Datatec is banking on new computer sales, driven by companies looking to upgrade their systems to be compatible with new artificial intelligence (AI) technologies, to boost its hardware business.
“Despite uncertain political and economic challenges in many parts of the world, all the group’s divisions are expected to deliver improved financial performance in the 2025 financial year and benefit from strong technology fundamentals,” the group said on Monday as it reported earnings for the year to end-February.
The information and communication technology (ICT) group also said: “The adoption of artificial intelligence should lead to a new cycle of PC and networking refresh.”
With operations in more than 50 countries, the group is one of the JSE’s largest ICT services firms. Established in 1986, the company operates predominantly from two main divisions, Logicalis and Westcon International, the latter distributing security and networking technology products.
AI investment grew exponentially in 2023, driven by the rapid adoption and popularity of OpenAI’s ChatGPT since it was launched in November 2022. Technology companies have since sought to capitalise on the trend through AI-backed services or software platforms, while others benefiting from growing hardware demand to power such systems.
Datatec is likely to welcome such a shift as its hardware business took a hit due to the Covid-19-induced global supply chain shocks.
Mustek and 4Sight, two of the JSE’s other technology counters, have signalled their ambition to capitalise on the same trends. AI is likely to be a growth driver for hardware and software sales across the sector in the next three to five years.
Datatec reported higher full-year earnings in part due to a continuing excellent performance from Westcon.
The group reported a 6.1% rise in revenue to $5.46bn (more than R100bn) for the year to end-February, while gross profit was 15.8% higher at $862.2m. Continuing headline earnings per share (HEPS) recovered to 14.2 US cents after a loss of 10.8c a year ago.
A dividend of R1.30 per share has been declared.
In addition to the strong performance from Westcon, the group reported improved cash generated from operations, in a strong result from Logicalis International.
However, challenging conditions in Argentina and Brazil affected Logicalis Latin America.
“The group maintained a strong operational performance in the second half of the year to deliver a solid full-year result as global demand continues for our technology solutions and services. We have managed to successfully capture growth opportunities across many markets to deliver improved quality of earnings,” CEO Jens Montanana said.
Westcon’s revenue increased by 7.7% to $3.69bn and profit jumped 22.7% to $403.4m due to strong demand for network infrastructures and cybersecurity solutions.
The unit’s hardware and software backlog has reduced as supply chain constraints have eased. Product backlog at the February year end stood at about $446m (R8.9bn) compared with $768m (R14bn) at the end of the previous year.
Logicalis International’s revenue increased by 1.5% to $1.25bn, while a higher proportion of software sales that have been net accounted affected its full-year revenue.
Logicalis Latin America’s revenue increased by 4.5% to $512.9m, but foreign exchange losses of $20.3m arising mainly in Argentina affected earnings before interest, taxes, depreciation and amortisation (ebitda).
The group continued to manage its businesses efficiently and mitigate the effects of high interest rates through effective working capital management and improving supply chains, it said.
Update: May 27 2024
This story has been updated with new information.
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