Software Stocks Roughed Up by Downgrades - TheStreet

SAN FRANCISCO -- The software sector was hit by a series of downgrades by sell-side analysts Monday.

Investors accordingly snubbed software stocks on a day when the Dow was down 2.3% and the

Nasdaq

fell 4.3%. The

iShares S&P GSTI Software Index

(IGV) - Get Report

was recently off 4.2%.

A bailout plan, if passed by Congress, comes too late to help the sector's third-quarter results, Wedbush Morgan analyst Michael Nemeroff said in a research report Monday. The crisis in the financial markets likely already reduced IT spending.

IT departments often wait until the last days of a quarter to sign contracts.

"Congress' delay in signing a bailout deal last week -- the final full selling week of Q3 -- has caused extreme strain" on third-quarter software sales, making IT buyers more averse to risk, Nemeroff said.

"The financial crisis could have a detrimental impact on spending for the rest of 2008 and possibly negatively impact 2009 budgets," he added.

While not expecting "a precipitous decline in software spending like we saw in 2001-2002," Nemeroff does expect the financial-markets turmoil to take a toll on future IT spending, as new projects are scrubbed or delayed beyond the first half of 2009.

Accordingly, Nemeroff lowered revenue or EPS estimates on

Salesforce.com

(CRM) - Get Report

,

SAP

(SAP) - Get Report

,

Informatica

(INFA)

and

Fair Isaac

(FIC)

, among others. Wedbush Morgan makes a market in shares of these firms.

Salesforce.com fell $4.34, or 8.6%, to $46.31 in recent trading. Informatica was off $1.36, or 9.4%, to $13.16. SAP was down $2.98, or 5.2%, to $54.50. And Fair Isaac fell $1.04, or 4.3%, to $23.25.

"Informatica continues to execute well despite a challenging environment," and still merits a buy rating, he said.

RBC Capital Markets analyst Robert Breza lowered ratings or estimates on 13 software stocks, including

Citrix

(CTXS) - Get Report

and

Digital River

(DRIV) - Get Report

which dropped to sector perform, from outperform.

Breza also reduced fiscal 2009 earnings estimates for Microsoft, in expectation of lower business and consumer spending. Breza expects consumers to pass up the Xbox gaming platform -- despite recent price cuts -- and new PCs this holiday season. RBC makes a market in Microsoft.

Breza's lower rating on Citrix "reflects the worsening macro environment that we believe will dampen growth expectations, while also recognizing the strong growth of the server virtualization market."

Shareholders pummeled Citrix, which dropped $3, or 10.7%, to $25.02.

The lowered outlook for Citrix also roughed up volatile virtualization competitor

VMware

(VMW) - Get Report

, which was down $3.54, or 12.2%, to $25.50 in recent trading.