Economic caution urged

As the new financial year dawns, results being posted to the ASX by listed channel companies show on the surface a market that is well on the path to recovery with some very substantial profits. However, that may be a premature conclusion given that those same companies are also returning flat, or even negative revenue.

Here are just a few examples: Melbourne IT recorded a six per cent revenue drop for an 11 per cent net profit rise; Cellnet, while claiming a business turnaround with a 109 per cent net profit, still lost 11 per cent of revenue from those operations that it still engages with (remembering it shed significant parts of its business in the last financial year), and ASG lost five per cent of revenue, although it grew its net profit by nine per cent. So what do such results mean?

According to channel experts, these discrepancies between gaining profit and losing revenue indicate a market where positive results can still be attributed more to cost cutting exercises than a genuine growth in opportunities.

“I don’t think the market has properly rebounded,” Hostech chairman, Peter Kazacos, said. “There’s just not enough consistency – at the moment we have ups and downs.

“People are concerned with the possibility of a double dip recession in the US, which is affecting large capital investment. While day-to-day business is improving – except in retail – credit terms are not improving, as those are dictated by the multinational corporations, so credit is being restricted by what is happening overseas.

“The cost cutting was what allowed organisations to ensure the profit remained. Now that’s done, you’re going to need to return to positive growth in sales to continue to profit.”

Unfortunately for some organisations, that might prove to be difficult, with Australia’s skills shortage hampering the ability for organisations to add additional human resources to complete projects.

Experts agree the problem there is a perceived (and inflated) buoyancy in the market, encouraging staff to look for higher-paying opportunities and putting upwards pressure on wages.

Even with a full staff, available opportunities are very much at the mercy of a swinging broader economy.

Data#3 CEO, John Grant, said the market was up after the last financial year, but warned that in itself could do more harm than good. “The buoyancy has created better topline opportunities,” Grant said. “However, the costs of wages and the like will create greater cost pressures on organisations.

“The IT industry will reflect profit trends with the broader economic environment – although it is less subject to the big swings.”

For the new financial year, the skills shortage will prove to be one of the greatest inhibitors to revenue and profit growth in IT. The recent example of Excom Education, a training partner for Novell, Cisco, Citrix, Microsoft and VMware, shutting its doors demonstrates the growing hole in training facing organisations.

However, Australian Computer Society (ACS) CEO, Bruce Lakin, said a solution to the crisis could start to emerge in the coming year. “While I don’t think a solution will emerge this year, I do think a resolution that can lead to a solution will appear,” he said.

“The industry, government and education have all recognised the need for IT, and I believe this is an issue that the incoming government will take seriously.”

Lakin said he was cautiously optimistic about the coming year, but was hoping the incoming Government, through projects such as the NBN (or coalition equivalent) will stimulate the industry to a greater extent.

Australian Information Industry Association (AIIA) CEO, Ian Birks, was likewise optimistic about the economic environment, but said a change in Government could cause temporary disruptions.

“If we have a new Government, tenders could slow down as a natural consequence of the transition process,” Birks said.

“That said I think in the past 12 months there has been a rebalancing of organisations’ cost bases.

"I think most of them have discovered they are able to deliver quite well on that new cost base, and the marketing is springboarding and there will be the need to increase resources again.”

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