UK tech sector profit warnings jump, EY-Parthenon report says

[LONDON] Software and computer services companies had the biggest rise in profit warnings among UK-listed firms last quarter, according to a report from consultancy EY-Parthenon.

The sector posted 10 warnings, up from six in the previous quarter. It was followed by construction and materials-related companies and media firms, with six each. 

Contract cancellations and delays are a key headwind impacting software and computer services companies, Jo Robinson, EY-Parthenon Partner and UK&I Financial Restructuring Leader, told Bloomberg News. 

“As service providers to a wide range of industries, technology firms remain highly exposed to broader economic slowdowns and cost cutting,” she said. 

The emergence of generative artificial intelligence is also increasing uncertainty. Although it can drive efficiency and growth, it also poses risks to software and computer services providers.

“The pace of technological change is prompting some clients to delay investment decisions as they reassess digital strategies,” Robinson said. “At the same time, the expanding capability of in-house development teams threatens traditional outsourcing and licensing models.”

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The overall number of profit warnings across UK-listed business is also on the rise. There were 64 profit warnings in third quarter, up from 59 over the previous three months, according to the report.  

Almost half of the profit warnings issued last quarter referenced policy change and geopolitical uncertainty as a leading factor while a third flagged contract and order cancellations or delays.

Weakening consumer confidence is also eroding profits. One in five of last quarter’s warnings cited it as a key factor, the highest proportion since 2022 and significantly more than the 6 per cent recorded during the same period last year, according to EY-Parthenon. BLOOMBERG