Tough times for big information technology firms

A short while ago, the Association of Greek Information Technology Enterprises (SEPE) found out for itself what officials from the Economy and Interior ministries had been saying for quite some time: that only a small portion of the funds earmarked for the «Information Society» operational program went to public sector information technology projects. Indeed, out of 3 billion euros in EU and state funds dedicated to the program, only 800-900 million are for public IT projects and the kind of big contracts sought after by the sector’s larger companies. Most of the «Information Society» program’s funds are directed toward different sorts of investments, such as broadband networks, subsidies to small and medium-sized businesses – through the «Do Business Electronically» program – and subsidies to teachers to buy computers. Thus, the part of the pie coveted by large local IT firms is much smaller than they had anticipated. Eight hundred million, spread over a 5-year period, is not enough to share among the big IT firms, some of whose management is now worrying they will suffer the fate of some prehistorical animals whose size contributed to their extinction. Thus, many of the large IT groups have set their sights lower. Their goals are certainly more modest than they were during the long-gone period of stock market euphoria. Some of them will manage in the end to consolidate and slim down from the behemoths that they had become, laden with 20 or 30 subsidiaries. Still others, both listed and unlisted, will shrink down dramatically and may fold. Consolidation is the key, as managers have realized that future sales volumes in the sector will not allow room for so many companies. But mergers are now a more difficult proposition than in the days of the bull market, when anticipation of added value overcame the questions about two kinds of management having to cohabit. Despite the misgivings, however, there are rumors of such mergers and partnerships. Apparently, Info-Quest is in talks with Ideal Group. For Info-Quest head Theodoros Fessas, a partnership may be the only solution in developing subsidiary Q-Telecom. Other companies, such as retailer Multirama, which came to the brink of extinction, are trying to recover by setting more modest goals. Multirama announced a few days ago that it expects turnover for 2003 to be 32 million euros, not the 60 million it forecast a few months ago. However, its decision to sell higher added-value products is expected to boost its gross profit margin to 18 percent, from a forecast 13.7 percent, and limit its losses to 3.8 million euros. Amid the turmoil, many believe there is ample opportunity for small companies that offer integrated solutions and have the advantage of flexibility and low costs.