Telecoms and technology stocks drop on spending cuts and IBM

The UK coalition government’s raft of austerity measures and spending cuts appear to be catching up with certain sectors on the FTSE 100 share index as groups release new quarterly data for the first time since the Emergency Budget in June. Telecoms giants Cable & Wireless Worldwide (LON:CW) issued a profit warning for the year due to the measures, dragging fellow sector blue-chip BT Group (LON:BT.A) shares down as well. And technology stocks also fell this morning after poor results from IBM overnight as it identified the weak euro against the dollar hurt its second quarter figures as the group does much of its business outside of the US.

Kate Neilson
shareprices.com - Tuesday, July 20, 2010

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Poor results from IBM have dragged UK technology stocks down

Cable & Wireless Worldwide, the result of Cable & Wireless’ demerge into two separate businesses in March this year, released an interim management statement today saying: “In the first quarter our major programmes and lines of business performed broadly in line with plan.

“However, following the new Government’s Emergency Budget in late June, non-contracted spending in the UK public sector has slowed very significantly. Given the nature of our public sector business, this reduction will adversely impact trading in the current year. Nevertheless, we are supportive of the overall approach being adopted by Government and believe that our unique product set provides us with significant opportunity in this area over the medium term.”

The firm was set to feel the brunt of the spending cuts as 12 per cent of its revenue relies on public spending. However, despite the expectations, the group has suffered the biggest drop on the FTSE 100 this morning, currently down 17.2 per cent with a loss of over 14p to drop to 69.20p.

And the announcement didn’t help BT’s cause either, as investors steered well clear of telecom stocks. BT shares fell just under 5p to lose 3.5 per cent and Vodafone (LON:VOD) also dropped 1p with a loss of 0.7 per cent, concluding a difficult morning for the telecoms sector.

The technology sector was also struggling this morning after IBM released a below-par update last night. The revenue increase for the huge US company was under analyst predictions which IBM put down to currency changes hampering the firm at the rate of $500m in that one quarter alone.

Shares in IBM fell on Wall Street, and the results have rippled across the Atlantic with technology firm Autonomy Group (LON:AU) feeling the pressure with a share price drop of 29p or 1.5 per cent.

The FTSE 100 has experienced a positive session so far this morning despite the troubles, backed by a growing interest in risk associated stocks, with miners and banks trading well. BHP Bilton (LON:BLT), Vedanta Resources (LON:VED), Rio Tinto (LON:RIO), Xstrata (LON:XTA) and Eurasian Natural Resources (LON:ENRC) are all between two and 1.5 per cent up.

Also at the top of the FTSE 100 risers are International Power (LON:IPR) and BP (LON:BP) which are both recouping losses made yesterday.

Just before 10:15BST the FTSE 100 share index is 0.16 per cent up with an eight point gain to 5,156.26.

 

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