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Software Vendors' Sluggish Summer

Software vendors issuing warnings about poor earnings have been growing. Computer Associates, Siebel Systems and BMC Software said they would miss their revenue marks for the second quarter.

CA said its earnings for its first fiscal quarter ending June 30th would range from $830 million to $850 million, or 3 to 5 percent below its previous estimate of $865 million to $885 million.

Jeff Clarke, COO for the Islandia, N.Y.-based management software maker, attributed the letdown to weak performance of the services business and lower subscription revenue. In a statement, Clarke expressed optimism that the company, which competes with IBM and BMC, would meet its current earnings guidance range through "solid expense controls."

Like Clarke, analysts from financial services firm SG Cowen seemed unconcerned, citing CA's better-than-expected bookings and in-line cash flow.

"Despite slight miss in revenues, CA outperformed many of its peers, which have pre-announced significant shortfalls this week," wrote SG Cowen analyst Drew Brosseau in a research note. "Management claims to have seen little of the reported slowdown in spending and is clearly benefiting from its new licensing model that does not rely on large deals at the end of the quarter."

CA will report final results for the quarter after the market closes July 22.

Meanwhile, applications maker Siebel said revenues for the second quarter 2004 would be $301 million compared to the $353 million some analysts were expecting.

The San Mateo, Calif., company said in a statement the disappointing results were due to unexpected delays in purchasing decisions by certain prospects and customers near the end of the quarter.

Siebel, which competes with SAP , PeopleSoft in Oracle in the applications market, now expects new software license revenue to top $95 million, with ongoing maintenance revenues of $115 million. Revenues from services and other aspects will reach $91 million.

Siebel will unveil results for Q2 on July 21.

Brosseau published a software overview this week gauging the weak estimated sales by software vendors, and suggested the revenue shortfalls were hitting second-tier vendors mostly.

"The scope and similarity of the recent misses in software earnings suggest that something slowed in June, but with none of the biggest vendors having pre-announced, it seems premature to call a real downturn in the group," wrote Brosseau. "Instead, its seems that ongoing modest growth may be exposing the weaknesses at the 2nd-tier vendors, putting a premium on the strongest franchises."

Meanwhile, management software maker BMC said it anticipates revenues for the first quarter to fall between $318 million to $328 million, compared to the company's previous guidance of $345 million to $355 million.

The Houston company said it experienced delays in customer purchasing decisions among larger accounts, primarily in the U.S. BMC lodged 9 license transactions worldwide in excess of $1 million in the first quarter of fiscal 2005, nearly just half of the 16 comparable transactions in the same quarter of last year.

BMC will report first quarter results on July 27.

Earlier this week, PeopleSoft and VERITAS Software also announced lower-than-expected preliminary fiscal estimates. PeopleSoft continued to blame its poor performance on its ongoing battle for control with rival Oracle. VERITAS, which took a 36 percent stock hit, cited weak U.S. sales.

Brosseau wrote that while sales slowed in June, he couldn't pinpoint an exact cause. Instead, he believes the larger vendors, including Microsoft, Oracle, SAP, Computer Associates, Symantec and Adobe, will post solid quarters to make the market forget about this week's pre-announcements.

Moreover, he expects combined revenues for the top vendors to rise 12 percent in Q2.