=Software Cos. -2: Investors See Growth Opportunities
Some market observers believe investors shouldn't paint the entire software sector with a broad brush of sharply declining growth.
Waddell & Reed portfolio manager Zack Shafran said there's "lots of opportunity" in the market for systems management software, which helps corporations manage complex and far-flung hardware and software systems.
"People have spent an enormous amount of money in the past several years on hardware, software and telecommunications," Shafran said, "and one of the biggest challenges is the management of all of these things."
It would be incorrect to presume that a slowdown in ERP software purchases would translate into a slowdown in systems management software, said CIBC Oppenheimer Corp. analyst Melissa Eisenstat. There's usually a lag of at least a year between when people buy ERP software and when they purchase systems software, she noted.
Invesco Strategic Technology Fund co-manager Gerard Hallaran said he doesn't see any slowdown in the segment of ERP software known as the "middle market," or customers with revenue between $100 million and $2 billion.
Hallaran said he expects J.D. Edwards, which has been hit hard in the last two sessions along with other ERP software companies, to grow its revenue "upwards of 50%." J.D. Edwards' revenue grew 36% in fiscal 1997.
"Some companies are taking share at the expense of others," Hallaran said, noting that J.D. Edwards is one such company. "A lot of analysts who have missed these competitive moves are calling for an industry slowdown."
Declines in certain ERP software companies' growth rates aren't likely to fall down as much as some analysts are forecasting, said Salomon Smith Barney analyst Neil Herman. He maintained his buy rating on Peoplesoft Monday, as colleagues continued to downgrade the stock.
While Morgan Stanley estimated that Peoplesoft's 1999 revenue will slow to 36% growth from an estimated 1998 rate of 47%, Salomon Smith Barney believes that the software company can post a 1999 revenue growth rate of 45.7%.
Not all analysts who issued downgrades on certain ERP companies changed their earnings estimates because they didn't find enough evidence yet of lower spending on software by corporate customers.
In a note on Peoplesoft, Goldman Sachs' Rick Sherlund concluded that he wasn't able to change his estimates, despite the greater risk for a "challenging capital spending environment for big-ticket software systems."
The difficulty in determining how much risk there is to ERP software companies' growth rates is compounded by the fact that "the pipelines are healthy now," said SG Cowen & Co. analyst Rob Schwartz. That is to say, companies have lots of potential contracts in the works, though not yet signed as final deals.
Schwartz said he believes investors won't see the repercussions of reduced capital budgets on software spending until early next year, as at the moment their customers are planning for the 1999 spending year.
The Dow Jones Industrial Software Index declined 4.4%, while the Nasdaq Composite Index finished the session off 4.85%.
Among the largest percentage decliners, Baan Co. set a 52-week low, declining 1 9/16, or 7%, to 20 5/8, BMC Software Inc. (BMCS) fell 9 1/16, or 17.5%, to 42 13/16 and J.D. Edwards was off 4 3/4, or 13.5%, to 30 3/8
Among other big decliners, JDA Software Group Inc. (JDAS) declined 2 1/16, or 16.8%, to 10 1/4, Mercury Interactive Corp. (MERQ), fell 8 1/4, or 25.5%, to 24 1/8, Peoplesoft fell 3 9/16, or 14.7%, at 20 3/4, Siebel Systems Inc. (SEBL) was off 5 9/16, or 23.1% at 18 9/16, Vantive Corp. (VNTV) was off 1 21/32, or 19.4%, to 6 7/8, and Viasoft Inc. (VIAS) fell 1 11/16, or 28.1%, at 4 5/16.
- Maria V. Georgianis; (201) 938-5244; maria.georgianis@cor.dowjones.com. (END) DOW JONES NEWS 10-05-98 05:16 PM |
