Goldman's Sherlund Doesn't See a Quick Recovery for Software Makers
By Eric Gillin
Staff Reporter
6/12/01 9:21 AM ET
Software may power the Internet, back the personal computer and take you wherever you want to go today, but according to Goldman Sachs analyst Rick Sherlund, it won't be recovering all that soon.
While attending the Enterprise 2001 industry powwow in Carmel, Calif., the analyst fired off a note to investors that said executives were very concerned over the European slowdown and a second quarter that won't show any improvement over the miserable first.
Second-quarter and possibly 2002 earnings estimates for a wide swath of software makers are at risk, Sherlund said. Even though the analyst had modeled zero growth in his second-quarter outlook for many companies, he said he would be "relieved" to see those low expectations be met, considering all the negativity pouring out of Carmel.
"Executives of both the public and private companies report that there seems to be broad interest but little urgency among prospects in signing new license agreements, particularly larger deals," he wrote.
Business in the software industry also closes late in the quarter, as customers wait until the last minute to buy, hoping to get a better price. As a result, little data are out there at the second-quarter midpoint to help handicap how business will look in July, when the quarter closes. With this in mind, Sherlund told investors that he was unable to adjust earnings estimates, but did say his observations should be considered cautious.
With earnings season on the way and the preannouncement season in full swing, Sherlund told investors to expect the bad news to continue and to see software stock prices slide as a result. Investors who want a better look into the software industry will have to wait until June 18, when Oracle (ORCL:Nasdaq - news) releases fourth-quarter earnings.
"This may provide a further data point on business conditions and serve as a directional indication for the rest of the software sector," Sherlund wrote.
Sherlund says he considers Microsoft (MSFT:Nasdaq - news) a "relative safe harbor," and also favors Siebel Systems (SBEL:Nasdaq - news).
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