Technology - IT companies tighten belts.

Over three-quarters of UK technology[QQ] companies are tightening their belts amid concerns that economic slowdown is well under way.

But opinion is divided over its implications, with 48% believing that the technology industry will not be hit significantly by the slowdown, according to a survey by Deloitte & Touche.

The firm’s Annual Technology Industry Survey finds technology companies are taking steps to dampen the impact of the slowdown in the sector.

William Touche, lead partner for the Technology Fast 50, said: ‘Smart technology companies should seize this short-term revenue challenge as an opportunity to focus on quality, improve management processes, product differentiation, key elements in the sales process, and on quality of people.

‘In other words, they should be laying the foundation for real outperformance when the market picks up,’ he said.

‘Technology companies are working harder to convert what is in the pipeline into firm sales,’ said Touche. ‘The heady days of the technology boom are now infamous for some companies’ profligacy. Those days are gone.’

Job losses in the sector have been widely reported, such as those discussed last week by beleaguered Marconi chief executive Lord Simpson, but 61% of the faster-growing smaller companies expect to increase headcount in sales to address the tougher challenge in a harder market.

Staff turnover among technology companies surveyed peaked in 1999 at 29%. 2000 showed a rate of 27% that, although still representing an entire change of staff every four years, suggests a return to more manageable levels.

A skilled workforce and strong management of the skills-mix remain the most critical success factor for a third year running, with 65% of respondents rating it ahead of operating in a niche market as the main factor contributing to their success. The drop in investor sentiment and falling stock prices means that options are no longer useful rewards for retaining skilled staff.

But during a downturn staff are less willing to leave, and it is becoming an employer’s market as companies are able to play a fair price for required skills.

The most likely future for 41% of technology companies is a trade sale.

This compares with last year’s result that found just 25% expecting to be acquired. One-third of companies expect increased M&A activity in the future, with possible targets being some casualties of the downturn.

The unfriendly market conditions leave just 15% of companies considering a listing.

‘IPOs have been either postponed or are off the agenda,’ said Touche.

‘Shrinking capitalisation means companies need to be larger to get fund manager attention. It will be much harder for small companies to pursue listings and the required critical mass will mean more M&A activity pre-listing.’

– For further information log on to www.deloitte.co.uk.