Profit warnings on the rise in UK tech sector

Warnings from software, hardware and IT services vendors show credit crunch is starting to bite on tech firms

Profits are falling in the IT sector

Profit warnings in the UK technology hardware and equipment sector rose by more than 60 per cent in the fourth quarter of 2008 and by the same amount when compared to the fourth quarter of 2007, according to research released today by Ernst & Young.

Eight warnings were issued by seven companies in the fourth quarter of 2008, rising from three in the third quarter. And total warnings rose from 11 in 2007 to 21 in 2008.

Companies in software and computer services issued 10 warnings in the final quarter of 2008 compared to seven in the third quarter, though when comparing annual totals, warnings for this sector dropped from 56 in 2007 to 39 in 2008.

Companies operating in the electronics and electrical equipment sector recorded four warnings in the fourth quarter of 2008, the same number as the previous quarter. The total number of warnings dropped in 2008 to 15 from 20 in 2007.

Karl Havers, partner and head of Ernst & Young's technology practice, said that the credit crunch is finally starting to catch up with IT companies.

"Revenue had remained remarkably resilient for much of the year, but business cases for IT spend are now being seriously challenged and all but the must-do spend is likely to be challenged," he said.

"We can expect more profit forecasts to come, and we are seeing few businesses that can forecast accurately in the current environment."

James Bennet, a director in Ernst & Young's technology team, added that IT companies had started cutting costs before things got very difficult in September, causing fewer profit warnings in the fourth quarter than might have been expected otherwise.