IT is worst performing FTSE sector

Some 43 UK-listed IT comanies issued profit warnings in 2007

Software and computer services was the worst performing sector on the FTSE share index in 2007, according to consultants Ernst & Young.

A total of 43 companies in the sector issued profit warnings during the period, with the majority citing "delays or discontinued contracts or negotiations".

Smaller firms have the biggest problems, according to John Hughman, senior technology analyst at Ernst & Young.

"Most warnings throughout the year have come from smaller companies as a consequence of an over-reliance on too few products or customers," he said.

"There have been relatively few nasty surprises from leading software and service companies, many of which enjoy strong positions."

Overall, UK quoted companies across all sectors issues a total of 107 profit warnings, the highest quarterly figure since the last quarter of 2001 and a 22 per cent increase on the same period last year.

One in five of the last quarter's warnings explicitly blamed the fallout from the US sub-prime mortgage crisis and the credit crunch.

Technology shares will come under further pressure, said Hughman.

"Many vendors generate a significant proportion of revenues from the financial services sector, and there are worries that spending there could be curtailed in 2008," he said.

"It is also unclear what impact a tightening of the wider commercial environment will have on IT spending across the board."