IT bosses still bullish

Technology stocks have taken a nasty hit. Hilary Clarke reports

GORDON CRAWFORD, chief executive of the information technology company London Bridge, picked a bad day to announce his company's interim results. It was last Tuesday, the day of the stock market plunge.

While most shares fell, his company received one of the heftiest punches of all. London Bridge shares fell 26 per cent despite having that day announced a three-fold rise in interim profits. "The two events [results and share price crash] were totally unconnected," he says. "It was just one of those things."

Software stocks all took a hammering that day. Analysts agree that as premium stocks, they (like their US counterparts) fell further and fastest when the market slumped.

"We have been saying for some time that software stocks were looking overvalued and were due for a correction," said Anthony Miller, analyst with computer services consultants Richard Holway.

The consensus is that last week's events were just a blip.Logica and Sema are next week bringing down the curtain on a stunning IT reporting season for sector with what are expected to be more robust profit increases. IT share prices will be further buoyed by the FTSE's decision last week to re-classify IT stocks from next January.

Even so, while IT stocks have been among the stock market stars this year, analysts are beginning to wonder if the sector, which grew 21 per cent in 1997, can continue its stunning performance into the next century.

Until now, fixing the millennium bug and preparing for monetary union on 1 January next year has helped buffer the industry from the slowing economy. But will that be enough to help the software industry ride the recession unscathed?

Mr Crawford has to admit that for London Bridge, the recession is probably good news. His company specialises in software that helps utilities collect debt from people who have not paid their bills.

David Clayton, analyst at Credit Suisse First Boston, believes "there will be lots of redundancies again", as in the last recession, although not as badly.. "In the late 1980s a lot of IT spending was discretionary as companies tried to gain a competitive edge. Technological advancements and an increase in dependence on electronic transactions by companies means that there are now certain systems you have to have," he said. Even so, a proportion of IT spending is still discretionary. "When your earnings start to slow, IT is an area you cut back on," said Mr Clayton.

Many companies have put new IT projects on hold while they deal with the millennium bug. However, if the recession kicks in around that time, "they may decide if you can manage for two years without it, then you start to wonder did you need it anyway."

Company executives are more bullish. Martin Reed, chief executive of Logica, says that most of his company's business is in utilities, banking and telecoms, all driven by deregulation, globalisation and the personalisation of services. "Ours is the industry of the future. Even the recent spate of mergers is good news for us. Every time two companies come together they will have to think about their IT systems fast," said Mr Reed.

He believes that even if there is a deep recession, "IT will take over an increasing proportion of economic activity."

John Tilley, managing director of the Anglo-French Sema Group, is equally unperturbed by the economic outlook. "We deploy business systems that make companies far more efficient, helping them to reduce costs and make them more effective in lean times," he said. The company "has so much work on we chose not to take advantage of a short-term boom which after 2000 would go away."

Paul Walker is the chief executive of the Sage Group, one of the top five IT companies in Britain. Via a network of dealers, Sage develops, distributes and supports branded PC accounting software. Ninety per cent of the company's 1.2 million customers are small businesses with less than 100 employees.

"The confidence among our dealers is fairly buoyant. Small businesses see technology as making them more efficient."

He said it was large corporate clients that would be more prone to cutting back on their IT budgets in a slump.

"In the last recession we noticed people were keen to make sure IT systems were lean and efficient in meeting their needs," he said.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links