Salomon became the latest investment bank to cut software estimatesMonday as analysts lowered ratings on
Shares of Veritas fell $1.17, or 6.7%, to $16.38 in recent trading.PeopleSoft shares dropped 83 cents, or 5.6%, to $13.90, while Siebel shares fell44 cents, or 3.8%, to $11.09 in recent trading.
Salomon Smith Barney analyst Heather Bellini lowered her ratings onSiebel and PeopleSoft to neutral from buy, citing greater difficultyclosing deals in the second quarter than the first quarter, a weakerenvironment in Europe, lower deal prices and signs of the retail sectorcracking. A number of software makers including
have recently noted weakness in Europe, while a preannounement from
indicated the retail market is no longer a strong spot in software.
Bellini lowered estimates for both Siebel and PeopleSoft for the thirdquarter, modeling a 10% sequential decline in license revenue, and for thefourth quarter, modeling a modest 3% sequential increase in licenserevenue.
"In our view, the new reality of software is lower deal sizes are hereto stay and the level of discounting remains at an all-time high," Bellinisaid in her notes on Siebel and PeopleSoft. "In short, the environmentlooks worse than a few months ago." Salomon or its affiliates owns 1% ormore of Siebel and PeopleSoft shares.
Bellini is forecasting Siebel, which announces earnings Wednesday, willreport $435 million in revenue and 9 cents a share in earnings, compared tothe consensus estimate gathered by Thomson Financial/First Call of $437.6million and 9 cents a share. Her forecast predicts a 17.5% sequentialdecline in license revenue to $203 million in the second quarter. Bellinilowered her price target on Siebel to $13 from $21.
Bellini is forecasting PeopleSoft, which announces earnings Thursday,to report $466 million in revenue and 12 cents a share in earnings,compared to the consensus estimate of $473.8 million and 13 cents a share.She predicted PeopleSoft would experience a lower sequential decline inlicense revenue in the second quarter -- falling 10% from the firstquarter to $120 million -- than Siebel because PeopleSoft was one of thefirst to suffer from the downtick in IT spending in the first quarter.
Bellini lowered her price target for PeopleSoft to $16 from $24.
Salomon analyst H. Clinton Vaughan pointed to more company-specificissues in his downgrade of Veritas to neutral from buy. Vaughan saidVeritas has struggled with its new replication and storage resourcemanagement products, while competition and technical issues are hamperingthe expansion of Veritas' core storage business into Windows and IBM's Unixplatforms.
Vaughan said he believes Veritas will hit his estimate of 13 cents ashare in second-quarter earnings when the company reports its numbersTuesday. But he lowered third-quarter estimates to 13 cents a share inearnings on $342.3 million in revenue, 2002 estimates to 55 cents a sharein earnings on $1.4 billion in revenue and 2003 estimates to 62 cents ashare in earnings on $1.5 billion in revenue.
"We feel Veritas will have a tough time growing in the near-term,"Vaughan said in his note. He sliced his price target in half to $17.Salomon Smith Barney or its affiliates own 1% or more of Veritas stock.