Six enterprise software vendors that announced weaker-than-expected revenue forecasts for the second quarter this month can blame their shortcomings on several factors, including a saturated market for large customers, according to analysts.
Although demand for ERP, CRM and financial software remains strong among small-to-midsize businesses, many larger companies had already installed these core systems in recent years and were generally just "spot buying" to fill in the gaps, an analyst at Forrester Research, Andrew Bartels, said.
That refelcts conditions at the Snohomish County Public Utility District No. 1 in Washington. Over the past several years, the power company has installed enterprise systems for customer information, material management, finance, geographic information systems and energy resources.
"Mining the benefits from these by lowering operations and maintenance costs and making business process improvements will be our emphasis at least for the near term," an IS business consultant for the utility, Ed Klein, said. "Unless there is a significant cost advantage, I would not see us investing in a replacement for any of them."
Other factors that may be impeding enterprise software purchases included a shift among corporate buyers to move away from run-the-business systems and instead toward grow-the-business type projects, executive vice-president at Meta Group, Howard Rubin, said. "We're seeing an uptick in development projects, but not in big ERP implementations," Rubin said. "IT spending is just not going in [the enterprise software vendors'] direction."
Bartels also claimed that some contracts that were expected to be finalised during the April-to-June period might be extended into the current quarter, as corporate customers who had become conditioned to expect significant discounts over the past few years might have met more opposition from vendors that tried to hold the line on pricing. "Some of these deals could close in the third quarter, but at a significantly lower price point than vendors expected," Bartels said.
Tim Breuer, a spokesman for IBM, which reported its second-quarter earnings earlier this month, said that some customers deferred software purchases at the end of June.
"We do believe the majority of the deferred transactions remain opportunities for the third quarter," Breuer said.
Veritas Software, which lowered its quarterly revenue target to between $US475 million and $US485 million from $US490 million to $US505 million, is in a quiet period until it reports its earnings on Tuesday. PeopleSoft, which revised its revenue outlook from $US675 million - $US690 million to $US655 million - US$665 million, also declined to comment on the factors behind its sales slowdown until the company reports its earnings on the same day.