Swept along on the wave of rapid US growth, increasing multinational investment in the Republic and rapid growth in indigenous trade, the Irish information technology sector had a boom year.
Turnover, exports and employment are growing at rates of more than 20 per cent annually. The software sector employs about 24,000 people between indigenous and multinational companies working in the communications, Internet and semiconductor space. On the overseas side, the IT sector employs more than 60,000 people, with many of these jobs in the manufacturing area.
While many of the major multinational investors have expanded their operations here over the year, the biggest gains have probably been made in the indigenous sector. More start-up companies than ever received venture capital funding, and more than 50 indigenous companies can now claim a corporate presence in the US.
The big winners on the indigenous side have already been well documented. The public flotations of Trintech and Baltimore Technologies on the US Nasdaq elevated the stock of both companies to net a combined market capitalisation of more than $4 billion (€3.96 billion).
SmartForce - formerly CBT Systems - and Iona Technologies had a rough year, where IT share prices took more than one hammering. Iona's share price plummeted in April from $30 to $15 following a profit warning, and SmartForce never quite recovered from the collapse of its stock late last year. Its problems were compounded further in October when a poorly orchestrated change of name and product strategy sent the shares plunging from $27 to $14 in one day.
Both stocks have been gradually recovering, but analysts warned this week the same fate could just as easily befall the newer entrants to the Nasdaq, particularly in the current inflated investment climate. One analyst expressed concern about Trintech's limited product range and continued business emphasis on hardware, despite promoting itself as a software company.
Baltimore remains better positioned, and has done well in the last year to position itself in the market for software security. But it has only just begun to crack the US market, where Entrust and RSA Security are already dominant players. This week, one analyst pointed to Baltimore's valuation of $2.9 billion, warning that it well exceeded the estimated value of the entire market for public key infrastructure (PKI) software over the next three years.
Then there were the companies that went for trade sales. Euristix and Apion were each acquired by international telecoms firms for $80 million and $240 million, respectively.
Meanwhile, several companies heavily tipped last year as hot favourites for the flotation route, clipped their wings and sat tight. Flexicom opted for an £8.2 million (€10.4 million) capital injection from Eircom. But the reasoning behind the move has never been made clear. Some industry observers suggest it was a case of too little too late from Eircom, after it had missed out on serious Internet architecture companies like Baltimore and Apion.
Similarly Eurologic, Raidtec, Lake Communications and International Financial Services failed to go the IPO route, preferring instead to rely on private fund-raising and company reserves.
Because of a major freeing up of funds in the capital investment sector, it can be argued many of these companies were offered an alternative route. Take Silicon Systems, for example which received in vestment from Goldman Sachs for 23 per cent of the company's equity. It was one of only three investments Goldman Sachs has made in high-tech companies in Europe.
Similarly Riverdeep raised $15 million, Educational Multimedia Group (EMG) attracted $14 million, Massana secured $7 million, Enba raised $45 million and just last week, Datalex announced it had attracted $30 million after turning away a further $20 million. These will all be worth watching closely next year.
Following November's Budget, there was a definite feeling within the tech sector that the Government had abandoned its efforts to ease the pressure produced by skills shortages.
The Irish Software Association, along with a task force comprising representatives from the multinational and indigenous sectors, worked hard to persuade the Government of the merits of reducing the tax charge on share options. Now it appears the issue will be addressed in the Finance Bill early next year.
Salary inflation is running at more than 15 per cent annually and staff turnover rates are around 20 per cent. Irish companies - which increasingly see themselves as operating on a global platform - are being forced to conduct critical research and development activity overseas where there is greater availability of IT engineers at affordable prices.
Looking forward, the climate for innovation looks bright following the allocation of nearly £2 billion (€2.54 billion) for research, technological development and innovation as part of the National Development Plan. The number of places for graduate and diploma IT courses has been dramatically expanded, and the announcement that the Massachusetts Institute of Technology (MIT) will set up its Media Lab for Europe in Dublin is a resounding endorsement of the economy's ability to rise to the challenge of a digital millennium.
