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Jittery European firms have spent less money in 2008 on IT services because of the economic worries, taking a chunk out of the profitability of Computacenter. The IT group, which sells equipment and services to corporations, said on Friday that early year trading in both its UK and overseas markets was “difficult” compared to last year. In a downbeat trading update citing “economic uncertainties,” the group reported a “poor” start to 2008 in France, and in the UK, where sales before growth fell 1.5 per cent. Although it took more orders from German clients in this first quarter than it did in last year’s, its non-UK sales, mainly France and Germany, fell by 7.1 per cent. The sales slide is reflected in Computacenter’s overall growth: both it and operating margins have remained in the low-single digits, even in the relatively good months concluding 2007. In other words, Computacenter is barely growing or making profits once inflation is stripped out, explained Ovum analyst Angel Dobardziev. “This level of performance in the good part of the business cycle does not leave much room to absorb the pressure when the ride becomes more bumpy and this is exactly what we are seeing right now,” she explained. Given Computacenter’s investment of a reported £4.5m to secure slightly smaller clients, the IT seller is seen as specialising on the mid-sized market. “In reality,” the analyst said, “Computacenter… [is] being squeezed by the sharpened focus of the larger players on the mid-market at one end, and continued commoditisation of its service lines and product business at the other.” Despite reassurances by Comptacenter’s chief executive Mike Norris that sales were up in recent weeks, Ovum expects the group’s “performance to come under far greater pressure.” “The European IT services markets are changing rapidly under the forces of globalisation, but also innovation and industrialisation, the result of which are intensely competitive markets where value is being squeezed out of existing service lines,” the analyst said. “Players such as Computacenter will come under significant pressure to rethink their place and positioning in such a market, particularly as clients look to tighten their purse strings.” Alongside the tougher economic conditions, Computacenter pointed to the early Easter holiday to explain why sales have been hit in the first quarter, and why profits will, hopefully, be bigger in the second. “Our expectations remain unchanged for the year as a whole, assuming no material deterioration in market conditions,” the company said. “However, it is likely that the pre tax profit will be more skewed towards the second half which may result in the first half being slightly below the first half of last year. “This is due to not achieving our revenue growth objectives to date, despite increased investments, and the increased proportion of group profits generated in Germany, which have always been biased towards the second half of the year.” Such reassurances in the group's interim management statement weren’t sufficient to stop shares in Computacenter falling 10 per cent at the close of business on Friday. May 19, 2008 Email this article Printer friendly page Previous Page
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