REMEMBER the IT bubble? Compared with the financial services bubble of 2008, the IT bubble of 2001 seems so lightweight, so marginal and so long ago. Yet one little IT bubble reprise was in evidence this week when Time Warner said it was spinning off internet service provider AOL.
The decision brings it full circle to the heady years, at least in the IT world, when valuations of internet companies were enormous. It was in 2000 that AOL bought the world’s fourth-largest media group, Time Warner, for 164bn. AOL’s market cap was just less than that: 163bn.
The notion was that the merger would unite distribution, provided by the IT company, with content provided by the media company.
The justification was that ultimately all media distribution would take place over the internet. More than this, the merger signalled the beginning of the era of “convergence”, when personal computers would become TV sets and TV sets would turn into computers.
Clearly there was some truth in this notion. Yet here we sit, eight years on, and televisions have remained TV sets, and computers have remained computers.
AOL still has a solid customer base of 8-million people and solid revenue, but nothing like the scale envisaged at the time.
On its new listing as a solo entity, its market cap is expected to be a measly 3,4bn.
THERE’s nothing really new to analyse in Dimension Data’s latest figures. A strategy implemented a few years ago is still on track, and its financial figures are generally on their way back up.
At this stage in the economic game, that was enough to see its share price rise more than 5,7% to touch 992c yesterday.
The economic crisis has had a significant effect on the company, as product sales still make up more than 60% of its revenue and customers have seriously cut their spending. However, the steady shift away from product sales it began a few years ago has diminished the effect of those customer cutbacks. Lower product sales were offset by the steady rise in demand for its services such as systems integration, outsourcing and techniques to help companies cut their running costs.
Some analysts believe its 600m in cash could help it grow thorough acquisitions, particularly as some companies are undervalued in this climate, but says any such moves will not be massive.
Overall, then, Didata is on the right track, and its profit margin has almost reached the modest midterm target of 5%. It’s a long way short of fireworks, but thankfully it’s also far from the disaster it was becoming a few years ago.
ELECTRONICS and electrical firm is in an enviable position: it is sitting on a huge cash pile at a time when many companies are looking cheap as a result of the economic recession.
The company yesterday announced cash holdings for the year to end September of R1,6bn, compared with R795m the previous year.
It said that figure could grow to R2,4bn if it exercises its option to sell a 40% stake in Nokia Siemens Networks, which matures in December 2010.
When a company sits with stacks of cash, management’s mandate is to decide whether it can provide a better return on the money through reinvesting it in the company or acquisitions. If not it must return it to shareholders.
CEO Gerrit Pretorius has indicated a decision will be made in a year. “We will consider distributing the excess cash through a share buyback or special payment if we have found no use for it by December 2010. We will not sit on that cash forever,” he said.
He declined to elaborate on acquisition opportunities, except to say the company would examine all opportunities.
One area Reunert is ready to move into is the manufacture and supply of TV set-top boxes, which will be needed once the government begins its planned migration to digital terrestrial television.
n The Bottom Line is edited by Colin Anthony.