Software Spending Down But Not Necessarily Out

Major application players, including PeopleSoft and Siebel Systems, and infrastructure providers BMC Software, Computer Associates International and Veritas Software, for example, stunned the market with their disappointing quarterly results. Even mighty IBM reported lower software sales for the quarter.

The broad run of bad news prompted many people to declare that the U.S. software revival had stalled.

But has it? An examination of the various dynamics at play during the last quarter shows that it's not so easy to pronounce the enterprise software recovery dead. Such factors include one-time events such as Redwood Shores, Calif.-based Oracle's bid for PeopleSoft, international turmoil, an apparently sated appetite for large purchases--and SAP.

Take PeopleSoft, Pleasanton, Calif., which blamed most of its disappointing revenue on Oracle's takeover efforts. But Oracle also has affected channel partners.

"We lost two deals, and we weren't allowed to even participate in at least two deals that we know of because of the Oracle threat," said Paula Milano, president of PeopleSoft partner Axion Solutions, Irvine, Calif., who described the quarter as "mediocre."

PeopleSoft sales were building until April and then were delayed "at least a quarter," according to Chris Rapp, vice president at Minneapolis-based integrator Apex IT. He also cited some concern over Oracle's takeover attempt but said macro issues were more important.

"There's a lot of economic news around the election and the war in Iraq that are weighing on people's minds," he said.

And then there's SAP, which last week reported a 63 percent quarterly revenue increase in the United States. Bill McDermott, CEO of Newtown Square, Pa.-based SAP America, told CRN there's no software slowdown--it's just that SAP is kicking sand in its competitors' faces.

"If you look at our North America results along with those of our top seven competitors, the market would be up double digits, year over year," McDermott said. "If you extract SAP from the numbers, the market would be down 2 percent year over year. So the market's maturing, consolidating and rationalizing the participants as we speak."

And what of Siebel, which falls among those seven competitors? Many say the San Mateo, Calif.-based CRM provider, as well as other vendors, fell victim to an overreliance on large purchases.

"The big deals have become fewer," said Andrew Bartels, research analyst with Forrester Research. "I think we may see companies that cater to smaller and midtier customers will do better in their quarter."

That's been Srini Voruganti's experience. Voruganti, vice president at infrastructure solution provider Pegasus Knowledge Solutions, Schaumburg, Ill., said his business is up 17 percent this quarter--primarily for IBM Rational tools and for Linux.