Profit warnings increase in software and services sector

Ernst & Young report lists sector as second highest performer in terms of profit warnings for Q1

Profit warnings for the software and computer services sector have increased quarter on quarter, according to market watcher Ernst & Young.

According to the research, profit warnings for the sector increased to 17 in the first quarter of 2007, compared to 15 in the last quarter of 2006. However the sector did not win the title of worst performing sector. That accolade went to the General Retail sector, which issued 18 profit warnings in Q1.

The overall number of profit warnings across all sectors increased dramatically in Q1 2007 to 103 from 88 according to Ernst & Young. Profit warnings last exceeded 100 in a single quarter in Q3 2005, when rapid oil price inflation was the main cause of the increase. The last time they rose above 100 in the first quarter was in 2001.

James Bennet, technology director at Ernst & Young, said: “As customers demand implementation support and other services on longer term contracts, revenue recognition continues to be an issue dogging the sector. Just under a quarter of the companies blamed accounting problems or errors for their warnings”.