Software Firms Brace for 'Spending Storm'

Shares of Symantec and VMware were recently down 3.27% and 3.04% respectively. Vasco Data Security shares were down 3.57% today.

Citigroup analyst Brent Thill also described a gloomy outlook for the software sector in a note released Wednesday, cutting estimates on 11 of 22 stocks, including Symantec, VMware, Citrix (CTXS Quote) and Microsoft (MSFT Quote).

"Set against a deteriorating global macro backdrop (credit crunch, FX trends, expectations for below-trend PC unit growth in 2009) industry checks are not encouraging," he writes. Thill says his firm's concern is less about third-quarter earnings than on fourth-quarter guidance, the 2009 outlook and a more pronounced slowdown in the first quarter.

More bad news came from a report from JMP Securities, which warned that next year could be the worst for enterprise software spending since 2001.

The firm, which recently surveyed 35 enterprises, revealed that some 74% of respondents expect their spending to be flat or down in 2009.

"The previous low point was our December 2001 survey when 72% expected their spending to be flat or down," writes analyst Patrick Walravens, adding that JMP is reducing its estimates for Actuate (ACTU Quote), CDC (CHINA Quote), DemandTec (DMAN Quote), Informatica (INFA Quote), Starlims (LIMS Quote), Omniture (OMTR Quote), Kenexa (KNXA Quote) and RightNow Technologies (RNOW Quote).

According to Walravens, on-demand software, which is paid for only when customers are using it, is at least faring better than traditionally licensed software."On-demand software seems healthier, but not great," he writes. "Fifty percent of the enterprises surveyed expect their on-demand software spending to be up in 2009, and 50% expect it to be flat or down."