Are Customers on Thin Ice?

With the stream of earnings warnings that software vendors have been issuing over the last few months, one might think that enterprise customers are getting nervous and worrying that their primary technology providers will cut back on service or developme

With the stream of earnings warnings that software vendors have been issuing over the last few months, one might think that enterprise customers are getting nervous and worrying that their primary technology providers will cut back on service or development.

Slower sales and reduced earnings at many software developers have translated into budget cuts and redeployments of resources that could cause confusion among developers. Companies that have laid off support engineers may find it takes a long time to hire back a full staff, not to mention train it.

But when it comes to outlasting a recession, enterprise customers are counting on the bigger developers to weather the storm better.

Those developers feeling the pressure include PeopleSoft Inc., which had been prospering despite the tech recession. This month, the Pleasanton, Calif., company warned that earnings for the first quarter would be lower than expected. That followed weaker-than-expected results from rival Oracle Corp. last month and underscores the continuing weak demand from large companies for e-business products.

Based on preliminary information, PeopleSofts license revenue is expected to be between $130 million and $135 million, compared with $153 million for the same quarter last year. But PeopleSoft customers arent concerned.

"We watch PeopleSoft closely, and some of us own stock, so when they drop, we notice," said Keith Malmborg, an IT manager at Santa Clara (Calif.) University. "[The recent earnings warning] has no impact. We continue to march forward with our plans, and weve licensed some new products."

One-time business-to-business darling Commerce One Inc. also announced this month a preliminary first-quarter warning, with hints at more layoffs and an accelerated product release schedule. Despite a strong partnership with enterprise software giant SAP AG, Commerce One, also in Pleasanton, said it expects total revenues of about $29 million to $32 million, compared with $170 million for the same period last year.

Because it has experienced a bumpy road over several quarters—last October, Commerce One laid off half its employees as a result of poor earnings—customers are noticing the impact.

With about 15 of its buyers using the Commerce One e-procurement platform, Fastenal Co. has witnessed a change in Commerce Ones service.

"I tried to get [my Commerce One account representative] out here, but for all the suppliers, there are three reps," said Brian Fihn, e-business development manager with Fastenal, in Winona, Minn. "So I cant get any individual attention. I cant get any questions answered, and that makes it tough."

Many enterprise buyers look first at the quality of the technology; the developers financials are a lesser consideration. "When you [choose] a technology to run your business over two to three years and get the best you can buy, and if that vendor fails—if their technology is best of class, then someone else who is still in the business will [buy that technology and continue to support it]," said Mark Heindselman, manager of knowledge networking and information services at Fisher Controls International Inc., of Marshalltown, Iowa.

Additional reporting by John S. McCright