It is not a hazard if the MSCI Telecom Index was among the best performers in April with an increase of 11.48%. During almost 2 years the sector has been very badly treated by investors: until end of 2000 they loved telecoms, after 2000 they turned to hate it. In 2 year time the telecom sector has done a long way. In term of valuation, the operators have reached a very low level of price, becoming again attractive. On the other hand the problem of the debt seems now under control. Third point, the flow of business is there, even if mobile operators have better outlooks than fix operators.
This last categ
ory appears today in a good position, at the stock exchange level, but also at the operational level. Equant for instance registered a very strong increase of its valuation during those last 6 months: +98%. Thanks to the restructuring the company has conducted. Today telecommunication operators have adapted their commercial offers and their teams to a difficult economic environment. And they get the benefits of that move.
Unfortunately, those efforts were not always successful in all the segments of the TMT universe. The IT service providers are still suffering. In spite of staff reduction, cost control and increase of reactivity to catch business most of them have to deal with a decrease of the flow of business. Directly dependant of the economic environment, particularly of the forecasts made companies regarding their own business, IT services providers can't do much to activate demand and restore their margins.
Same situation in the media industry. Except some operators in the internet business which get benefits of the consolidation, media are suffering from the economic downturn with a very small ability to protect margins. The recent rebound of some share seems mainly due to the rather low level of valuation they previously reached.
Equipments providers, both for the computing industry and for the telecom industry, are in front of the low demand. And even they have already reduced the number of their employees and costs; analysts consider they have still some work to do.
Outlook
Globally, TMT should take advantage of the stock exchanges rebound and the fact investors come back to equities. But, due to weak economic forecasts for 2003 and the lack of visibility in the coming months, the TMT sector doesn't seem to have strong factors to structurally overperform the market.
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