Downturn hits UK software and IT services industry

The software and IT services sector had a weak sales performance in Q1 2008

The wave of profit warnings issued by companies from the UK software and computer services sector hit a peak in the first quarter of this year, according to research from consultancy firm Ernst & Young.

Warnings released during that three-month period rose by 44 per cent, in comparison to the downward trend in the sector seen in 2007.

Some 13 profit warnings were issued by 13 companies in the first quarter of 2008, rising from nine in the same period of 2007 and amounting to 18 per cent of the FTSE sector, according to the report.

All companies issuing profit warnings posted turnovers of under £200m and blamed “sales short of forecast” as the main driver for the negative reports.

Additionally, there were seven profit warnings from technology hardware and equipment companies, up from three in the last quarter - a 133 per cent increase.

The figures reflect the current economic climates as customers continue to reduce spending, said the report.

“The reason for so many profit warnings is a result of confidence in the marketplace being hit, instability in the financial markets and companies generally being cautious about committing to significant spend,” said Ernst & Young’s technology director James Bennet.

“Technology stocks have been pretty hard hit, with organisations selling to the financial services sector particularly feeling the pinch as many projects have been put on hold,” he said.

“Confidence in the marketplace is affecting spending and delays in projects going ahead will be affecting clients now and in the future."