Recession? Not at Datacraft

A rarity in Singapore, this outfit is still hiring. How come? Its CEO points to an Asian tech gap that still needs closing

By Bruce Einhorn

With its economy so dependent on electronics exports, it's no surprise Singapore is the first Southeast Asian country to fall into recession during the current downturn. Companies like Chartered Semiconductor, one of the world's biggest foundries, and chip packager ST Assembly and Test Services (STATS) are struggling to cope with a swift fall in demand. STATS, for example, has implemented a mandatory vacation policy for its employees. (See BW Online, 7/17/01, "The Chips Are Down in Singapore")

Ronald John Cattell, CEO and executive director of Singapore-based Datacraft Asia, isn't following suit. The company is a regional network systems integrator, developing communication systems for companies and offering them consulting services. With $418 million in revenue last year and about $30 million in profits, Datacraft sells to telecom companies, multinationals, and governments around Asia.

While others are doing just about anything possible to trim their staffs and adjust to hard times, Cattell says Datacraft won't be laying off workers. "We've been hiring all the way along," he says. "With the sort of growth rates we have, we need people."

Datacraft has 1,850 employees in 13 countries, and has added workers at an annual rate of about 25% over the past few years. Cattell has cut down that growth rate -- to 10%. Still, Datacraft stands out as one of the few Asian technology companies hiring people rather than firing them.


  I recently spoke to Cattell and asked him why Datacraft isn't joining the other other Asian IT players in retrenchment mode. "Asia," he said, "is far less affected [by the telecom recession] than the U.S. or Europe."

Oh really, I responded. Didn't that seem to fly in the face of the economic numbers, which show that Asian countries, like Singapore, are suffering from contractions running into the double digits? Singapore, for instance, saw GDP growth of -10% in the second quarter. With smaller and less-diversified economies, the Asians are much more vulnerable to a tech downturn than the Americans.

That may be true, Cattell responded, but the telecom infrastructure business is still growing in Asia. "The reason that Asia hasn't been affected nearly as much as the U.S. [in telecom infrastructure] is that Asia had a lot of catching up to do. So the underlying capital expenditure rates are much higher in Asia because of the need to catch up." In China, India, and South Korea, there are "certain sectors of the telecom market [where] you are seeing growth rates of 40%-50% per year," according to Cattell.


  Another reason business is still growing in Asia is the continuing deregulation in many Asian countries, which leads to more demand for Datacraft equipment and services. "The U.S. is already a highly deregulated market," Cattell notes. "In Asia, there are still new licenses being given, new players coming into the market."

Thanks in part to Asia's late start in building equipment and issuing new licenses, Datacraft's business is still strong, Cattell insisted. At the beginning of the company's fiscal year -- in July, 2000 -- Datacraft estimated that earnings growth for the year ended June 30, 2001, would be around 40%.

Datacraft is due to announce its 2001 numbers on Aug. 16, and Cattell naturally couldn't reveal too much to me in advance. However, he did say that, in early July, he had been able to reconfirm that 40% earnings growth number. "That is a very robust situation," he said, "a very fortunate situation to be in."

In a statement issued on July 5, Datacraft declared: "The company will meet market expectations for FY '01 earnings growth, and there is presently no indication that consensus analyst expectations for FY '02 earnings growth cannot be met."


  Rajeev Gupta, a Hong Kong-based analyst with Goldman Sachs, is not quite so bullish, but in a recently issued report on the company he expressed optimism about Datacraft's prospects. With the Singapore dollar sliding against the U.S. dollar, Datacraft stands to benefit, Gupta wrote, since the majority of its revenues are U.S.-dollar denominated while 25%-30% of its costs are in Singapore dollars. "In addition, Datacraft's business prospects are strong in Greater China (33% of revenues), India, and Taiwan -- markets that continue to generate positive GDP growth."

Of course, Cattell isn't going to pretend that things haven't changed since the boom days of 2000. Still, amid all the region's gloom, he voiced some uncommon optimism. "I don't mean that everything is rosy, but there is still robust growth rates in several countries," he says. "There is still a lot of business out there." He may be right.

Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BW Online

Edited by Douglas Harbrecht

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