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Microsoft Seen as Earnings Stand-Out
Sun Jul 14, 2:16 PM ET
By Lisa Baertlein

PALO ALTO, Calif. (Reuters) - Business software makers, with the exception of industry titan Microsoft Corp. , are in the summer of their discontent and this week's earnings reports will underscore that view, analysts said.

Virtually every software company is smarting from a steep post-bubble drop in corporate technology spending. Analysts, many of whom have grown weary of betting on when a recovery will come, said that quarterly numbers from major players SAP AG , PeopleSoft Inc. and Siebel Systems Inc. will offer few clues as to when the embattled sector will get some relief.

Analysts expect Microsoft's sales for the quarter ended June 30 to be resilient, thanks to strong corporate demand ahead of a change in its software licensing practices that made up for weak PC-related sales. They also noted that products from the world's No. 1 software company, which also is set to report results this week, are relatively inexpensive compared with those from vendors such as Siebel or SAP.

"With the exception of Microsoft, we're going to see a fair amount of weakness and a lot of uncertainty," Sanford C. Bernstein & Co. analyst Charles Di Bona told Reuters.

"We're sort of into a long, hot summer," he said.

WEAKNESS ABOUNDS

Dozens of software shops -- including fallen Wall Street darlings E.piphany Inc. and i2 Technologies Inc. , along with long-time database vendor Sybase Inc. -- already have said they will miss their targets.

SAP AG jolted U.S. and European stock markets last Thursday with a warning that its second-quarter results would fall short of forecasts.

The German software giant, which supplies the code that helps automate tasks like accounting, human resources and sales at many of the world's biggest companies, also conceded that it would not meet its previous guidance calling for 15 percent year-on-year software sales growth. It's now targeting an increase of 5 percent to 10 percent.

While Siebel and PeopleSoft have not warned, analysts have cut estimates for those companies and many others. In so doing, they have cited corporations' lingering unwillingness to invest in big and complex software projects, such as those that fueled the industry's eye-popping growth of recent years.

Analysts, on average, now predict that Siebel will see its total quarterly revenue drop 20 percent from a year ago. They see an 11 percent decline at PeopleSoft, according to Wall Street tracking firm Thomson First Call.

DIM CHANCE OF RECOVERY IN 2002

"The U.S. is nothing to write home about, but it's not getting much worse," JMP Securities software analyst Patrick Walravens said, referring to big-company spending patterns.

"Europe is probably worse than two months ago," he added.

Goldman Sachs analyst Tom Berquist said Europe was the likely culprit behind the SAP miss.

"My sense is that it's probably more European weakness because they've been stronger in Europe over the past couple of quarters," Berquist said.

Combine that new regional softness with the continent's penchant for shuttering businesses in the summer months, and "the chance of selling much software in July and August is approaching zero," Walravens said.

Based on his own interviews with corporate executives, Walravens said he expects corporate technology spending to be flat in the second half of 2002, compared with the first. Then he sees an uptick in 2003.

He warned, however, that it will be nothing like the Internet boom years, when it wasn't unusual for upstart software companies to post quarter-after-quarter of 100 percent revenue growth.

"Those days aren't coming back. The days of Siemens paying $100 million to i2 for supply-chain software are over," Walravens said.

http://story.news.yahoo.com/news?tmpl=story&ncid=580&e=2&cid=580&u=/nm/20020714/bs_n...