Since it's late evening, thought some might find this article from Bloomberg interesting. On a side note, has anyone noticed how CNXT and BRCM have really held up this week?
Software May Rebound as Investors Look Beyond Y2K
New York, June 3 (Bloomberg) -- Shares of business- management software makers, such as PeopleSoft Inc. and Oracle Corp., now languishing well below 52-week highs, may rebound as investors look past year 2000-related problems and focus on the promise of new products and untapped markets.
These businesses, which help integrate companies' different operations on central computer networks, have suffered as customers hold off spending on new software until they've fixed the computer bug that causes some machines to read the date 2000 as 1900.
Investors bullish on software companies say in the next year new products, including World Wide Web applications, and new markets will help revive sales, earnings, and share prices.
''There's going to be a wonderful opportunity to invest in these companies, and you want to build position some time in the second half of this year,'' said David Kern, a principal at Kern Capital Management, which oversees $500 million.
The benefits of renewed sales should show up in software makers' shares by the fourth quarter, said Bill Schaff, chief investment officer at Bay Isle Financial Corp., which manages $500 million in San Francisco.
The comeback may be even sooner.
''At some point between now and September, there's going to be a big rally in these stocks as people will look past the effect of Y2K,'' said Nicholas Moore, an analyst at Jurika & Voyles Inc., which oversees $4.5 billion in Oakland, California.
New Products
Firms such as SAP AG, PeopleSoft, Oracle, Baan NV and J.D. Edwards & Co. -- representing 61 percent of the market, according to Boston-based AMR Research Inc. -- are set to release new products in the coming months that they hope will bolster earnings.
Walldorf, Germany-based SAP trades 44 percent below its July 31 high compared with a 30 percent gain since then for the Nasdaq Composite Index. It's banking on its latest software to manage inventories and supply chains.
Pleasanton, California-based PeopleSoft, the third-worst performer in the S&P 500 in the past year, will market its Web- based PeopleSoft Business Network starting in the second half, analysts said. Oracle, based in Redwood City, California, which is down almost 11 percent this year, is hanging its hopes on its ''front-office'' products, those which help manage customer service and the company's sales force.
Denver-based J.D. Edwards, down 64 percent from its September 30 high, will incorporate technology from Siebel Systems Inc. to market front-office software, analysts said. Dutch company Baan NV, the worst performer in the Dow Jones Euro Stoxx index in the last 12 months, said it will release products for electronic commerce by June and throughout the year.
''These companies are all getting refocused and reoriented, because this is a throw-away year for the whole industry,'' said Jurika & Voyles' Moore.
Market Is Ready
Fortunately, the new products are reaching a market that need them, said Kern. ''Corporate America still has a long way to go in terms of improving efficiency.''
Bay Isle's Schaff, who owns SAP shares, said the rush to do business on the Internet has created a new need for many companies to get outfitted with the software. ''Electronic commerce is going to be a big issue in 2000,'' he said.
What's more, businesses have plenty of money in their budgets to buy these products after delaying spending amid Y2K concerns. Further lubricating the market, a booming economy has left corporate America flush with cash, and the software makers are willing to cut prices to get at some of it.
''Vendor's sales are down, so they're going to be more receptive'' to reduced prices, said Jim Shepherd, vice president of research at AMR. ''CEOs are realizing they're probably going to get the best prices this year.''
New Clients
There are also more and more clients for business-management software. Whatever the industry, ''if you're a manufacturer, you have to have this software -- you can't run your business without it,'' Shepherd said. There are other markets opening for the product too, including healthcare, higher education, retail and financial services, he said. ''Those represent an enormous target.''
While the software is currently used at some 60,000 to 70,000 corporate offices worldwide, there are millions more potential customers out there. The business-management software market is likely to grow at a compounded annual rate of 32 percent over the next five years as the companies broaden their product lines, according to AMR.
Business-management software companies also are building revenue by selling professional services that enhance the software to existing customers. These services include data conversion and training for applying the software.
Distorted results
The drubbing many of these companies got in the stock market may have been exaggerated because of distorted earnings, analysts said. An early rush among many companies to get ready for 2000 boosted sales among software makers such as PeopleSoft, J.D. Edwards, Oracle and Baan in recent years. That skewed comparisons to this year's earnings, as those same customers are cautious about which new products they bring into their computer systems.
''We're suffering from a hangover from the party of 1997 and 1998, when people began to expect 40 percent growth rates in the industry,'' said Andrew Roskill, an enterprise software analyst at Warburg Dillon Read Inc. ''Now we have a double-whammy -- a lockdown (on spending) and more difficult comparisons.''
Only SAP, the world's largest business-management software maker, surprised analysts by reporting first-quarter profit was unchanged, while Wall Street had been expecting a decline.
A recent survey of 1,145 North American companies by market researcher International Data Corp. showed 38 percent are postponing projects or reducing technology purchases not related to Y2K as the new millennium approaches. Of that group, 74 percent said those reductions would cut into their software budgets.
Still, No. 1 aerospace company Boeing Co., one of the biggest purchasers of Baan's software, said it made no changes in its software purchases because of Y2K. Its initial purchase in 1994 was ''sufficient for current requirements'' in its unit that streamlines data used to produce airplanes, said spokeswoman Cris McHugh. She said the company wouldn't speculate on future spending.
Software Bears
To be sure, some analysts don't see such a quick turnaround for business-management, or ''enterprise resource planning'' software. They say investors are wary of jumping back into an industry that's been such a disappointment over the past several months.
''The ERP market is in for a bear run,'' said George O'Connor, an analyst with London-based Granville Plc. ''We expect the situation to get worse before it gets better as users bed down their applications prior to the millennium.'' He predicts a market saturated with products will continue to weigh on earnings.
Even analysts who see a recovery in business management software stocks agree earnings could get worse before they get better. Still, some of them say investors should take a longer- term view.
Warburg Dillon Read's Roskill currently has a ''hold'' rating on SAP, Baan, Oracle and PeopleSoft and a ''buy'' on J.D. Edwards, in spite of the company's recent earnings woes, he said. He cited excellent management and product strategy at the firm.
''Most people who have a 12- to 18-month investment horizon can find a lot of value'' in the software stocks in the coming months, he said, though he wants to see the companies' next quarterly results before reevaluating his ratings.
Software sales will probably resume rapid growth once the market senses the worst is over, said Moore. He said he's considering buying Oracle, SAP and PeopleSoft shares in coming months.
''If the market even whiffs a recovery, (PeopleSoft) stock is going to go up 50 percent,'' said Moore, citing the company's new World Wide Web-compatible software and simplified technologies. ''It doesn't even have to improve, it just has to stop getting worse.''
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