PeopleSoft sees no demand pick-up yet

By Jennifer Tan

SINGAPORE: PeopleSoft Inc, one of the few U.S. software makers to enjoy year-over-year earnings growth during the technology sector downturn, said it still sees do no discernible pick-up in customer spending.

"Entering into the second quarter, we continue to see a very strong pipeline but definitely a deceleration of our ability to transform the pipeline into real orders," Guy Dubois, executive vice president for PeopleSoft's international operations, told Reuters in a recent interview.

"Customers are taking more and more time before deciding, and a lot of corporations are still saying, 'We're going to do it, but let's push it back a bit to see if things change from the economic point of view'. There's been no significant improvement or deterioration (in orders) over the last few months."

The California-based maker of software that automates human resources, accounting, selling and other corporate tasks, stood out with 28 percent profit growth last quarter, as most of its rivals wrestled with shrinking profits.

Its earnings for the three months to March 31 were US$46 million or 14 cents per share, compared with $36 million or 11 cents in the year-ago quarter, as aggressive cost-cutting helped offset software sales that slumped 13 percent.

But this decline, its first year-on-year fall in licence revenues since 1999, was less steep than larger competitors Oracle Corp and Siebel Systems , whose applications revenues tumbled 41 percent and 27 percent respectively in the first quarter.

PeopleSoft also issued a revenue warning in April which rattled the market, sending its shares sharply lower. Year to date, the stock is down 41 percent, while Oracle and Siebel Systems have fallen 31 percent and 19 percent respectively.

Dubois said the second half of the year could see a strong pick-up in sales but there was no solid evidence yet to back that up. "Looking at the trend of the build-up of our pipeline, we have to recognise that our funnel is more back-end loaded than it used to be, which could mean an acceleration in the second half," he said.

Robertson Stephens analyst Eric Upin, who rates the stock a market perform, believes the tight spending environment could span the second half of the year. "(Our) best-case scenario (is) a mild pick-up in software spending in fourth quarter of 2002," Upin said.

PeopleSoft's worldwide base of 5,000 customers includes U.S. computer and printer maker Hewlett-Packard, Europe's largest wireless operator Vodafone and Southeast Asia's largest lender DBS Bank. Analysts fret about PeopleSoft's declining sales to new customers, which fell to 25 percent of its first-quarter revenue from 42 percent in the fourth quarter.

In the face of slack corporate technology spending, software makers have zeroed in on existing customers who are more likely to carry them through the downturn. "We were signing approximately 100 new names per quarter on average, although in the first quarter, we fell below that," Dubois said. "We're not sure if we can move up to 100 new customers in the quarters ahead."

Goldman Sachs analyst Steven Kahl said in a recent research report he was worried about PeopleSoft's low relative new customer contribution. "To sustain longer term growth into 2003, the mix needs to shift in favour of new customers," he said. As for the company's latest PeopleSoft 8 software -- an open-code system built on a pure Internet platform -- 3,000 copies were shipped worldwide after its launch in July 2000.

"There are some delays for customers in going live on version 8 at this time, but I have no doubt that they will all migrate eventually," Dubois said.

Everything hinges on the global economic picture, Dubois said. "If there is an acceleration in the market, PeopleSoft will accelerate faster than our competitors," he said. "Just let us have the economy help us a little bit."

(C) Reuters Ltd.