Software companies in the UK have been warned to exercise caution if they have a high exposure to the United States and the dollar rate.

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The UK software sector has stabilized for the third quarter 2007, according to research from Ernst & Young. Profit warnings in the sector remained at the same level as the second quarter, however the research revealed that more than a quarter of the companies within the sector have issued a profit warning in the last 12 months.

John Hughman, senior technology analyst at Ernst & Young, said in a statement that some companies have invested heavily, expecting growth which has not materialized. "It could be an indication that the business outlook has soured somewhat in recent months. Companies should be exercising prudence in the current climate, particularly those with higher exposure to the U.S. and the dollar."

In the past twelve months, there have been 62 profit warnings from 47 different companies, representing 28 percent of the FTSE Software and Computer Services sector. Compared to the same time last year, quarter-on-quarter figures show a 50 percent increase in warnings issued in the sector.

"We'll always see a high proportion of warnings from software companies as they represent a large proportion of the overall index, and are generally smaller players with more concentrated exposure to order delays. The UK's leading software and service companies continue to perform well," Hughman said.