Software firms face dollar slide worries

 

ICT Ireland and the Irish Software Association said the dollar's slide on international markets had wiped a significant amount from the industry's $536 million (€544 million) annual exports to the US.

Irish software companies that export to the US will face a major loss of competitiveness if the dollar continues to depreciate against the euro, lobby groups for the sector warned yesterday.

The warning comes as sentiment in the technology sector continues to be downbeat following WorldCom's accounting scandal and weak corporate spending on technology products.

The dollar, which came close to reaching parity with the euro this week for the first time since 2000, has lost almost 12 per cent of its value since January 2002. This means up to $64 million could have been wiped off the value of software exports to the US.

"A fair degree of Irish software firms export to the US and do it as a dollar business, so the movement of the dollar has led to at least a 10 per cent margin loss," said Mr Brendan Butler, chairman of ICT Ireland, a part of IBEC. "Companies here incur costs in euro but many are paid in dollars for their software."

Some 40 per cent of Irish software exports, which totalled $1.33 billion in 2001, are exported to the US. A further 26 per cent are sold in Britain, where sterling has also weakened against the euro recently, while just 15 per cent of exports go to the euro zone.

Interactive Services, an Irish software firm that generates 95 per cent of its revenues in the US, is one of many affected by the dollars slide. "Obviously it has a negative impact, although with 20-25 per cent of our costs located in the US with our sales force, we can match some of the revenues with costs," said Mr Ronan Murphy, chief financial officer. "Some of our supply contracts are also in dollars and when we raised our last funding, it was denominated in euros and we kept it in euros."

Most firms believe parity between the dollar and the euro is manageable but slide beyond that would have a significant impact, said Mr Murphy.

"For Irish software firms, the major market is in the US so every 1 per cent of depreciation in the dollar increases the pressure," said Mr Jim Power, chief economist at Friends First. "For an industry already under serious pressure, this issue is likely to compound the problems. It is likely more jobs will be lost here."

Mr Paul O'Dea, chairman for the Irish Software Association, called on the Government to provide legislation to enable firms to introduce more favourable stock option plans.