Shares of integration software makers were slammed Wednesday after an analyst lowered his estimates and price targets on two companies in the sector, citing more competition from
were down 66 cents, or 9.8%, to $6.10 in recent trading. Shares of
fell 99 cents, or 8.8%, to $10.25,
dropped 24 cents, or 6.7%, to $3.36, and
declined 60 cents, or 5.7%, to $10.01. Only
was spared, its shares rising 3 cents, or 2.4%, to $1.30 a share.
On Tuesday, U.S. Bancorp Piper Jaffray senior research analyst Michael Marzolf reduced his estimates and price targets on both SeeBeyond and webMethods, although he did maintain his outperform rating on webMethods and market perform rating on SeeBeyond. His firm has done underwriting business with SeeBeyond but has not done any banking business with webMethods.
In notes on both companies, Marzolf said competition from larger players including IBM and Microsoft has increased. "In the past, EAI
enterprise applications integration vendors have touted 90%+ win rates over IBM and have denied any encounters with Microsoft," Marzolf wrote. "We believe those days are over."
Marzolf added that Microsoft is stepping up its interest in the market by sending top executives, even Bill Gates, into the field to pitch key deals. He listed more than 90 companies where Microsoft is gaining traction, ranging from
Marzolf pointed to two other changes in the industry that are hurting webMethods and SeeBeyond. Although integration remains top-of-mind, deals have become tactical instead of strategic, resulting in lower selling prices, he said in his note. In addition, he said systems integrators have said that the emergence of XML-based standards "have made integration trivial." That bodes badly for the proprietary connector business of integration software vendors.
Marzolf lowered his price target for webMethods to $16 from $25 and cut his fiscal year 2003 earnings estimate by more than half, to 7 cents a share from 15 cents a share. He shaved $1 off of his price target for SeeBeyond, bringing it down to $5 from $6, and lowered his fiscal year 2003 earnings estimate to 9 cents a share from 16 cents a share.
Although Tibco estimates were not changed, the news seemed to weigh even harder on the integration software maker, which Marzolf does not cover. Other analysts said that's probably because Tibco's second quarter ends Friday and many have viewed its guidance as overly bullish.
UBS Warburg analyst Jordan Klein called the company's guidance of $82 million in revenue -- a sequential increase of about 10% -- as "overly optimistic" in a research note last week, when he lowered his second-quarter and full-year forecasts. On Wednesday, he pointed out that other software companies aren't expecting such growth until the fourth quarter. Klein has a buy rating on Tibco, and his firm hasn't done any banking with the company.
Vitria, meanwhile, was probably spared because it has been following a different trading path from its integration peers as its numbers have disappointed even more, said Buckingham Research Group analyst Ken Kiarash.
In April, Vitria laid off 20% of its staff, and then at the end of the month the company reported a 30% decline in revenue from a year earlier. Shares of Vitria have dropped 81% since the beginning of the year, while Tibco is down 59%, webMethods has fallen 37% and SeeBeyond is down 68%.
Vitria have really dropped the ball, and they have suffered tremendously in the last quarter as they've lost market share to both webMethods and Tibco," Kiarash said. He has a neutral rating on Vitria and strong buy ratings on webMethods and Tibco; he does not cover SeeBeyond. Buckingham Research doesn't have an investment banking business.