UK Software and computer service companies made far fewer profit warnings in the last three months of 2002, according to a study by accountants Ernst & Young. It said this suggests that companies' forecasting may increasingly be coming into line with "the external reality rather than internal aspirations."
Ernst & Young said there were only 12 warnings issued by 169 listed companies in the sector in the last quarter of 2002, compared to 16 in the previous three months, and 19 a year earlier. This meant that software and services was no longer the sector issuing the highest number of warnings.
Warnings also had a less dramatic impact on share prices than in earlier periods. In the third quarter, profit warnings led to an average 32% fall in the share price of software and service companies compared to 23% for the market as a whole. By the fourth quarter, profit warnings produced an average share price fall of 24.25%, in line with the drop of 24.03% for the market as a whole.
Nick Powell, a partner in Ernst & Young's technology, communications and entertainment practice, said that further restructuring of the sector is inevitable. With delays to contracts and negotiations still being cited as the most common reason for warnings in the fourth quarter, followed by difficult market and trading conditions, he said that it is clear that corporate IT spending remains tight.