Analysts Issue Flurry of Software Company Downgrades

It's not easy to be a software company nowadays, as evidenced by Thursday's forecast of lower-than-expected sales at Oracle (ORCL Quote), the second-largest software maker and kingpin of database management. Goldman Sachs and made it even harder on Friday by removing a large collection of software companies from its U.S. recommended-for-purchase list. The revisions and downgrades are battering the software sector. And Credit Suisse First Boston downgraded a dozen companies.

Goldman Sachs analyst Rick Sherlund, who cut Oracle to market outperform on Friday morning, also cut his ratings on many of its competitors. He trimmed Siebel Systems (SEBL Quote), which makes a software suite geared for online business, to market outperform.

Brocade Communications (BRCD Quote), a software maker focused on fusing storage systems into a network, was cut to market outperform by Goldman analyst Laura Conigliaro. She also clipped her 2001 estimate on the company, dropping it to 53 cents from 58 cents.

As information technology spending slows, it will be harder for companies to close sales at the end of the quarter. That was one of the biggest issues Oracle faced as it attempted to come through on its promises. On Feb. 13, a confident-sounding Oracle reaffirmed bullish predictions, but couldn't make good on those promises as customers delayed or cancelled orders entirely.

One segment that will be hit hard by slowing spending will be software providers to the slumping e-business sector. Goldie analyst Thomas Berquist removed five companies from the U.S. recommended-for-purchase list, cutting them all to market outperform. Acuate Software (ACTU Quote), Ariba (ARBA Quote), Commerce One (CMRC Quote), i2 Technologies (ITWO Quote) and MatrixOne (MONE Quote) were all affected by the ratings change.

In all, 12 companies were downgraded to market outperform and taken off the U.S. recommended for purchase list by Goldman. Tibco Software (TIBX Quote), Inet Technologies (INTI Quote), 360networks (TSIX Quote) and Parametric Technology (PMTC Quote) were the others.

Credit Suisse First Boston analyst Brent Thill also cut his rating on a dozen software companies.

"Based on accumulation of announced results as well as background conversations," he wrote to investors, "it appears we have gone beyond IT project reprioritization and reached a level of indiscriminate spending cuts."

Thill cut eight companies to buy from strong buy. Those included some stocks already downgraded by Goldie, such as Actuate, Siebel Systems, i2 Technologies and Commerce One. Selectica (SLTC Quote), E.piphany (EPNY Quote), Retek (RETK Quote) and Art Technology Group (ARTG Quote) were the others.

Vignette (VIGN Quote), which makes the Web publishing software, was cut to hold from strong buy. Documentum (DCTM Quote), PeopleSoft (PSFT Quote) and ONYX Software (ONXS Quote) were cut to hold from buy.