Soft Parade: Software Makers Rally on SAP, IBM News

Software shares surged Thursday after a strong earnings report from German behemoth SAP and a rising tide in the technology sector spurred by IBM(IBM Quote - Cramer on IBM - Stock Picks).

But some market watchers caution that this relief rally comes ahead of a slew of earnings reports and doesn't indicate a reversal of fortunes for the beleaguered sector. "The market wants to rally," said Erik Gustafson, a senior portfolio manager at Stein Roe. "Remember the day before we got lousy news from Intel . There certainly has been no sea change in tech overnight or in the technology fundamentals overnight."

SAP's ADRs paced the big gainers, rising $3.36, or 25%, to $16.76 in afternoon trading. Other strong performers included PeopleSoft , which surged $1.66, or 11%, to $16.51; BEA Systems(BEAS Quote - Cramer on BEAS - Stock Picks), up 64 cents, or 10%, to $6.70; and Veritas, up $1.46, or 10%, to $16.

Software volume leaders included Microsoft, which climbed $1.01, or 2%, to $51.42 and Oracle, which rose 64 cents, or 6.9%, to $9.96 in recent trading. The Goldman Sachs software index climbed 5.1%, while the Nasdaq Composite Index rose 3.5%.

"I think SAP was definitely heartening for people. They delivered great results," said ThinkEquity analyst Mark Verbeck. "Everyone was so negative, so concerned." Indeed, before Thursday's rally, shares of SAP were down 59% for 2002. The software maker reported earnings before markets opened that beat estimates, although it withdrew revenue guidance for the year, as expected.

Verbeck noted that SAP's numbers in both Europe and the U.S. were "decent." "That, combined with general strength in the market as a whole, has gone a long ways for software," said Verbeck, who has an outperform rating on SAP. His firm hasn't done any banking with the company.

Meanwhile, BEA's boost may have been driven by the results from competitor IBM, suggested Sanford C. Bernstein analyst Charlie Di Bona. "One school of thought is that IBM's performance in Websphere is a positive indication for leading application server vendors. That of course includes BEA," he said. "Some people may be taking the IBM's numbers as a catalyst." Di Bona has an outperform rating on BEA and his firm doesn't do investment banking business.