With Sema, which yesterday lost nearly half its value after warning on sales and profits, the problem is as much company specific as attributable to a more broadly based slow down in the New Economy.
There never was anything particularly special about Sema as an IT services and outsourcing company, and its acquisition at the top of the market last March of the American German software house, LHS Holdings, always did look rash. After yesterday’s tumble in the share price, Sema is worth a good deal less than it paid for LHS. The all stock offer valued LHS at $4.7bn, a quite astonishing sum given that LHS made only £2.3m in operating profits in the seven months to July. Unless things recover quickly, relegation from the FTSE 100 looks certain at the next available opportunity.Sema blames the fall in sales at LHS on the prolonged period of uncertainty surrounding its acquisition, and on disruptive integration since but there’s plainly more to it than that. Demand for LHS’s billing and other systems has simply failed to materialise as expected. By Sema’s own admission, it has also been failing to win any of the really big contracts in its traditional outsourcing business, where it is up against much larger rivals.Sema may be the author of much of its own misfortune, but there is also a more wide-ranging slowdown going on, both in the traditional IT services market and at the cutting edge of the newer technologies. This has been obvious in share prices since the TMT bubble burst in late March.

Now the effect is coming home to roost in the real economy too. Growth is slowing, funding is becoming more difficult, investment is beginning to dry up.At the beginning of the year, governments and IT consultants were urging Old Economy companies to shape up or risk being over taken by entrepreneurially led dot s. Get e-prepared, get e-enabled; the internet is for all business, not just the pony tails, was the message. For a while, everyone believed it, and IT spending accelerated across the board. But then the bubble burst, the dot madness subsided and sanity began to reassert itself.That this was an accident waiting to happen was obvious long before it actually did. As in all bubbles, there was an excess of investment, both in the stock market and in the New Economy, which will now take time to work its way out of the system. Profits are going to take much longer to catch up with valuations and demand will be the same.

It will be ages before it has soaked up all that spanking new IP infrastructure and bandwidth. The dot s – once described by Lou Gerstner, chief executive of IBM, in a rare moment of poetry, as like “fire flies before the storm” – are already blown away and everyone else is cutting back like mad.Just how bad are things going to get? That’s much more difficult to answer. In the real economy, things still seem to be booming and only among the dot s is there real pain. So what’s all the fuss about? Unfortunately, we are on a slow burn here, and over the months ahead, the effects will become more visible, as the economy noticeably slows. Outright recession, either in Europe or the US, continues to look rather unlikely, but the boom is very definitely over. Retrenchment is the order of the day.Business cycle downturns rarely last that long, or at least they haven’t in recent times, and policy makers have become better at ironing out the peaks and the troughs.