UK tech companies buck recovery trend

The number of UK companies issuing profit warnings in the first quarter of 2002 fell to its lowest level for 15 months, despite continued bad news from technology companies, according to a study by Ernst & Young.

The study shows that the number of profit warnings fell by 39% to 91 compared to 141 in the previous quarter, the sharpest decline since the survey started in 1998. While it indicates a potential upturn in economic conditions and better economic management, the news is not so good for UK hardware, software and technology services companies.

Of the 91 profit warnings issued in the quarter, 16 were from hardware, software and services companies. Indeed, while 17.6% of the profit warnings came from technology companies, they made up just 13% of the total number of quoted companies.

The number of warnings from software and services companies actually dropped to 11 from 19 in the previous quarter, while the hardware market saw the number of companies issuing warnings rise from three to five, representing 12% of the total number of quoted hardware companies.

Telecommunication services companies also suffered. Although only three companies in this sector issued profit warnings in the first quarter, that also represents 12% of the total number of quoted telecommunication services companies. There were no profit warnings from this sector in the previous quarter.

The large drop in the total number of profit warnings can be attributed to the fact that the 141 profit warnings issued in the fourth quarter was the highest total since the survey began, and was driven by the post-September 11 downturn. This is not necessarily indicative of an upturn, warned Ernst & Young.

The report indicates that companies have improved their economic management and forecasting skills, while there has been a partial return of confidence in the markets. The study predicts that in the second quarter of 2002, the number of UK profit warnings will be in the range of 80 to 100, with the possibility of a slight decline.

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