Datacom profit slips with pandemic assist to staff - but pipeline fattens

Lead-times of 300 days-plus on some hardware means closer cooperation with customers, and more planning,, says Datacom group chief executive Greg Davidson. Photo / Supplied

Our largest IT services firm has reported a dip in full-year profit - which its boss pins on a pandemic relief measure for staff.

Auckland-based Datacom let its close to 7000 employees hold on to and carry over unused leave days.

"This was in response to two key factors: the need for Datacom to put the wellbeing of its people first; the fact borders largely remained closed in response to the pandemic, limiting people's ability to travel," says group chief executive Greg Davidson.

"While this has impacted our profit, it let us live up to our value of putting the wellbeing of our people first. There was a 180-day lockdown in Melbourne and similar in Auckland. It's just not reasonable for people to take leave when they're cooped up and can't go anywhere."

Datacom net profit fell to $28 million for the year to March 31, 2022 (from the year-ago $35m) on revenue that nudged up from $1.41 billion to $1.45b.

Free cashflow was $114m, versus $156m in FY2021.

"As a group, we are thankful to our shareholders for taking a long-term view and supporting our decision to allow employees to accrue leave," Davidson says.

Datacom, founded by the late John Holdsworth, is 57-per cent owned by the Holdsworth family's investment vehicle Evander Management, and 43 per cent by the NZ Super Fund.

The CEO says the wave of digitisation spurred by the pandemic means Datacom's pipeline "is the largest I can remember".

But he adds the flipside is that a lot of Datacom's business involves reselling third-party product - and that it's seeing lead times of 300 days or more for some gear as Covid continues to play havoc with global supply chains.

"We don't want to get into a situation like the construction industry with Gib, so that means much more careful planning," he says.

The positive has been that "A lot of our business with customers used to transactional. Now there's more desire for genuine partnership," Davidson says. It's essential to work closely as they roadmap products. The CEO says it's impossible to pick how long the supply chain issues will last.

Labour crunch continues

It was a year of "immense pressure" on the hiring front as the tech sector's acute labour shortage continued, Davidson says.

"That's meant rising salary costs."

Yet amid the unprecedented hiring challenges, Datacom did manage to add bodies.

Its total headcount increased from 6539 to 6801 in the year to March, with its NZ complement increasing from 3134 to 3509 (most of the balance are in Australia, but the firm also has staff in the US, Malaysia and the Philippines. The leave accrual measure applied to staff in all countries).

The answer to the tight labour market is "To train like crazy and be a net producer of talent," Davidson says.

"We're widening the pool by drawing in people who never saw themselves working in the sector."

Last year, a major report by NZTech, IT Professionals NZ, with support from MBIE, found a major of lack of diversity in the white male-dominated IT sector. It said that stemmed, in part, from inclusion issues with secondary school and tertiary courses.

Datacom's Auckland office at Wynyard Quarter. Photo / Cole Slawson

It also said that while border closures had exacerbated the tech talent squeeze, they did not create it. Pandemic restrictions had also exposed an over-reliance on imported labour, insufficient IT training in schools and at universities, and a fall-away in industry in-house training.

Here, Datacom has gone on the front foot over the past 18 months, expanding its existing inclusion initiatives.

It became the first company to sign on for the Take2 programme to train ex-prisoners for the IT sector, and offer them apprenticeships.

Datacom also partnered on multiple training and cadetship programmes, including, HerTechPath, Tupu Toa (a leadership and intern scheme for Māori and Pacific candidates) and a reciprocal partnership with Te Rūnanga o Ngāi Tahu.

The tech talent crunch has "Served as a timely reminder for our business – and the industry as a whole – of the importance of taking a 'homegrown' approach to talent," Davidson says.

Cloud giants arrive

"While Datacom has always taken pride in its involvement with, and investment in, local talent-based initiatives, the past year saw us lift this focus significantly."

The pandemic saw Datacom business on both sides of the Tasman supporting each government's pandemic response, including standing up a call centre for the Australian Government, and New Zealand Ministry of Health ramp up to deliver contact tracing and vaccine pass support."

In part because of the Covid shift to remote work and doing everything online, cyber-security was also a growth area. The year also saw Datacom join the GCSB's Malware-Free Networks partnership - which sees the Government spy agency boost NZ's cyber defences by sharing real-time intelligence about threats to organisations of national importance, including Government agencies and top exporters. It's an initiative that's gained more frisson following a GSCB warning that Russian cybercriminal gangs have threatened retaliation against countries that support Ukraine.

Datacom has historically been one of the largest players on the local data centre scene. The past year has seen Microsoft, Amazon Web Services and other players reveal multi-billion plans for "hyper-scale" data centres in northwest Auckland amid a cloud computing boom, and the regulatory and performance advantages of having server farms close at hand.

The Kiwi company still sees a strong role for itself as a brand-agnostic operator, however. Its angle is that it can offer its own data centre services, or support any mix of on-premise, public or private cloud solutions offered by Amazon, Microsoft or other partners.

Data centres used to be places where organisations stashed racks of servers, he says. Now they're the home of services like Microsoft Azure - which Datacom helps clients migrate to.

Davidson says that's more than a spiel. He points out Datacom has coexisted with Amazon and Microsoft's direct data centre presence in Australia for five years now.

"They're huge partners of ours."

The shape of the new normal

Like most of its customers, Datacom is still feeling its way towards a "new normal".

So far, its main takeaway from an initiative called "Project Flex" is that a blanket rule like "two days in the office, three at home" won't work.

"We've got some teams who need to be in the office five days a week and some who might only get together physically once a month," Davidson says.

A lot of staff are somewhere in between, and the CEO says that's how it will stay after the pandemic finally recedes.

"The idea that all work is best done in the office has bolted, but the idea we can do all our work without a physical office is unrealistic," he says.