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Tech: The empire strikes back? - Views on News from Equitymaster
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  • Sep 7, 2001

    Tech: The empire strikes back?

    The top ten loser's over a year on the BSE is an exclusive list of TMT companies. The distinction of featuring on this list maybe largely attributable to the technology mayhem. However, some of these companies owe it to their management's efforts and it is very likely that these stocks will never recover again.

    But others, including tech stalwarts, wait for the sentiment towards the technology sector to change. Does one see a turnaround? Undoubtedly so, the engine of the new economy, Cisco, expects to grow by 30% to 50% doubling its revenues by 2005. The company already had annual sales in the range of US$ 22 bn last fiscal. What makes this company so sure that it will be able to manage the 'stretched goal' (as described by Mr. John Chambers, CEO Cisco Systems) of 30% to 50% growth?

    Top losers over the year: BSE 'A' Group
    Sept 6 2001
    Sept 6 2000
    % CHANGE 52-WEEK
    H/L (RS)
    HFCL 43.2 1,635.10 -97.40% 1,820 / 43
    TRIGYN TECHNOLOGIES 31.2 612.1 -94.90% 695 / 26
    SSI LTD. 153.2 2,940.90 -94.80% 3,222 / 133
    GLOBAL TELE 88.7 1,266.30 -93.00% 1,674 / 88
    MASTEK 98.05 1,380.90 -92.90% 1,440 / 71
    APTECH LTD. 49.35 609.5 -91.90% 655 / 46
    NIIT 158.5 1,792.70 -91.20% 1,921 / 151
    TELEVISION 18 51.55 574.5 -91.00% 639 / 43
    SILVERLINE TECH 37.35 411.9 -90.90% 458 / 37
    SHYAM TELECOM 38.15 377 -89.90% 400 / 38
    PENTAMEDIA 47.8 465.6 -89.70% 528 / 47

    The simple fact that the way organisations do business evolved and fortunately for the technology sector the evolution is not complete yet. Information technology has become integral to organisational processes and is increasingly becoming critical for information gathering, analysing, making decisions and now, capturing knowledge existing in organisations. All this means that the communication needs of organisations will grow. Therefore, information has to move faster and more importantly be available anywhere.

    Presently organisations use separate networks for voice phone calls, emails and data exchange. It is just a question of time before all these will be available on a single network. This opens vast opportunities to deliver digital content over the networks, wireless devices for home and offices and fibre-optic equipments. Also, another set of opportunities lies in the fact that big telephone companies will need to overhaul their local access to meet the ever-growing need for bandwidth.

    Slowdown or no slowdown companies race to be one up in their offerings to capture the market before others. Despite the grim situation facing telecom companies, Japan's largest mobile-telephone operator, NTT DoCoMo, announced plans to launch the world's first commercial third-generation (3G) wireless service on October 1st. We are still a very long way off from the day where we can watch a movie over the Internet just as comfortably, as we can do sitting at our homes, on television. And till that day, technology companies have a lot to deliver.

    Organisations have spent vast fortunes implementing ERP systems across the globe. However, with different software taking care of different functional requirements not supported by the ERP systems, there is a need for all these disparate systems to be integrated. That opens another market for the software companies. Recently, Tata Chemicals outsourced all its strategic IT requirements to TCS, a trend that is more than likely to gain strength in the near future. While organisations will concentrate on their core activities they will outsource their complete IT requirements. Of course issues like data security will be a major source of concern but there will be solutions to work around.

    The next logical question is that - if there is a good case for the sector, which companies to invest in? The slowdown undoubtedly has hit the smaller companies harder. Many companies will not be able to survive theses challenging times. There will be consolidation and only the fittest will survive. The fittest on the stock market would be companies with very strong balance sheets, reliable cash flows and more reliable managements.



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