Profit warnings down

According to the latest Ernst & Young survey, the number of warnings issued by software and services companies is down. However, the market watcher has warned that this is not the full picture as there may be bad news coming in from the US

The number of profit warnings by software and computer services companies has seen the biggest decline since early 2003, according to the Ernst & Young Quarterly Profit Warnings Survey.
In the third quarter of 2006, warnings dropped to 10, compared with 18 in Q2. Most companies cited a delay in contracts and projects as the main reason for warnings.

James Bennet, technology director at Ernst & Young, said: “This is great news for the sector and though delayed contracts continue to trouble some players, it is clear that in general companies are getting better at revenue recognition as the finance and sales functions try to work closer together.

“This is by no means the light at end of the tunnel for the sector, which remains a confederation of smaller vendors that are fundamentally more exposed to contract delays than larger suppliers. While IT spending has picked up across the board in 2006, any wider economic weakness could see budgets curtailed once again. We’re already seeing signs from the US that technology spending is entering a downturn, and in general, buyers are becoming more price sensitive, particularly in areas such as IT outsourcing where low cost offshore vendors are competing aggressively,” added Bennet.