Ever the optimists
Still, the cheery report was enough to ignite talk of a sustained turnaround. "We believe that IBM's strong Q4 software numbers provide another indication that the December results for the industry should be positive. It appears that end-of-year budget flush was seasonally very strong," said a Merrill Lynch research report published Wednesday.
Other software companies are seeing better days as well. Earlier this month, customer sales and support applications company Siebel said it would beat analysts' expectations for revenue in the fourth quarter of 2004, citing a rise in licence and hosted application sales. Oracle, too, reported strong earnings; earnings for the second quarter, posted in December, grew 32 percent year on year.
The areas where IBM did particularly well last quarter, such as business integration middleware and management, dovetail with strong financial results in those areas from its competitors, such as Tibco and Mercury, noted Moskowitz. But, he added, IBM's reported growth rate was aided by a weak dollar and acquisitions.
Even with the better financial performance of the large enterprise software companies, some analysts said they believe the software sector as a whole is simply not as vibrant as it once was.
Entrenched suppliers are facing pricing pressure from tightfisted corporate customers as well as growing interest in open source and hosted software, such as that offered by Salesforce.com. These conditions favour larger companies, which can provide a broad suite of products and services to their corporate clients, who are paring down the number of their suppliers.
For example, the large database providers, such as IBM, Microsoft and Oracle, continue to add data analysis tools to their product packages, which will put pressure on standalone business intelligence companies, such as Business Objects and Hyperion, said Embersits. Indeed, many analysts expect that the business intelligence and data analytics area, which has already seen a wave of mergers and acquisitions, is ripe for further vendor consolidation.
"People are still buying software, and every market has a lot of competition, but there is no clear new niche that someone can grab and own," said Jeff Embersits, an analyst at Shareholder Value Management, which has been shorting much of the software sector since last fall. "The big guys in software will just keeping adding features and functionality [to their products]."
