Techs Midterm Outlook: Software

A return to healthy growth is proving ephemeral for significant segments of the software industry, prompting observers to wonder whether they'll ever see a return of robust sales and profits across the board.

In mid-July, stock market analysts and computer industry pundits came to Oracle headquarters in Redwood City, Calif., seeking guidance on how the enterprise software market was going to grow during the rest of 2004.

While Oracle Corp. was among the software companies that reported healthy sales and profit growth in the second half of 2004, other companies including archrival PeopleSoft Inc. as well as Siebel Systems Inc. reported lower sales and earnings. PeopleSoft in particular has blamed Oracles yearlong buyout effort as the main reason why PeopleSoft this week reported a 70 percent drop in earnings.

The latest quarterly reports had analysts asking Oracle officials when the software market would fully recover from the collapse of the IT industry bubble of the late 90s.

"This is the recovery. Enjoy it," Oracle CEO Larry Ellison told them. The industry, he advised, would never again see the kind of growth experienced in the late 90s. "We are not going back to the lunacy of the bubble," Ellison said.

/zimages/2/28571.gifClick here to read analyst predictions on the software side of the computer market.

Ellison maintains that the software industry has seen its best days and has entered a consolidation phase–a period that Oracle intends to take advantage of by acquiring smaller companies for their technology and management talent.

"This will not be an industry that will be forever young," Ellison said. In fact, he suggested that the industry is getting well on into middle age.

/zimages/2/28571.gifClick here to read why Ellison says that fear of Microsofts incursion into the enterprise software market will drive Oracles growth.

But analysts say that this may be too gloomy a view. Plenty of companies have done relatively well in the past few quarters. The software industry is making a slow and somewhat inconsistent recovery from the slump that gripped it from 2001 through much of 2003.

Some of the larger software companies did particularly well in the 2004 second quarter. Microsoft reported a 15 percent revenue increase. Computer Associates International Inc., SAP AG and EMC Corp. also reported strong sales growth.

Next Page: Contending with a muted buying sentiment.

John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s eWEEK.com since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...