IT profit warnings on the rise

Ernst & Young blames buyer tactics for reporting pressure

Profit warnings for IT companies have tripled in the first three months of 2006, according to Ernst & Young.

The professional services firm says warnings have increased from four to 12 from this time last year.

Ernst & Young technology director James Bennet says delays in contracts and projects are the main reason cited for most financial problems.

'It is taking much longer than expected for companies to sign contracts. For smaller companies dependent on fewer big deals this is an issue, and a delay in just one or two deals is all it takes for forecasts to be missed,' he said.

The problem is developing into a recurrent theme, with customers becoming more and more sophisticated in the way they negotiate contracts.

Tactics such as negotiating slowly and then demanding last minute changes in price to coincide with supplier accouting periods are putting in the pressure, Bennet says.

'The complexity of contracts is affecting when a vendor can recognise revenue,' he said.

The only good news is that the industry as a whole is not being affected and that the problems are easy to resolve through good accounting and reporting systems, Bennet said.