Warning signs: Do IT results spell UK recession?

Software and computer services companies issued a fifth of all of the profit warnings made during the last quarter, increasing fears the UK tech industry is heading into recession.

The figures, from professional services giant Ernst & Young, show the high-tech sector has the unenviable distinction of leading the profits warning table, recording more than twice as many casualties as the next industry sector on the list.

There were 20 profit warnings from IT software and services firms in the three months ending 30 June - up one from 19 in the previous quarter. The electronic and electrical equipment sector has also been heavily hit by the downturn in high-tech spending.

John Harley, head of technology, media and telecoms corporate finance for Ernst & Young, said the continued rise in warnings showed that the downturn is proving deeper than expected: "People thought Europe would survive, but it's clear it hasn't. The problem is the technology spending bubble was so big in the nineties, now it's burst, it's hard to see what the base revenues for these firms are."

Ernst & Young's report demonstrates that it isn't only firms with large businesses in the US that are suffering - UK and European operations are also being affected.

Harley added that for many companies it was a management issue: "Most of these firms haven't been through a recessionary period before because they're so new. Management has got to be realistic and let the markets know early if the company's not performing."

He said it is those firms that deal with problems early that tend to get through downturns.

On a more positive note, Bob Jones, serial high-tech entrepreneur and MD of networking company Equiinet, said he believes the downturn is just a "reality check" after the excesses of the 1990s: "We risk confusing real profit warnings with other companies using the excuse of poor market conditions as an opportunity to write down past failures onto the balance sheets."