The

Nasdaq Composite Index

is down more than 60%, technology companies continue to lower earnings projections and the bottom seems to be falling out of the entire sector. But Joanne Correia, a vice president with technology consultancy and researcher

Gartner

, says there's money to be made in software companies.


Joanne Correia
Vice President, Gartner

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But not just any software company. First off, Correia is talking about profit-oriented software companies. She's is also talking about software makers writing applications that improve customer service and inventory management, eliminating the need for expensive system upgrades. In today's Daily Interview, Correia says profits at these companies could grow by as much as 50% or 60% in 2001.

TSC: With most tech sectors badly bruised, we don't hear much anymore about hot tech opportunities. Tell us about a sector you think will perform well this year.

Correia:

Consumer spending on PC and PC software is well below expectations, which is also badly hurting the operating system sector. Dot-com and IT infrastructure investments have dried up. The most recent wave of Internet-enabled software companies are experiencing dramatic hits to their cash flow. Hardware companies that own large manufacturing plants don't have the agility to realign.

Software companies with the technology savvy and business sense to provide applications that improve their customers' bottom lines could deliver as much as 50% to 60% growth. Customer relationship management, middleware, e-commerce, storage and network management, and supply-chain management are all technologies that help solve customers' business problems and bottom lines. These all offer rapid return on investment and are solid business value propositions, and will continue to explode.

For example, a key issue in the financial-services industry right now is retaining customers. CRM technology that allows investors to see a merged view of their portfolios, for instance, can play a very strong role in that. Supply-chain management, or streamlining the supply chain, is also one of the profitable technology areas right now. Likewise, e-commerce is an excellent way of reducing staffing costs by increasing customer self-help.

Wal-Mart

(WMT) - Get Walmart Inc. Report

managed its inventory very well during the holiday season through supply-chain management, and

Dell

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has made a name for itself in this area.

L.L. Bean

married catalog marketing to the Web along with superb customer service and technology.

Kmart

(KM)

, on the other hand, ended up with 17,000 trucks of excess inventory this past Christmas. The automotive industry has excess inventory right now. Neither used supply-chain technology.

Every single software vendor needs to think about these kinds of business issues and look to their product line to understand that their customer will buy their software only if it improves the return on investment on what they are already using, or if it improves their sales or revenues, or if it enables them to cut costs.

TSC: Which companies are providing these applications?

Correia:

Siebel

(SBEL)

does customer relationship management very well. They recently acquired

Onlink

to create an online sales product.

IBM

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has been very adept at e-commerce and is one of the leading e-commerce vendors. They're not only supplying the software but they have the professional services organization that can go in and actually make it work.

I2 Technologies

(ITWO)

provides supply-chain management into several vertical industries.

Manugistic

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is another strong supply-chain software company.

Tibco

(TIBX)

, IBM and

WebMethods

(WEBM)

are all leaders in middleware, and almost every single middleware vendor that I have looked at doubled their sales in 2000.

TSC: Will some of the big software companies that don't already offer this type of software be able to switch gears and get into this game and heighten the competition?

Correia:

The software industry is agile by nature. Marketing can change within a quarter or two. R&D takes more time because core competency and skill sets of people are critical. It's hard for them to change to something they don't have experience or intellectual capital in.

What normally happens when a software company changes focus is they do so through acquisitions. Mergers, acquisitions and divestitures are happening throughout the software industry and will continue at a rapid pace because stock valuations have come down so far to make upstart software companies extremely attractive to the more mature companies.

Computer Associates

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has an acquisition model that is customer based, and they are also changing their business model from product licensing to the more competitive continuous revenue, or a pay-as-you-use it fee.

Peoplesoft

(PSFT)

acquired

Distinction Software

to offer forecasting and distribution planning software, as well as

Red Pepper

for scheduling software and

Vantive

for CRM.

Microsoft

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throughout its history has changed its business model due to business pressure. They moved from operating systems to desktop apps to the Web and the enterprise application market, and this was mostly done through acquisitions.

TSC: What else can software clients do to improve their bottom line in this difficult environment?

It's one of the hot topics here. We are recommending that they cut back on marketing, sales and R&D to protect their cash flow. In some cases, we are also recommending discounting, so that their sales forces can pull sales into current quarters or fiscal years. And we consistently see redundancies of product lines in the software industry, and we are telling our customers to streamline these.