Software Firms Face Recession Ripple Effect
Business software competitor SAP (SAP), which just acquired Business Objects, also has built an on-demand subscription product line to reach small and medium-sized businesses.
IBM, which just diversified its software portfolio with Business Objects competitor Cognos and on-demand data-protection services company Arsenal, will offer Lotus software and collaboration services codenamed Bluehouse to small businesses beginning later this year.
The spate of such acquisitions in recent years has cleared the field of many pure-play software vendors that would otherwise be most at risk, such as Business Objects and Cognos.
Companies most at risk are those selling into too few regions or having a limited revenue model. " Tibco (TIBX) would be the first one I'd look at," Correia says. "They're in one market: middleware."Often mentioned as a buyout candidate, Tibco does sell its infrastructure software worldwide, but nearly 85% goes primarily to North America and Europe. And the company sells to a number of industries, while services account for more than half of its revenue. But Tibco derives a quarter of its business from the beleaguered financial services sector. Conglomerate software giants may want to add the micro-category data integration to their portfolios, Correia said. Informatica (INFA) is a pure play in that market, making it somewhat vulnerable to market conditions. JMP Securities analyst Patrick Walravens wrote in a Feb. 5 note that recent amendments to some executive employment agreements suggest that a sale of Informatica may be coming. JMP makes a market in its shares. While some on-demand software vendors are pure plays, they are the industry's biggest growth category. Tighter IT spending only will help these subscription-based vendors, such as Salesforce.com (CRM), which typically don't ask for upfront fees. But as pure plays, Web-based software companies may well get snapped up. "At some point, someone is going to buy them," Correia says. Unlike the downturn of 2001, which Correia characterizes as V-shaped, indicating that the IT sector continued a long decline, this downturn may bottom out quickly and stay there for a short time. "We think it's U-shaped," Correia said. "The duration of the bottom is what we're debating."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV