IT suppliers feel the crunch

Number of distressed technology companies soars since early 2008

More IT suppliers are strapped for cash

The number of IT companies facing critical financial constraints has more than doubled since the start of the year as businesses rein in technology spending, according to a survey by business rescue firm Begbies Traynor.

The third quarter saw the most dramatic increase, with a 627 per cent rise in IT companies in severe difficulties compared to the same period last year, and a 42 per cent increase over the second quarter of this year.

Overall, the number of seriously cash-strapped UK companies in all sectors increased from 736 in January to 1,798 in September, representing a rise of nearly 250 per cent.

The numbers reflect the effects of recent market volatility and suggest that businesses are reducing IT spend and deferring or cancelling new projects and their related software and hardware purchases, says the study.

“With twice as many companies now experiencing ‘significant’ problems, we expect to see an even further increase in ‘critical’ businesses as distress escalates between now and the end of the year,” it says.

“There’s evidence of many IT companies being in denial of a deterioration in trading and being slow to take cost-cutting action. This only shores up problems for the future and may make them more vulnerable to acquisition by larger, more established IT players, further feeding the recent wave of IT industry consolidation.”