Profit warnings rocket in IT sector

The report by Big Five firm Ernst & Young revealed the software and computer services sector issued 17 out of the 77 profit warnings in the fourth quarter of 2000, one of the highest number recorded for any sector in any quarter since E&Y began its analysis in 1998.

When IT hardware and telecoms services were included, the figure was boosted to over a third of all profit warnings.

Warnings rose by 4% compared to the previous three months but the overall 2000 figure of 240 warnings was down on the previous year’s 316.

Poor sales forecasts lay behind 53% of warnings, with the slowdown in the US having a marked effect on companies’ outlook.

The survey also revealed the rise of the ‘serial warner’, with 21 of the previous quarter’s warning companies having already issued one of more warnings in 2000.

35 companies issued two or more profit warnings with half the repeat warnings coming in the fourth quarter.

Ernst & Young corporate finance partner John Harley, who specialises in the technology, media and telecommunications market, said: ‘We are always concerned when over 5 per cent of companies in a given sector issue profit warnings. The percentage of SCS and IT Hardware warnings exceeded this figure in Quarter 4 2000 and the sector’s weak capital markets suggest that this trend will continue into 2001.’

Similar reports carried out by E&Y for the second and third quarters of 2000 recorded profit warnings of 45 and 74 respectively.


Ernst & Young analysis

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