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| Friday, 13 July 2007 | |
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Technology and telecom stocks surge forward. Our R-100 index of shares shows that to be the case. Company chiefs and their stockholders lead the applause… but should their customers join in? And is it WOTWU time all over again?
In the second quarter of 2007 the Redux Global ICT 100 grew by 9.7%. Our unique index of global tech stocks stuck nearly 10% of pain into those who reject the suggestion that the sector is capable of sustained growth. In the three years since it was launched, the R-100’s mix of stocks – fixed and mobile, comms and IT, hardware and software, new media and consulting – has now grown by a shade under 37.5%. In the 12 months to the end of June, it has grown by 31.5%. In this period it has notched up no fewer than nine all-time highs, up to and including the end-June figure of 1374.44. Over the year, only two trading months registered declines in the Index; in contrast, three months saw rises of more than 4%. This would suggest an end to the yo-yo volatility that characterised the R-100 during its first two years as a regular feature here following its July 2004 launch. In that time, most significant gains were quickly wiped out in the months that followed. At its lowest in August 2004 the Index stood at 929.04; it’s 48% higher today. Volatility is still part of the overall equation of course. Results for the last quarter illustrate this: • EMEA: - April: +4.75% (31 adv; 8 dec; 1 unch); - May: +5.1% (30 adv; 10 dec); - June: +0.8% (12 adv; 25 dec; 3 unch). • Americas: - April: +4.65% (35 adv; 5 dec); - May: +5.4% (30 adv; 10 dec); - June: -0.13% (19 adv; 21 dec). • Asia-Pacific: - April: -0.1% (16 adv; 4 dec); - May: +2.2% (15 adv; 5 dec); - June: +2.1% (12 adv; 8 dec). Proportionally, this has been much the same pattern observed in the R-100 since its launch, with the aforementioned exception that one month’s gain no longer results in a decline to follow. EMEA has matched American growth rates in recent months, where once it trailed by some margin, and Asia has posted successive quarters of growth, albeit at a less dramatic pace. Within sectors, network operators have hit upon a period of steady but sustained growth, with large mobile operators in emerging markets posting the best figures. The big ICT technology companies have also gone strongly although those companies more exposed to consumer markets have been softer and more volatile. The latter is also the case with Internet and new media companies, but for the moment they are on an extended run of good numbers. Beyond the bottom line So what are we to make of this string of results? They are sexy and scary in equal measure. The ICT sector was tarred and feathered by the world’s stock markets in 2001 and has spent most of time since flagellating itself in act of humility that would make even the most devout catholic wince. Of course, blood is shed mainly on the shopfloor and many of those who must rank amongst the most incompetent leaders ever to stalk the boardroom survive to fudge another day. Corporate evolutionary theorists call it ‘the survival of the fattest’. Years of painful cost-cutting have ensued since the crashes of 2000-1. Most tech companies have trimmed their workforces to the bone. Real growth in production or demand for services could reverse that trend, but in most multi-disciplined companies a surge in one area is likely to offset by a flat or declining performance in another. The issue here is that, as technology companies re-establish a track-record of sustained or at times spectacular growth, expectations among investors are raised. With the opportunities for internal corporate savagery all but exhausted, attention turns elsewhere. Innovation might work but seems a remote prospect in today’s risk-shy corporate world. So consolidation may be the key. Major M&A activity in the last two years has been primarily defensive in character. The next wave – and such trends do tend to build their own momentum – could be more aggressive. This is especially the case if you happen to form part of the human ‘inventory’ of consolidating companies, where the latter use the term ‘synergy’ as a snide shorthand for ‘further job cuts’. Given recent history, this may push some employees to the brink. Not in the US of course, where most employees envy the rights of tenure enjoyed by those held at Guantanamo Bay, but in Europe, where labour unions still have a tradition of worker dissent in living memory. And customers? They might care to note that most jobs lost henceforth will be those in the customer-facing and service fields. Still, our R-100 Index of stocks is looking good Jim Chalmers |
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