Business software vendors ride out hard economic times

The recession may be showing signs of being over in the U.S., but the recovery can't come fast enough for many business software vendors, which this week reported lower-than-expected preliminary financial results for the first quarter of 2002.

Enterprise software vendor BroadVision Inc., in Redwood City, Calif., announced Monday that it expects quarterly revenue of US$29 million to $32 million, which is lower than the $40.38 million expected by a consensus of First Call/Thomson Financial analysts.

Customer resource management software vendor E.piphany Inc. in San Mateo, Calif., reported Monday that it expects revenue of $22 million and a net loss for the quarter, compared with a First Call/Thomson analyst revenue projection of $25.25 million. Others with lower-than-expected revenue are supply chain management vendor i2 Technologies Inc. in Dallas, e-marketplace software vendor Commerce One Inc. in Pleasanton, Calif., and enterprise software maker PeopleSoft Inc., also in Pleasanton. All of the companies will report their final numbers for the quarter later this month.

The problem, the vendors said, continues to be the economic downturn, which has forced their customers to cut IT spending.

Albert Pang, an analyst at IDC in Framingham, Mass., said that while new applications offer potential benefits for customers, it's a much harder sell today because of tight IT budgets. "We've seen a fundamental shift among the customers," Pang said. "They want to see quicker benefits and faster implementation, and lower cost of ownership. The business model has to change. Whoever can do that ... is going to win."

Mark Gomes, an analyst at AMR Research Inc. in Boston, said companies such as E.piphany, BroadVision and Commerce One are still struggling because of the shakeout from the Internet boom last year. Customers are still confused about all the applications available and often don't know whether to buy. "That's still an issue for a number of companies out there, proving their value proposition," Gomes said.

When users make IT purchases, they want to see immediate results, Gomes said. "They're going to start spending if they think there is a return from their investment," he said. "As things start to change [with the economy], people are going to change their minds" and starting buying IT again.

Laurie Orlov, an analyst at Forrester Research Inc. in Cambridge, Mass., said Forrester's March market survey data shows continued hard times for software vendors, at least until 2003, based on their market models. Interest in purchasing customer relationship management packages was seen among only 35 percent of their 874 global respondents, while 53 percent said no outright. Supply chain management interest among potential customers was even worse, with 61 percent saying they won't buy this year and 22 percent saying they are at least interested in it, she said.

"We think the economy is a major factor here," Orlov said. "What we're seeing happening now is a result of bad things [economically] in 2001." In response, companies are often using what IT money they have to beef up their infrastructure security in a post-Sept. 11 world and improving existing systems, she said. Many are also choosing to better use software they already have but may not be using to its fullest potential, she said.

Commerce One reported expected pro forma revenue for the quarter of between $29 million and $32 million, down from First Call/Thomson's analyst consensus of $40.27 million. "Technology spending remained sluggish during the first quarter, and we continued to experience long sales cycles. But we are encouraged by the interest in the new Commerce One 5.0 suite introduced in January," said company Chairman and CEO Mark Hoffman in a statement.

I2 Technologies said it expects a net loss of 8 cents to 9 cents per share, with total revenue between $165 million and $170 million, which is lower than the $186.6 million projected in the First Call/Thomson consensus. "Market conditions continued to be weak during the first quarter, said i2 CEO Greg Brady in a statement. "While we are not satisfied with our own execution, we are confident that we are investing our resources in the right areas to grow future revenues as the market improves."

PeopleSoft said it expects licensing revenue to be in the $130 million to $135 million range, which is lower than its estimates earlier this year. "Although consulting revenue and maintenance revenue were on plan and earnings per share are expected to meet our original guidance, license revenue clearly reflected a cautious economic environment," said PeopleSoft President and CEO Craig Conway in a statement.

One bright economic indicator was seen by enterprise software vendor Sybase Inc. in Dublin, Calif., which reported yesterday that it expects to meet analyst per-share estimates of 21 cents for the quarter. At the same time, its revenue is expected to be about $210 million, which is lower than First Call/Thomson's estimate of $228 million.

John Chen, Sybase's chairman, CEO and president, said the earnings hung in there because of early cost-cutting moves, while sales just couldn't bring in revenue. "I think everybody's getting killed out there," Chen said. "The good news for us is, we saw it coming ahead of everyone else and were able to control expenses."

"It's a really tough environment," Chen said. "We did pretty well, all things considered."

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More about AMR ResearchCommerce OneE.piphanyFirst CallForrester Researchi2i2 TechnologiesIDC AustraliaPeopleSoftSybase AustraliaThomson Financial

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