U.S. Software Companies Profit From Internet: Industry Outlook
Bloomberg News
December 22, 1998, 9:04 a.m. PT
Redmond, Washington, Dec. 22 (Bloomberg) -- Microsoft Corp.,
Oracle Corp. and other software makers can thank the throngs of
companies and consumers linking up computers and tapping the
Internet for giving them higher earnings this quarter.
Oracle, the top maker of database programs, enjoyed booming
demand from online retailers like Egghead.com Inc. for programs
that manage lists of customers and operate Web sites. Sales of
Windows NT from No. 1 software maker Microsoft climbed 26 percent
in the last full quarter as businesses hook up to networks and
flock online.
''The Internet is fueling the growth of software
companies,'' said Paul Cook, portfolio manager of the Munder
NetNet Fund, which has about $200 million of Internet-related
stocks under management.
Earnings for software makers as a group are expected to jump
29 percent in the fourth quarter, according to First Call Corp.,
making the industry one of the best performers in the U.S.
The S&P Computer Software Index lags only telecommunications
equipment and computer hardware -- which also benefited from the
Internet craze -- among high-tech stock groups tracked by S&P.
Microsoft Rolls On
Microsoft is shrugging off an investigation by the U.S.
Justice Department and setting the earnings pace, as it has for
previous quarters.
The Redmond, Washington-based company is expected to earn
59 cents a share in its second quarter that ends this month,
according to First Call. That compares with 42 cents a year
earlier.
Microsoft's Windows 98 and NT operating systems and its
Office 97 word-processing, spreadsheet and presentation software
are selling well, analysts said, even as the company is embroiled
in a trial to determine whether it uses its operating system
dominance to control the market for Internet software.
''They could have a supernova quarter,'' said Nicholas
Moore, senior equity research analyst at Jurika & Voyles, which
owns Microsoft stock.
Microsoft shares more than doubled this year, making it the
second-best performer in the S&P Computer Software Index.
Microsoft rose 3 7/16 to 137 13/16 on Friday, touching a record
138 1/4 earlier in the day.
''Microsoft's grabbing market share in a growing market,''
said Brett Berry, a portfolio manager with Bailard, Biehl &
Kaiser, which owns Microsoft shares.
Revenue from BackOffice, which runs corporate databases,
messaging systems and Web sites, is expected to increase
30 percent, or twice as fast as the total market for corporate
software, Berry said.
Network Mania
Novell Inc., long a Microsoft rival, actually beat its
nemesis this time around. Novell weighed in as best performer in
the S&P Computer Software Index. The shares of the Provo, Utah-
based maker of networking software more than doubled to 17 1/4 on
Friday from 7 1/2 at the beginning of this year, buoyed by its
Netware software with directory services.
Directory services help computer managers control data by
providing information about the network. Such monitoring is
important as more companies link up computers.
Novell will earn 8 cents a share, the average estimate of
six analysts polled by First Call. That compares with 4 cents in
the year-earlier period.
Computer Associates International Inc., the fourth-largest
U.S. software company, is expected to earn 61 cents in its fiscal
third quarter, a penny more than a year earlier.
Computer Associates, whose software also helps manage and
monitor large networks, warned in July that sales and earnings
growth will slow. The company cited recessions in many Asian
countries and spending to fix the Year 2000 computer bug, which
is causing corporate customers to delay purchases.
''That's very limited growth,'' said First Albany analyst
Damian Rinaldi, who rates Computer Associates ''neutral'' and
expects the company to have $1.35 billion in sales.
Internet
Oracle, the third-best-performing software maker in the
Computer Software Index, benefited from demand for programs to
run Internet-related businesses.
It won a $700,000 contract to supply software to run online
retailer Egghead.com's three Web sites. Oracle also supplies
software to Internet companies like No. 1 online directory Yahoo!
Inc. and the top online bookseller, Amazon.com Inc.
America Online Inc., the top online service, is expected to
have fiscal second-quarter profit of 14 cents a share, more than
double last year's 5 cents.
Dulles, Virginia-based America Online is benefiting from a
surge in subscribers and an increase members who shop online.
That's helped its shares more than quadruple this year. Shares
touched a record 105 Friday.
Internet commerce will boom as businesses do their own
buying online and set up Web-based stores for customers, said
David Kern, portfolio manager of Fremont US Smallcap Fund and
principal of Kern Capital Management in New York.
He's betting on software companies whose products protect
data like credit-card numbers that travel around cyberspace.
Kern likes Verisign Inc., which will do most of the work in
setting up security systems, and Entrust Technologies Inc., which
sells the software tools for companies that want to secure their
system themselves. Entrust is 52 percent-owned by Canadian phone-
equipment maker Northern Telecom Ltd.
''The next best thing to putting a .com on your name is
tying yourself to the Internet. People are going to bid you up,''
said Gary Dvorchak, a fund manager at Provident Investment
Counsel, which manages $19 billion in Pasadena, California.
Laggards
While the Internet booms, software companies that carry out
business functions such as managing inventory and distribution
are seeing slower growth.
Shares of once high-flying companies like PeopleSoft Inc.
and J.D. Edwards & Co., whose programs automate manufacturing and
payroll, have been battered as customers divert spending toward
fixing the Year 2000 computer bug.
''The slowdown will continue until at least the first
half,'' Kern said.
Company 4th-Qtr Year-Ago Number of
Estimate EPS Analysts
Adobe* $0.52 $0.33 12
Autodesk+ 0.54 0.60 13
BMC Software^ 0.39 0.30 24
Cadence 0.35 0.29 12
Computer Assoc.^ 0.61 0.60 22
Electronic Arts^ 1.09 0.84 15
Informix 0.11 0.05 9
I2 Technologies 0.12 0.07 21
Inprise 0.04 --- 5
Legato 0.22 0.13 11
Manugistics& (0.06) 0.15 13
Microsoft( 0.59 0.42 22
Netscape! 0.06 N/A%% 12
Network Asso. 0.46 0.29 22
Novell! 0.08 0.04 6
Oracle# 0.29 0.22 27
Parametric@ 0.18 0.15 11
PeopleSoft 0.17 0.16 24
Siebel 0.16 0.10 14
Sybase 0.05 (0.32) 13
Symantec^ 0.40 0.37 7
Synopsys@ 0.56 0.35 13
Vantive 0.07 0.19 10
Veritas 0.21 0.13 13
Estimates provided by First Call Corp.
*Fiscal first quarter ending February
+Fiscal fourth quarter ending January
^Fiscal third quarter ending December
(Fiscal second quarter ending December
&Fiscal third quarter ending November
!Fiscal first quarter ending January
#Fiscal third quarter ending February
@Fiscal first quarter ending December
%%Netscape changed its fiscal year and doesn't have comparable
year-ago figures. |
