IT sector concerned as profit warnings increase
Credit reference agency claims that IT sector as a whole is ‘performing very poorly'
Profit warnings in the FTSE Technology Hardware and Equipment space soared by 40 per cent in 2006, with experts warning that conditions in the wider IT channel show no signs of improving this year.
The latest quarterly data from market watcher Ernst & Young shows that FTSE Hardware and Equipment firms issued 21 profit warnings last year, up from 15 in 2005. Delayed or discontinued contracts and difficult trading conditions were increasingly blamed, the firm said.
John Hughman, senior technology analyst at Ernst & Young, said that UK-listed hardware firms, many of which work in the semiconductor space, have also been hit by a comparative lack of scale.
“UK companies tend to focus on fewer product applications. This means they can suffer if a particular niche product under-performs, even when the wider market is buoyant,” he said.
Scott Dobson, managing director of distributor Vcomm, said: “There’s always pressure when you’re in a commoditised space. China and the Far East are bringing in very cost-effective components.”
There are only 49 firms included in the FTSE’s Technology Hardware and Equipment section, but Mark Ancell, head of intelligence at credit reference agency Graydon UK, said the data mirrored wider trends in the IT sector.
According to Graydon’s figures, UK IT sector insolvencies jumped by 10 per cent to 700 in 2006, with fourth-quarter insolvencies rising by 26 per cent annually. Administration orders rose by 56 per cent in 2006.
“Generally, the IT sector as a whole is performing very poorly,” Ancell said. “There hasn’t been any improvement so far this year and it’s highly unlikely there will be. Until there is consolidation there will only be a certain amount of business to go after.
“Lots of local authorities have capped IT spending in 2007. This will have a massive impact on first-quarter figures.”