Given my post below about Mark Hunter leaving Axon, I must report that I sold my Axon shares at the beginning of the month; locking in a 20% gain. It was an astute move as they have fallen 25% since to 5% below my purchase price!

I also locked in my gain (100%) on Apple by selling half my holding. Buying Sage wasn't such a great idea (down 18%) and BT is now lower than my purchase price! But Capita, Vodafone and RCM Technology Trust (where I am a director) continue to show good YTD gains.

Overall, my portfolio (incl the locked in gains/losses from the sales) is still up 10% YTD. Except it was up 17% when I last reported a month back!

Cash is definitely the safest place to be right now!

It has just been announced that Mark Hunter is stepping down from the Axon board at the end of 2007 – ie in just a few weeks time. Steve Cardell had been appointed CEO earlier this year with Hunter assuming the Chairman role. Roy Merritt takes over as non exec Chairman

Comment
Let me declare right from the start that I have great respect for Mark. He founded Axon in 1994 when he was a mere slip of a 31 year old. So he’s retiring now as a mere slip of a 44 year old!

In those 13 years he had built a business of international standing. Although the share price is well down now from its peak (it has fallen over 20% this month), the company is still worth £362m and forecasts profits of £35m in FY07. An investment in the Axon’s IPO in 1999 would now be showing a 5x increase.

Axon was one of my favourite companies because:

1 – It “Stuck to the Knitting”. It started as an SAP implementation house (Hunter had spent 4 years at SAP before founding Axon). “SAP implementation house” would be a pretty accurate description of it now too! Since then, of course, it has expanded overseas into the US in particular by a series of well targeted acquisitions. They all seemed strategically justifiable and met the Holway “How to avoid Acquisition Indigestion” mantra. Indeed Hunter was asked, at the very last Conference panel I Chaired with him in Apr this year, what was his formula for successful M&A and avoiding the dreaded “Culture Clash” issues. His reply was “FIFO” which initially I and few others in the audience understood.

FIFO? “Fit In or F*** Off” was his response!

2 – of Hunter himself. Mark is a character. There are few left in our industry. He called spades, spades. He always spoke his mind. As well as remembering my last meeting with Mark (see above) I also remember my first. Having arrived at their HQ with its “soft toy play area” just off the reception, I was shown into Mark’s office with whiteboards on all four walls. He managed to conduct the whole interview standing up using all four boards at the same time. I was exhausted at the end!

Mark was quoted in the Observer recently answering a question about his business philosophy. He replied “Get great people. The End”.

Mark was one of those.

I am absolutely sure, however, that this is not “The End”, or the last we will see, of Mark.

Yesterday, there was significant news from my only two remaining Boring Award holders**

“Boring” Capita
Capita announced a 15-year £722m contract with Prudential UK to take on the administration of 7m life and pensions policies. This is Capita’s largest deal to date. They are now set to dominate the UK life & pensions market. Capita will take on 3000 of the Pru’s staff – interesting because1250 of these are in India. (I have often criticised Capita for not embracing the offshore model fast enough. So this is a significant move in its own right as it nearly doubles Capita’s Mumbai headcount to 3000)

Capita leads the UK BPO market by a country mile. Indeed, if Capita can’t quite be awarded the title of inventing BPO in the UK, they certainly were the firm that put it on the map. They dominate UK BPO both in the private and public sectors.

The great thing about BPO is its predictable revenue stream. Indeed Capita could stop selling now and would still be making halfway decent profits in 3-5 years time. BPO might well be “boring” in its proper sense, but the profits and margins that Capita makes from this activity are not. Its current Operating Profit margin exceeds 12% - something that most IT Services companies would die for.

“Boring” Sage
My other Boring Award holder is Sage who yesterday announced their full year results to 30th Sept 07. They broke through the £1b revenue barrier for the first time reporting a 30% rise to £1.15b. As if to demonstrate that Sage is really becoming “Boringly Mature”, it upped its dividend to 7p. So you now get a 3.3% yield on Sage shares (compared to 1.25% on Capita) I remember only a few years back when Sage (and indeed the whole of the UK SITS sector) paid no dividends at all. If you wanted a dividend you invested in a bank or a utility – indeed Sage is starting to resemble a ‘software utility’ with its 50%+ revenues coming from its support contracts.

But this set of Sage results is not without its problem areas. Indeed they only retained their Boring Award by the slimmest of margins as EPS was up by a minute 0.3% (11.81p to 11.84p) Rather too close for comfort for me!

Could they lose it? Well, if they don’t get a grip on their US operations (which account for 44% of revenues ) that could well happen. Organic growth in the US was ‘just’ 4%. The US problem is even more concerning as there are two US top posts still vacate. Indeed one of those is at Emdeon – Sage’s healthcare operations which account for 31% of Sage’s US revenues.
My support for Sage has always been based around their “Stick to the Knitting” approach. Good at business accounting systems for SMEs – so let’s take that core competence and replicate it around the globe. Magic! Except, I’m very unsure how heathcare IT fits in here. Indeed Emdeon recorded a mere 1% growth in the last six months.

But having said all that, Sage continues to power ahead outside the US – organic growth of 7% in the UK, 10% in Europe and 17% in the RoW. Sage’s strong support revenue base will help them in a recession. Indeed, if there is a downturn Sage might be able to start making acquisitions again if the “price is right”.

And, of course, if all else fails, investors can always take solace in our oft-repeated view that Sage will eventually get bought – probably by one oits two biggest competitors (Microsoft and Intuit)

** A company can only get a Boring Award if it achieves TEN years of uninterrupted earnings per share growth. Only UK currently quoted SITS companies are eligible. Admiral was the first recipient. Indeed, the term “Boring” came from a misprint in the FT when I was quoted as saying that Admiral’s results were boring” I’d actually said “boringly consistent”. Admiral kept their coveted Boring award until they were acquired by CMG in 2000.

Now, of all the 400+ SITS companies quoted at some time or another on the UK Stock Exchange (Main, AIM and USM), only two still have a Boring Award. Sage and Capita have not had a reversal in EPS in any year since their IPOs (both coincidently in 1989). That is a truly remarkable performance.

“Boring” has been good for shareholders too. Any investment in Sage’s IPO in 1989 who now be worth 81-times more. Capita’s shareholders have done even better with a 194-times increase since 1989. Again, these are the two best performing SITS shares of any currently quoted. Indeed, I suspect the ‘best of all time’

Carnage? Well that's how George O'Connor (Panmore Gordon) described the last week on the UK markets for tech.

There were loads of other reasons for the turndown but Detica was probably the straw that broke the camel's back with their warning of steep declines in their Financial Services business. The FTSE SCS Index fell 7.4% last week - can't remember such a steep fall in a long while. That makes a 17.5% fall in November to date - and that is really steep! Even NASDAQ and Techmark have 'only' fallen 9% this month so far. Telecomms - both fixed and mobile - also fell; but by a modest 1% (week) 3% (month to date).

In his morning note, George went on to say "The notion that tech is a safe haven has disintegrated despite continued positive news for the companies. Our view remains - tech is not a uniform market. We have concerns about price deflation, Open Source technology and the outlook for discretionary spend in the Financial Services market – not only is Financial Services the largest commercial vertical market with c25% of IT spend, but also the most aggressive in its use of new applications in areas like service orientated architecture (SOA) and software as a service (SaaS). While there are company-specific issues dogging execution at Detica, thoughts of a weakening Financial Services market is likely to keep valuation under the cosh."

In the Enterprise space, I certainly agree with George. But my real concern over tech is the 'consumer' space. That's why Cisco's warning a few weeks back was even more serious. Consumer tech spending has powered the whole tech market ever upwards. If current consumer woes translate into fewer sales of 'gadgets' and related services - then the market place is in for a really bad time indeed.

To add to the rumour we reported last week that DT was considering buying EDS, other 'rumours' circulated that News Corp was to buy LinkedIN and Google was to buy Skype from ebay. Both of these latter rumours sound credible to me. Indeed, Reid Hoffman, who was visiting the UK last week gaining significant publicity for LinkedIN, made comments to TechCrunch which gave credibility to the story.
As Hoffman is also a shareholder in Facebook, my personal hope had been that these two would come together to produce the Business/Social Networking tool I have long yearned. I guess that New Corp might well do the same with MySpace.

StrategyEye today reports on more rumours relating to a Vodafone 3G iPhone early next year. This is causing a dilemma in the Holway household. Having played with the iPhone last week I am bewitched. It is a fantastic experience. In fact I found the web surfing BETTER than on my Vodafone 3G powered Nokia 61! The device just oozes style. Flicking through your album covers or photos is magical experience! I even found typing emails on the touch screen very easy.

But, the 'Sensible Man' inside me tells me that you should never buy a 'Version One' Apple product. Always wait for Version 2 (which will be faster, cheaper and more reliable). The wait is usually measured in months not years. But the 'Little Boy' in me wants an iPhone NOW.

I could get an iPod Touch. But that will be redundant once I buy my 3G iPhone early next year.

Oh dear, why is life so difficult?

Last night I was invited to a NESTA debate on “How Innovation Happens in Silicon Valley”. The Keynote was given by the Shadow Chancellor, George Osborne and other eminent panel members included Reid Hoffman, the founder of LinkedIn and Facebook “angel” investor, Megan Smith, VP at Google and James Slavent from Greylock Venture Capital.

Firstly, I guess we were all surprised that George Osborne didn’t cancel due to the HM Government’s ”small IT problem” which erupted yesterday afternoon. But he did and I was greatly impressed by the man. Although he did make me feel rather old when he quipped that the first use of the term “Silicon Valley” was in the Electronics Times of 1971 – the year Osborne was born!

Osborne pointed out that, whereas the UK’s share of the global economy was forecast to decline over the next ten years (due to the advent of the “BRICs”), California’s economy was still set to rise. He put Silicon Valley’s success down to the way it worked with its Universities – Stanford in particular – pointing out that California had three of the top five Science and Tech universities in the world whereas as the UK only had three of the Top 20.

He also made the point that the US Govt had many programmes in place to favour small business. US Federal Govt currently awarded 23% of its contracts (by value) to small business whereas “in the UK all too often small companies are completely locked out of Govt procurement” by, for example, demanding three years of audited accounts before you could even bid! Osborne vowed to “reduce the friction” between small business and the UK Government and, very boldly, said that an incoming Conservative Govt would aim for 25% of business from small companies.

Of course, he also touched on the changes in CGT that dear Darling introduced – seemingly so hurriedly and certainly far from thought-through. He reckoned that there was still a good chance of a U-turn – certainly further major concessions - before the new rules come into force next April. Many of the speakers pointed out the concessions that were introduced in the US many years ago to encourage people to invest their pension funds in start-ups.

The other speakers made the point that other areas of the US had the same envy of Silicon Valley as other countries do. Hoffman pointed out that Mark Zuckerberg relocated Facebook from Boston to Californian to get the Silicon Valley effect. Indeed all the participants stressed the importance of the Silicon Valley “network”. How being close to all those technologists, VCs, serial entrepreneurs, universities etc. and a culture of ‘risk-taking’ was key to their success.

But they all praised what was already happening in the UK around the “Golden Triangle” of Cambridge, Oxford and London. The UK needed to trumpet its successes more. In particular within the UK and to our ‘young people’ so that an entrepreneurial career in tech was seen as something to aspire to – rather than the rather nerdy, boring image that it currently seems to have.

I couldn’t agree more!

Well that was the substance of the article D Telekom sounds out EDS about takeover in the Financial Times yesterday. Their argument was that DT wanted to bolster its IT services arm – T-Systems –and taking over the much larger EDS, in what would in effect be a reverse takeover of T-Systems, was the way to do it.

I have long suggested that we are about to see a period of consolidation in the top ranks of the global IT services players – in much the same way as we have seen in software. EDS is an obvious candidate for such consolidation (as are CSC and Atos Origin to name but two others) However, I just don’t see DT being the buyer. Firstly, they don’t have the cash, borrowing power or shareholder support. Secondly, I can’t see EDS going willingly to that new home.

What the article might do, however, is to jolt some others into long overdue action. EDS has a current market value of c$10b (and falling) on revenues of c$22b. Or, put another way, a PSR of ‘just’ 0.45. It has overcome many of its management problems, has a great pedigree and its ‘large project management’ experience is second to none. It has a growing presence in India and has a good profile spread across many industries and geographies. In other words it is a tasty target.

I have been both unable and unwilling to make any comment on the eborders contracts whilst a member of the Advisory Board of BT Global Services. As you no doubt know, last week this £650m contract was awarded to the Trusted Borders consortium led by Raytheon. Or, put another way, the BT led consortium lost the bid.

The one aspect that concerns me - as an individual I might add and nothing to do with BT - is not so much that the systems monitoring and controlling of the UK's main borders are now in the hands of a non-UK company - this has happened to many "sensitive" IT projects before. My main concern is that Raytheon seems set to have a hand in a significant number of the world's border control systems. Raytheon itself is dependent on significant funding and contracts from the US Government. Accenture (another Trusted Borders member) leads the $10bn US VISIT contract as prime on the Smart Borders Alliance team.

As an individual I am already subject to heavy US Government vetting when I travel to and from the US. How easily might information be shared on my other 'non US' travels? Could such vetting be expanded to cover my travel to other countries?

I'm sure I will be told that such concerns are totally unwarranted but.....

Further evidence of the sharp and sudden downturn in IT expenditure in the financial services sector came today from Detica.

On the surface, Detica’s results looked …OK. A 45% headline increase in revenues masked an 8% organic growth once acquisitions like m.a.partners were stripped out. But, let’s face it, we had become accustomed to double-digit organic growth from Detica. Indeed we got that from Detica’s Public Sector business which is not only doing well (it recorded a 16% organic growth in H1) but, with its recent award as a major subcontractor in eborders, the future looks reasonably bright too.

It was Financial services where investors scented trouble. Organic revenue growth in H1 was ‘just’ 3%. But it was the statement “towards the end of the half, however, we saw a sharp decline in demand from investment banks following the summer’s global liquidity crisis and, on balance given these current tough market conditions, we expect that full year revenues from this unit will be somewhat lower than the equivalent figure last year” that really spooked investors.

This was enough to set the share price into a tailspin – down 25% at one point before ending the day down 21% at 245p. Other UK SITS companies with significant Financial Services exposure – like Misys and Logica – were also hit with 5%+ declines today.

Detica’s CEO Tom Black said to Thomson Financial “the pure banking bit that is affected is about 10-15% (of the commercial unit's revenues). I would say flat growth is not an unreasonable estimate although like everyone else we don't know what will happen (in the investment banking sector).” Commercial is around 45% of Detica’s total revenues. All the same this will probably take 'a few million' off analysts' revenue forecasts for the year.

What is more concerning to the industry as a whole is the suddenness of this downturn. The tap has been turned off abruptly over a matter of just a few months. I would stress how important Financial Services is to the UK SITS sector as it represents some 21% of total revenues – second only to the public sector at 31%, which is facing its own growth downturn.

I’m afraid I can only reiterate my previous warnings. I believe that the industry forecasters have currently got it wrong and have not readjusted their forecasts to take into account the events of the last quarter. When they do, I expect UK SITS growth to evaporate. Rather than 6% for 2008 (the current consensus) I would suggest 1-2%. Or, put another way, a decline in real terms once inflation is stripped out. That, in turn, will play havoc to fee rates and utilisation which will have a much more serious effect on the bottom line .

Forewarned is at least forearmed.

In 2002 I gave my "IT's all over now?" speech which dared to suggest that growth in IT would henceforth be modest - unlikely to exceed GDP over any medium term period. The speech was greeted with derision by some who really believed that we were on the cusp of a return to the double digit growth we had got used to in the previous decades. As it turned out, there was no growth at all in the two years following my talk. The industry actually declined. Since 2005, we have experienced a return to growth but, at 4-6% that is only around GDP (don't forget - as most do - that GDP strips out inflation. For headline growth to equal GDP, you have to add inflation back in. So if GDP is 3% and inflation is 2.5%, your headline growth has got to be 5.5% to keep pace with GDP)

I've just been looking back at the IT Services-oriented results announced recently:

• Siemens Business Systems grows 1% in Q4
• BT Global Services revenues flat in Q2 if you strip out acquisitions
• T-Systems revenues down 8.1% in Q3
• Capgemini revenues up 6.2% in Q3
• EDS grows 4% in Q3
• CSC declines 1% in Q1
• Unisys down 1% in Q3
• Logica grows 3.6% in Q3

The only two double digit increases I could find was IBM Global Services - up 10% in Q3 - and Accenture - up 23% in their Q4.

Right now I somehow doubt that IT Services growth of around 6%, which seems to be the concensus, will actually be achieved in 2007. 5% looks closer to me right now. But it's the outlook for 2008-2010 that is beginning to worry me - particularly in the UK.

As you might have noticed, I've been away for the week on grandson adoration duties in Australia. I had intended to do my roundup of tech share performance in October before I left. I would have painted a very positive picture (as you can see below) with NASDAQ continuing to storm ahead by another 5.9% - making a 18% gain for the year. In the UK, the Techmark 100 was up a similarly impressive 4.4% in Oct with mobile - up 7.21% - once again the 'star'.

So I went on my week's break thinking that tech really was that "safe haven in a storm" that I had commented about so many times this year.

But the last week has been horrid for tech. NASDAQ has lost 6.53% (closing Friday at 2627). Techmark 100 was also hit - closing 4.4% lower on the week with UK SCS stocks taking the brunt - down 6.3%.

If there was one 'event' which triggered all this it was John Chambers (the CEO of Cisco) warning of "dramatic year-on-year decreases" in orders from financial institutions, retailers and auto makers. This really spooked the market. Tech has done so well this year and many believed that consumer tech, in particular, would continue to do well even if the general economy did not. Cisco - considered by many to be a bellwether - rather indicated that even the sexy end of tech was just as vulnerable to consumers tightening their belts as any other sector.

The knock on effect of this was dramatic. Cisco fell 12% on the week as did Apple and Oracle. RIM and Google also fell heavily. Indeed it was the 'big tech companies' that suffered most.

My view?

I have mulled over the "Tech safe haven in the storm" theme for many months in HotViews. I concluded that if the general downturn was 'mild', tech could indeed weather the storm well. It's been consumer tech - as opposed to Enterprise tech - that has powered the sector of late. The theory goes that Consumers would shun the meal out in favour of big screen home entertainment. (See "The Beer Syndrome" below) Buying an iPhone was the kind of retail therapy 'pick-me-up' that people needed in hard times. But what if the downturn is worse than 'mild'? What if you fear losing the home that houses the big screen? I emphasis the word fear as you don't actually have to lose your home to stop spending - you just have to fear you might. Supporting this was a poll out on Friday showing Consumer Confidence at a two year low.

A quick scan through the papers on my return hardly inspires confidence. Oil at $100 a barrel (I remember predictions of the 'End of the World' if it reached $50 just a few years back! The $ closing at 2.11 against the £. Banks likely to write off hundreds of billions ($500b according to the Sunday Times). Northern Rock likely to cease trading. House prices falling. NI up next April. Business confidence at lowest since 9/11 according to the IoD. Hardly inspires consumer confidence!

But, there again, the British queued in the cold for the iPhone on Friday and over 350,000 are expected to be sold here by the New Year. Last week's share price falls only put the market back to where it was as recently as September. Maybe we should wait a little longer before declaring Armageddon. But I'm still going to watch those screens with growing concern this week!

11th Nov 07 
Tech shares in October

Today Saga has announced Saga Zone - a social networking site specially for the 'over 50s'. Apparently they have already 'secretly' signed up 13,000 Saga Magazine readers. The media has had a field day with comments like "a hip replacement for Facebook" and it likely to be a hit with the 'Gin crowd'.

At a time when even the Government cannot estimate the UK population to within the nearest 10m, there is only one population growth forecast anyone can make with any certainty. There are around 12m people aged over 60 in the UK right now but that figure with grow to over 19m in 25 years time. You have to be over 70 now to have had no exposure to IT at work. Most of the people turning 60 today are pretty computer literate. Indeed, the over 50s already spend more time online than almost all age groups other than teenagers. They visit news, travel and finance sites more than any other group and are one of the groups most adept at online shopping. So, as I have said on numerous occasions, the 'Silver Surfers' are going to become a major force in the online world. And, of course, they are pretty good at 'networking' too. There are more clubs and activities for the over 50s than for any other age group. So social networking of the online Facebook variety just must be a natural.

Having said that, I take issue with the need for Saga's rather 'ageist' approach. I have to admit to being both 'over 50' (by quite a bit!) but I really value my 'younger' friends. I really don't want a network where I can't keep in touch with my daughters, grandchildren, current and ex-workmates etc. I know not everyone agrees with me ('nothing new there' you say!) but I want one network profile that allows me access to many 'niche' networks and allows me to restrict access to bits of my profile as thought fit.

In other words, I'd like Saga Zone as a 'zone' on Facebook. Somewhere I can go to when I want to escape from all these 'young' people 'superpoking' me. But I really don't want to live in an old person's home all the time - not until absolutely necessary anyway.