ICT

ICT firms to ‘get big or go niche’ in challenging growth market: Altradius

The global information and communications technology market continues to expand, with sales of ICT products and services expected to increase by more than three per cent per annum in 2018 and 2019, according to credit insurance firm Atradius.

According to its latest report, business software and IT services are forecast to exhibit strong growth, while the communications services sector continues to drive most spending,

Atradius ANZ MD Mark Hoppe flagged uncertainty on the horizon due to the potentially negative impact of Brexit, interest rate increases, currency fluctuations, and international trade disputes.

“However, despite these challenges, businesses will continue to invest in ICT as they anticipate revenue growth,” Hoppe said. “But their spending patterns are expected to shift. Investments in digital transformation, blockchain, Internet of Things, and the progression from big data to algorithms to machine learning to artificial intelligence will continue to be main growth drivers.”

The firm said advancing technologies and changing market conditions were driving major shifts in the ICT landscape, with ICT companies facing mounting pressure to improve time to market, and to ensure their services are best in class and include evolving technologies in a market characterised by high competition and pressure on margins.

“This challenging landscape will increase the likelihood of failure for ICT businesses that can’t adapt accordingly,” said Hoppe. “The choice many ICT businesses face to survive is either getting big or going niche. Therefore, many ICT businesses will partner up by pooling their resources for mutual gain in areas where they do not compete directly.’

“Another strategy for ICT companies in 2018 and 2019 will be mergers, acquisitions, and divesture, which can provide a fast track to fending off competitors from both inside and outside one’s industry,” he continued. “However, highly leveraged ICT companies could face challenges in financing mergers and acquisitions or other strategic investments.”

Australian findings

The report reveals the Australian ICT market is expected to grow further in 2018 and 2019, with both state and federal governments remaining key investors in IT projects, accompanied by business and consumer ICT spending, which is driven by economic growth and technological progress.

Other key findings for Australia included:

1. The Australian ICT market is highly competitive in the distribution, retail, and system integrators segments. However, in general, ICT is a profitable segment with steady margins. Across subsectors, ICT retail margins are lower compared to margins earned by value-added system integrators.

2. Many ICT businesses are highly leveraged, either via debtor financing for working capital management or through term loans. Banks are quite open and willing to offer loans to the industry. It is important for ICT business to have healthy cash flow as a lot of companies earn extra margin by settling invoices early and, therefore, having working capital in place is important.

3. Payments in the Australian ICT sector generally take between 30 days and 60 days from invoice date or between 30 days and 45 days end of month (EOM). Payment experience over the past two years has been good so far and the level of insolvencies is low, with no major change expected in 2018.

4. Atradius’s underwriting stance remains generally open for all ICT subsectors. The IT producers and service segment generally performs well with profitable businesses, and many companies in the telecommunication segment are financially strong. In contrast, the report is more cautious with ICT retailers, as this subsector accounts for most credit insurance claims in the industry.

 

Categories: ICT, Research

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