be released after Top Companies went to press, but in early May the group indicated it expected headline earnings and attributable earnings to be about US$0,40/share compared with $0,27 and $0,26 respectively in 2006.

The group's main areas of focus are the distribution of networking products, through subsidiary Westcon, and network integration and other IT services, through subsidiary Logicalis. Westcon primarily distributes products for Cisco, a US-based networking equipment manufacturer, but it represents Nortel, Avaya, and other companies too. Datatec also owns a telecommunications consultancy, UK-based Analysys Mason.

The three companies are run as standalone entities.

Datatec CEO Jens Montanana says the Aim listing has provided the group with better access to capital to support its international expansion. The listing provides an internationally accepted currency that can be used for acquisitions.

Datatec has already made small but strategic acquisitions, the most recent of which was the purchase of Crane Telecommunications Group for £20,7m in a mixed share and cash deal. Crane is a UK-based software, telephony and data distributor. Crane, which has partnerships with Avaya, Nortel, Alcatel, Mitel, BT Network Services and Samsung, is being integrated into Westcon's European operations. The company generated sales of £74m in 2006 and earnings before interest and tax of £2,1m.

The Crane deal followed another acquisition, announced in January, of NOXS, a European security distributor.

The second-placed IT company in this year's survey, Didata, has also had a much-improved financial performance after the torrid years that followed the IT boom and bust. In the six months to March 31 2007, it lifted revenues by 22% and operating profit by 50,4%. Earnings per share before exceptional items doubled on the first half of the 2006 financial year.

Ord attributes the growth, particularly in Africa and Asia, to the convergence of technologies, which, he says, are "providing many new and exciting opportunities for the group". All Didata regions are profitable, though Africa and Australasia are the stand-out performers. In Africa (including SA), sales rose 48% and operating profit 40% on the first half of the past financial year. The group says strong growth in its telecom business and in the public sector contributed to the good performance. In Asia, operating profit rose 39% on the back of a 15% rise in sales. In Australia, operating profit soared 76% on 18% sales growth. Even Europe, where Didata has struggled, put in a good showing with sales up 22%. European profit margins are still razor thin, though. Sales growth in the US was more pedestrian at just 4% but the increase came on the back of a very strong sales performance last year.

The group is still heavily reliant on product sales, though, despite efforts to expand into higher-margin services. Product sales contributed 62% of revenues, up from 60% a year ago.

Internet Protocol (IP) telephony - where calls are routed over the Internet and Internet-like networks - contributed strongly to Didata's growth. Group CEO Brett Dawson, who is credited with turning the company around, says the move away from traditional circuit-switched telephony to IP has helped fuel growth. "We are starting to align our lines of business nicely into that market opportunity," he says.

Operating margins are still relatively thin, though. Management is targeting a margin of 5% in the next three to five years, up from 3,1% now.

Dawson says growth will be mostly organic, though it has made a few small acquisitions to expand into countries where it hasn't operated previously. In SA it has been shortlisted, along with four other companies, to buy state-owned IT company Arivia.kom. Arivia has a number of lucrative clients in the public sector. Other companies bidding for Arivia include T-Systems and Business Connexion (BCX), which is itself the target of a takeover by incumbent fixed-line telecom operator Telkom.

BCX, the top-placed IT company in last year's Top Companies survey, has slipped into fourth position this year on the back of disappointing financial results. Management blamed the poor numbers on an inward focus by management, including the implementation of business management software from SAP. Uncertainly around the Telkom deal - it's subject to hearings by the competition tribunal - also shouldered some of the blame, especially with regard to the poor performance of BCX's communications business.

At the time of writing, it was not clear whether Telkom would get the go-ahead from the competition authorities for the proposed acquisition, which values BCX at R2,4bn. Should it not, BCX has previously indicated it might pursue a management buy-out, though other suitors might emerge, among them Bytes Technology Group, a subsidiary of Altron.

Bytes, headed by David Redshaw, has slipped from second to third spot in this year's survey, despite good financial performance in the past two years. Revenue rose to above R4bn for the first time but earnings were hit on the back of the company's decision to exit its loss-making UK investment, Plato. However, adjusted headline earnings per share rose 18%.

Datacentrix has also done well in this year's survey and enters the top five, knocking computer company Mustek out of fifth spot.