Services and software sector hits rock bottom

Computer services and software has been branded the FTSE’s worst performing sector of 2007 after 43 firms issued profit warnings.
The category saw a total of 56 warnings last year, putting it joint bottom with the support services sector.
Despite the warnings ­ almost half of which were attributed to delayed contracts or negotiations ­ Ernst & Young said it had been a good year for software and services stocks.
John Hughman, senior technology analyst at Ernst & Young, emphasised that all but one of the warnings were from companies with less than £200m turnover, with larger firms’ performance unaffected by the credit crunch.
“While software and services shares have been knocked since November, the credit crunch has not had a huge impact on corporate profit and loss,” he said.
“There are a lot of companies in the sector and many of them are small so they are exposed to fewer contracts and customers. Despite the problems in the wider economy, there were no warnings in the past quarter among larger firms.”
Ray Ottey, partner manager of security at Alternative Investment Market-listed VAR Netstore, said the market had picked up due to soaring demand for consolidation, compliance and data leakage projects.
“A lot of people are performing generic computer services and are typically involved in refresh, which firms are not focusing on,” he said. “If companies have consolidation and virtualisation skills, they would not have seen any impact.”
Scott Fletcher, chief executive of plus-listed reseller ANS, said: “The industry is in reasonably good shape and the credit crunch has not particularly affected us.”
Hughman cautioned that the impact of the credit crunch may yet trickle through to affect tech stocks in 2008, due to their high exposure to the financial services, retail and manufacturing sectors.
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