Software Firms Brace for 'Spending Storm'

With yet more clouds gathering over the global economy, software firms are facing a "category 5 spending storm," according to analysts who lowered their estimates on some of the sector's key players Wednesday.

Virtualization pioneer VMware (VMW Quote) and security giant Symantec (SYMC Quote) are just two of the big-name vendors sailing into choppy waters, warns Jefferies analyst Katherine Egbert.

VMware, which was the darling of the tech sector when it completed its $1.7 billion IPO just over a year ago, now joins other firms scrambling for a share of the sluggish software market.

"Our September quarter-end checks indicate substantial spending weakness in markets around the world -- we don't expect the headwinds to abate until mid-2009," writes Egbert in a research note. "While domestic and some international government spending seems to be holding up, there are degrees of trepidation in nearly every vertical and geography."

Because software licenses offer a recurring revenue stream, vendors have typically been less vulnerable to spending downturns than their hardware counterparts, although customers are now changing their buying habits.

"Even the normally staid, recession-proof security sector seems to be taking on some water," writes Egbert. "Our checks with over 60 [resellers] around the world indicate increased caution around spending, with longer sales cycles, delayed purchasing decisions, deal downsizings, and deal delays."

Against this backdrop of uncertainty, the analyst cut her estimates on Symantec, VMware, and Vasco Data Security (VDSI Quote). Egbert also lowered her Symantec target price from $30 to $28 and cut her Vasco target from $16 to $12.