IT companies bullish in face of credit crunch

IT suppliers have so far avoided the worst effects of the credit crunch because businesses are continuing to spend on IT. The number of UK technology...

IT suppliers have so far avoided the worst effects of the credit crunch because businesses are continuing to spend on IT.

The number of UK technology suppliers issuing profit warnings has almost halved in the second three months of this year, compared to the previous three months, according to research from Ernst & Young. Other sectors including finance and house building are struggling.

UK suppliers of IT software services, hardware and equipment issued 12 profit warnings in the second quarter of this year compared to 20 in the first quarter, the research shows. According to the latest research from Gartner, the IT services market will remain strong in 2008, with spending forecast to increase 9.5% compared to last year, reaching $819bn.

IT suppliers have been shielded from the full effects of the downturn because many large firms are part-way through long-term IT projects which take a number of years to complete. At the same time IT investments are increasingly seen as business critical by small companies.

But James Bennet, technology director at Ernst & Young, said the good times for suppliers may not last. "We would have expected to see tough times ahead for all organisations in this sector as the fuller extent of the global financial challenges played out in local markets."

Justin Speake, CEO at analyst firm Bloor said it is business as usual for most businesses, "but they are doing business with more rigour".

"Businesses are not killing any big projects and budgets seem to be the same as last year. This is because there is a slowdown rather than a full recession," added Speake.

Phil Morris, managing director Europe at outsourcing consultancy Equaterra, said cutting spending on projects which change how a business operates, such as outsourcing contracts and major IT implementations, is not an option. "Investment is still going on. In the IT outsourcing sector we are seeing that decisions took longer in the early part of the year, because people preferred to see what would happen, but then went back on the gas."

IT directors are yet to feel major cuts to IT budgets. Richard Swann, head of IT at the Institute of Directors, said long-term projects are unlikely to be postponed despite the economic outlook.

"If you are halfway through a three-year project it is hard to pull the plug," he said. "Projects such as upgrades to operating systems could be put on hold, but I have not seen any evidence of this yet."

Small businesses are actually increasing their spending on IT, according to the Federation of Small Businesses. Head of public affairs Stephen Alambritis said, "We think they will invest more in IT in order to gain more business and depend less on manual processes to reduce labour costs."

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