Software spending likely to be weak in 2003 —study

PALO ALTO, California: In a hefty client note, Credit Suisse First Boston analysts painted a grim picture of software spending for the remainder of the year and for 2003, and forecast mid-single-digit growth in software spending through 2005.

The analysts said demand for enterprise software -- or programs that big companies and governments use to automate operations -- appears to have deteriorated beyond the usual summer softness, driven by recent weakening in Europe.

They wagered that Windows software maker Microsoft Corp., middleware vendor BEA Systems Inc. and storage management software seller Veritas Software Corp. are most likely to meet Wall Street expectations during the balance of 2002, and outperform their beleaguered peers. "We do not expect (Microsoft, BEA or Veritas) to miss numbers, but nor do we expect them to show upside," analysts George Gilbert and Michele Laverty said.

The analysts predicted downside risk to 2003 consensus estimates for all stocks except industry titan Microsoft.

"We believe (calendar 2003) numbers will be adjusted down across the board following Q3 earnings, but we see (Veritas) as most vulnerable in this regard," Gilbert and Laverty said. "More importantly, we expect growth post (2003) in the 5-10 (percent) range ... below current investor expectations," the analysts added.

On other fronts, CSFB analyst Todd Raker said spending on infrastructure security software remains better-sheltered than other areas within technology, and security names should remain fairly healthy relative to the rest of the software sector.

Raker said there is still a risk that security software shops could issue warnings due to traditional seasonal weakness, but said SonicWall is the only sector player to have warned thus far. Corporate software spending has been falling since mid-2000 and the stocks of many major software names have shed considerable value after soaring in the free-spending 1990s.

So far this year, Microsoft shares are down 30 percent. The stock of database giant Oracle Corp. is off 38 percent, and Computer Associates International Inc. shares have lost almost 72 percent of their value.

© Reuters