Software Makers Look to Government

Vendors and customers count on the federal government to help compensate for the anticipated spending cutbacks from enterprise and consumer clients.

Software vendors and customers are looking to the federal government and government contractors to help compensate for the anticipated spending cutbacks from enterprise and consumer clients.

The effects of the terrorist attacks in New York and Washington, combined with a slowing economy, major layoffs and the lowest level of consumer confidence in five years, have analysts and executives from the major software developers concerned about the economic outlook.

Executives at Oracle Corp., in Redwood Shores, Calif., said last month that they see no signs of the economy recovering and predicted that the attacks would further hurt software sales. They said second-quarter software sales could drop as much as 15 percent.

However, officials did forecast an increase in sales to the federal government, the largest single buyer of software. Some commercial businesses and federal contractors agree that a surge in demand for products from the government and related companies could prevent an all-out industry slide.

For instance, defense contractor Lockheed Martin Corp. has no plans to scale back its software purchases; in fact, they may be stepped up. Elaine Hinsdale, a spokeswoman for the Bethesda, Md., company, said it is not experiencing an IT spending slowdown. "Our systems are pretty critical. We have a job to do to support our national security, and we are going forward with those tools and technologies that are needed to support our customers--especially the government," Hinsdale said.

Chuck Kramer, vice president of IT services at Social and Scientific Systems, a federal contractor and commercial business also of Bethesda, said increased government spending is likely, which will help support the software industry.

"No one spends money like the government in a time of crisis," Kramer said. "Given the current situation, there will be an acceleration in government spending across the board. As the focus shifts to surveillance and intelligence gathering operations in the war on terrorism, spending in those areas will also be heavily ratcheted up."

According to Kramer, clients of Social and Scientific, which provides technical and information services, are buying less hardware but spending more on software and upgrades. "We havent seen a reduction in spending, nor do we anticipate one," he said.

John Gantz, an analyst at International Data Corp., in Framingham, Mass., is also fairly upbeat. In a Sept. 16 revision of his 2002 outlook presentation, Gantz said, "The economy is not that sick, IT budgets are not that sick ... the rebound will be here soon, and software will lead the way."

While officials at Microsoft Corp., the largest software company in the world, declined to comment on the outlook for sales or the economy, John Connors, the Redmond, Wash., companys chief financial officer, previously cautioned that its fortunes would be determined in part by PC shipment rates.