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IT sector sees increased profit warnings

As market conditions cause customers to tighten their belts, profit warnings among software and IT services companies are on the rise
Written by Andy McCue, Contributor

Profit warnings among software and IT services companies are on the increase as market conditions force customers to tighten their belts.

Research by Ernst & Young shows profit warnings in the software and computer services sector of the FTSE share index rose by 44 percent in the first quarter of 2008.

This reverses the trend of declining profit warnings in the sector last year.

There were 13 companies in the sector that issues profit warnings in the first quarter of the year; all with revenue of under £200m and all citing sales short of forecast.

Last year started with a high number of profit warnings — 17 — in software and services, but this had steadily declined to nine by the end of 2007.

There are also increased profit warnings in the technology hardware and equipment sector: up from three at the end of 2007 to seven in the first quarter of 2008.

Across all sectors of the FTSE index, 114 profit warnings were issued by UK quoted companies: the highest first-quarter figure since 2001 and up 11 percent from the first quarter of 2007.

James Bennet, technology director at Ernst & Young, said in a statement: "Technology stocks have been pretty hard hit, with organisations selling to the financial services sector particularly feeling the pinch as many projects have been put on hold. Broadly, confidence in the marketplace is affecting spend and delays in projects going ahead will be affecting clients now and in the future."

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