Software Sector Hit Hard in Quarter

The software industry is staggering in the wake of the Sept. 11 attacks and the sputtering economy, third-quarter earnings reports reveal.

With few exceptions, software vendors said companies are delaying or canceling new application deployments, or putting off expansions. They now believe the effects will be felt well into 2002 and, consequently, many have announced deep cuts.

Results were bleak in other technology sectors, with telecommunications giants such as BellSouth and Sprint reporting sharply lower earnings, and hardware, storage and PC makers reporting double-digit declines in shipments. IBM was one of the few to actually beat market expectations, with a profit of $1.6 billion, thanks largely to its services sector.

The terrorist attacks exacerbated a “recession-like environment” that was already plaguing the industry, i2 Technologies CEO Greg Brady said.

I2, which specializes in expensive supply chain management systems, was among the hardest hit. The company lost $5.53 billion in the third quarter, after taking a $4.7 billion write-off for its March 2000 acquisition of Aspect Development. The firm has already cut 20 percent of its staff, but said it will trim another 1,000 jobs.

I2 is not alone. Electronic procurement software vendor Commerce One reported a third-quarter loss of $119 million, and said it will cut 1,300 jobs – nearly half its work force. Rumors were swirling that SAP, which owns 20 percent of Commerce One, might take on a bigger role, but SAP has its own problems. The German software giant posted a 65 percent drop in net income in its third quarter.

Not even Siebel Systems, viewed as the rock of the software industry, could stem the tide. The company said revenue fell 14 percent in the quarter, to $428.5 million. Siebels software license fees – a sign of a companys growth rate – plunged 38 percent.

Unlike his counterparts, Siebel Systems CEO Thomas Siebel said no further large-scale job cuts are planned. “The demand is there [for customer relationship management applications]. The CIO [chief information officer] wants to do it. The CEO wants to do it. And when this thing turns, Im certain its one of the first things people will want to do,” he said.