Several ASX-listed service providers have fallen victim to wilting customer sentiment spawned by the global financial crisis, reporting drop offs in earnings for the first half of the financial year.
In October 2008, most listed service providers told ARN they were upbeat about their respective businesses and claimed they were unaffected by the global financial crisis. The domestic IT sector had outperformed the market and with most listed companies not heavily geared, they limited their exposure to the problems with the US banking system.
However, in the past week, both Oakton and UXC extensively downgraded their profit estimates for the first half of the financial year.
Oakton’s first half net profits were estimated to hit $6.5 million, nearly half the $12.5 million reported over the same period last year. In a statement to the ASX, managing director and CEO, Neil Wilson, attributed the results to the dire economic climate and said slowing Federal Government demand and delayed projects were hitting hard.
UXC also warned its first half earnings would be down by a “substantial amount” after trimming its head count late last year as a result of the tough economic climate. Finance director and company secretary, Mark Hubbard, said the lack of confidence in the market had created real weaknesses.
“Is it is as much to do with confidence as it is with real numbers,” he said. “In October/November when it was really starting to bite, people had made strategic decisions about investing in their IT infrastructure and so forth, but because of the fear and uncertainty in the market, many would not back those decisions and deferred them into the future. That was about confidence or lack of confidence; it wasn’t about any particular weakness in the economy at the time.”
Despite the poor results showing, ABN Amro Morgans senior analyst IT&T, Nick Harris, pointed out most integrators, including SMS, DWS and Data#3, were still in a solid position on their balance sheets with net cash.
“You can talk yourself into or out of a recession. It is a little more complicated than that but if people think we are about to go into a recession and stop spending, then it is a vicious cycle,” he said. “With technology, if people are starting to see things come off they will delay spend unless they can get a short-term return on that investment, which is probably why Data#3 has held up reasonably well.”