Slump in sales of millennium bug software hits Micro Focus

SHARES IN Micro Focus, the software group, more than halved yesterday after the company warned that a drop in work on the year 2000 computer bug would wipe out profits in the third quarter, writes Francesco Guerrera.

The information technology specialist said that the slump in sales of year 2000 software would leave net income for the period at around break- even point before exceptionals, well below analysts' forecasts of a $10m ( pounds 6.3m) profit. Revenues would reach $87m, around $15m less than expected.

City analysts reacted to the surprise profit warning by culling around pounds 15m from their year-end profit forecasts of around pounds 36m. The sharp downgrades also triggered a round of selling, which pushed Micro Focus shares down 55 per cent in early afternoon.

The stock recovered slightly in late trading but still ended 43 per cent off at 133.5p - the largest drop in the FTSE 250.

Richard Van Hoesen, the Micro Focus chief financial officer, blamed the profits slide on falling demand from US companies for software to fix the bug. The software tricks computers into believing that the year 2000 is in fact 1900.

Most companies had solved the basic problems and were moving into testing their existing anti-bug programmes, he added.

This left Micro Focus, which derives about 20 per cent of its revenues from year 2000 bug work, starved of an important source of profits.

"It is something we were expecting, but it happened sooner than we had expected," Mr Van Hoesen said.

Micro Focus, which is listed in London and on the Nasdaq index in the US, will shift some of its millennium resources to other projects, including its software to help companies deal with the euro.

The rest of the business, which specialises in the development and connection of software programmes in Europe and the US, was performing well and did not show material falls in profits, said Mr Van Hoesen.

The company plans to meet major shareholders on 2 December when it reports third-quarter results.