21 February 2008

IT slowdown could be prolonged

While South Africa appears to be entering a marked economic slowdown, reports emanating from overseas indicate that the ICT industry is also heading for a prolonged slowdown - something that just serves to add to South Africa's current economic woes.

Karen Geldenhuys, managing director of Pretoria-based IT recruitment company, Abacus Recruitment, said large global IT players, such as Cisco Systems, are adding their voices to fears that global IT spending will move into a prolonged slowdown.

"Global economic volatility is cutting deeply at the moment and it is possible that the over-flow into the IT sector could also impact downstream on the South African IT industry," said Geldenhuys.

In a recent press article, Cisco Systems added to fears that IT budgets will be cut in the face of economic gloom by stating that sales of its technologies will remain weak for the next "several months."

The Internet equipment maker said it is of the opinion that it still gets a bigger slice of its customers' spending on communications and IT than its competition does - which it described as 'robust'.

Although it believes it is still out-gunning its competitors when it comes to sales, it admitted January was "very challenging" as sales growth was weaker than expected - and will be only 10% in the coming quarter, not the long-term goal of 12-17%.

Speaking in an on-line UK technology magazine, Cisco's chief executive, John Chambers, said: "We are seeing our US and European customers become increasingly cautious," pointing to the worldwide financial "uncertainty".

"We are seeing the challenges [of] the global stock markets and the US stock market, as well as a steady stream of economic and confidence data."

Chambers added that order growth last month was in the low-teens, in comparison to a high-teen growth rate in December. One of the reasons cited for the lowered demand is the fact that there was less demand from European service providers.

Commenting further, Geldenhuys said that although "not many local IT companies were really expecting double-digit growth this year", increasing reports of IT spending cuts overseas are "nonetheless worrying".

"South Africa is at a vulnerable point right now. We are facing rising inflationary costs, coupled to a high interest rate environment. Although this is unlikely to remain as acute as it is now beyond 2008, we are still going to uncover the short and medium term knock-on effects of the Eskom electricity debacle. Very few companies are left unscathed from the electricity shortage and this, in itself, is hampering growth across many business sectors. There has been a lot of activity in the ICT industry with jobs seekers putting their CVs out in the marketplace, and looking for employment, but I think this is not a case of new job creation, but rather a churn in the market. In other words, those skilled IT workers - who are in demand - are simply upgrading, or changing, their jobs. We are also still sitting with the problem that there are a lot of vacancies that need filling - but there is no-one to fill them due to the equity employment focus. The skills just aren't there to fill many of these posts."