Information Technology: Merger mania won't go away

The year ahead: What 1999 is going to mean for six crucial stock market sectors

INVESTORS IN British information technology stocks should prepare to have their nerve tested again. After the seesaw ride of the past year, when London's newly formed IT index almost doubled in six months only to halve again, computer stocks have tabilised.

However, the uncertainties of the coming year suggest there are more surprises in store.

Growth in the software and services market is expected to slow to about 15 per cent from20 per cent in 1998. The spending will be heavily weighted towards the first half, when firms will be putting the finishing touches to preparations for the millennium.

This pattern will test IT firms' ability to manage their growth and - equally important - to massage investors' expectations.

According to Ross Jobber, an analyst at Deutsche Morgan Grenfell, IT companies such as Logica, FI Group and CMG, cannot afford the slightest slip. A hiccup at SAP, the German software group that is seen as the bell weather of the industry, would also send tremors through the stock market.

The IT staffing companies, which have seen their share prices clobbered in recent months, are unlikely to recover until the long-term demand for contractors becomes clearer.

Meanwhile, the introduction of a separate sub-sector for hardware suppliers will encourage investors to distinguish between different types of IT company.

Corporate activity will continue in 1999. This may be the year when Sema, the Anglo-French group, makes it long-awaited move into the US. Alternatively, it may be US firms who start buying British competitors again.

One thing, however, is certain: 1999 will not be a dull year in the IT sector.