Pessimism deepened about software's second quarter Monday as the list of analysts lowering estimates in the software sector grew. Goldman Sachs reduced numbers on
, and UBS Warburg and U.S. Bancorp Piper Jaffray trimmed estimates across the board.
The cuts follow a similar move Friday by Merrill Lynch, which lowered its software sector estimates on the heels of
fourth-quarter results. And they come in advance of preannouncements week, starting July 1, when many analysts believe tech stocks will warn of disappointing second-quarter earnings.
In a note Monday, Goldman Sachs analyst Rick Sherlund lowered second-quarter estimates on customer relationship management software maker Siebel for a third time. "Systems integrators tell us that many SEBL deals do not appear to be closing at the end of this already very challenging quarter," Sherlund said in his note. "There appear to be more CRM tire-kickers than buyers."
Earlier this month, Siebel CFO Ken Goldman said at a technology conference that the second quarter was proving as challenging, if not tougher than the first quarter, which CEO Tom Siebel called among the worst in the software industry's history.
On Monday, Sherlund lowered his estimate for Siebel's second-quarter license revenue to $175 million from $195 million, representing a 28.9% sequential decline from the first quarter. Sherlund lowered his earnings estimates to 7 cents from 8 cents in the second quarter, to 35 cents from 40 cents for fiscal year 2002, and to 40 cents from 50 cents for fiscal year 2003. He kept Siebel on his recommend list, and his firm has done banking business with Siebel.
Sherlund noted that Oracle's license revenue reported last week was not as bad as many had feared. But "we would not extrapolate that an intact fiscal fourth quarter from Oracle implies an intact calendar second quarter for SEBL and the rest of the software industry," Sherlund said. In addition to expecting preannouncements, he's anticipating estimates to come down broadly for the sector for the September quarter and beyond.
UBS Warburg analyst Ken Carey on Monday lowered his enterprise software estimates for a second time, while not changing his ratings. The companies affected were Siebel,
Carey said he is hearing of significant discounting as sales staff try to close any business they can, and of big deals simply not getting done. "We believe this earnings season will likely be littered with further head-count reductions and restructuring charges," he said. "We would not step in front of any software stocks before results." His firm has done banking with Documentum and i2.
U.S. Bancorp Piper Jaffray analyst Mike Marzolf lowered his estimates on nine software infrastructure names:
, Vignette and
Calling it a buyer's market, Marzolf said he believes a "discounting hangover" will linger for several quarters as customers demand the deep discounts that they were previously offered from software companies. One CIO acknowledged he will get a bonus if he comes in under budget, Marzolf added. His firm has done banking business with
, Embarcadero, iManage, SeeBeyond, Selectica, Stellent and Vignette.
Most on Wall Street agree that the third quarter, which is historically weak because of summer vacations, is not likely to look any better, though that should lead to an uptick at the end of the year. The consensus now on Wall Street, however, is that any notable improvement is unlikely to
arrive until winter 2003.
On Friday, Merrill Lynch analyst Chris Shilakes echoed Siebel's Goldman, saying that channel checks show an incrementally more difficult quarter for the software sector. While lowering numbers on 10 software stocks -- all of those he covers except for
-- Shilakes said he continues to believe the best performers will be Microsoft,
The Goldman Sachs Software Index declined 2.34% to 103.61 in recent trading. Shares of German enteprise software maker
fell $1.35, or 5.9%, to $21.51 in recent trading, but earlier fell as low as $21.25, setting a new 52-week intraday low. Other big losers Monday included
, which fell 18.6% to $7;
, down 15.6% to $4.50; and
, which dropped 9.7% to $10.11. Shares of Siebel rose 9 cents, or 0.7%, to $13.56; Oracle rose 33 cents, or 4%, to $8.45; and Microsoft was up 84 cents, or 1.6%, to $53.12. PeopleSoft declined 65 cents, or 3.9%, to $16.27.