Will the April warning season bring a shower of bad news for enterprise software stocks?

It seems likely. Wall Street has been

cutting estimates for the quarter, expecting the compounded effect of a continuing soft economy and a war that began at the end of the quarter -- the time when software companies close most of their deals.

At the same time, some are saying this warning season may not be as bad as feared. Some companies may have done some of the heavy lifting on the quarter by being conservative with guidance and trimming costs.

Last week, Goldman Sachs analysts cut annual earnings and revenue estimates on 17 software companies, from

BEA Systems

to

Veritas

(VRTS) - Get Report

, and said that some companies could preannounce bad news in early April. "We have shaved estimates to reflect both increased conviction that there has been further economic deterioration during the March quarter, which will likely persist (for several quarters), and somewhat greater impact from March quarter deferrals due to the war, which may spill over and benefit the June quarter," the Goldman team wrote.

ThinkEquity Partners analyst Mark Verbeck trimmed license revenue estimates for

PeopleSoft

(PSFT)

and

SAP

(SAP) - Get Report

by 10% each, but said, "We believe that while there are likely to be some shortfalls this quarter, it may not be as widespread

or severe as many believe." Verbeck trimmed a penny from PeopleSoft's bottom line and cut estimates for five smaller companies as well. (ThinkEquity does not have an investment banking relationship with either PeopleSoft or SAP.)

Although Goldman seems quite a bit more bearish on software than some of the other firms, the differences aren't all that great.

TheStreet Recommends

Tad Piper, a software analyst with U.S. Bancorp Piper Jaffray, said the so-called March effect may not be all that widespread, but noted that software companies have lowered the bar. "Companies have become generally more conservative, leaving more potential for upside surprises," he said in a recent note. Piper also said there are signs that software margins are improving following a long period of decline, and that earnings per share appear to be stabilizing.

The average size of software deals appears to be declining for many vendors, as customers become more cautious about long-term spending commitments. Patrick Mason of Pacific Growth Equities cited smaller deals when he reduced quarterly license revenue estimates for

Siebel Systems

(SEBL)

from $140 million to $135 million, a drop of 3.5%, and maintained his EPS estimate at 3 cents, the low range of the company's guidance. Even so, he said "the estimate change is not a big red flag on specific Siebel fundamentals." (Pacific Growth does not have an investment banking relationship with Siebel.)

Similarly, Jamie Friedman of Fulcrum Global Partners lowered license estimates for SAP, but said increased service revenue should offset the loss, allowing him to leave his EPS estimate unchanged. In part, that's a function of normal seasonality; service revenue generally is a more important revenue driver than licensing early in the year. Fulcrum has no banking relationship with the company.

June Is Still a Mystery

Many software companies have yet to provide June guidance, although Veritas said it expects June revenue to be flat with March.

Tibco

(TIBX)

,

Red Hat

(RHAT)

,

Symantec

(SYMC) - Get Report

and

Network Associates

(NET) - Get Report

have indicated they expect the May/June quarter to be flat sequentially, the Goldman analysts wrote.

According to their report, "Street expectations are for June quarter results to be up about 6% sequentially, which now appears to be optimistic. The June quarter could benefit from some business being pushed out from March, but this could be offset by underlying softer economic conditions than was expected previously."