Lately I have parsing the Durable Goods reports (read latest post) to more precisely identify what is going on with technology hardware manufacturing.
Today Goldman Sachs released a report that focuses on the other big part of the hi-tech picture: software. Suffice to say, it wasn't pretty.
Here is a quote from the report:
The worst of the IT-spending slowdown likely remains in front of us, as we start the clock on slashed 2009 budgets. We forecast 0 percent revenue growth for our group, below consensus at 5 percent, and 1 percent earnings growth, below Street at 2 percent.
Goldman presents a recommended list of big-name IT software stocks that they consider to be "safe" choices in the current environment. Microsoft (MSFT) and Oracle (ORCL) are on the list, as well as companies that suggest "strong cost-cutting discipline and mission-critical product sets" like BMC (BMC), CA (CA), and Symantec (SYMC). BMC and CA are big in system management and support functions while Symantec is, of course, focused on system and information security. The needs for these kinds of functionality doesn't go away.
There has been much discussion in the blogosphere about open source software and how it will see a surge of adoption do to its lower cost. Goldman quite rightly says this will not be the case. I have written that CIOs will hunker down and stick with the tried and true (which is not open source in most large-sized enterprises) and Goldman is in agreement, seeing a consolidation of functionality with big, established vendors and a moving away from the concept of seeking best-of-breed point solutions regardless of vendor.
Surprisingly, Goldman doesn't expect Salesforce.com (CRM) to prosper particularly in the current environment. Goldman doesn't see Salesforce as one of the heavyweights who will benefit from the "consolidation" mentioned previously. On this point, I would disagree. Salesforce.com and SAAS in general allows certain IT functions to be brought online with lower initial cost and that should remain an attractive proposition going forward no matter what the economic environment. Of course, it is always cheapest to do nothing and some enterprises will do exactly that, so Salesforce.com will not escape this downturn altogether.
So in terms of non-defense technology companies we are batting two for two: Neither hardware not software will be spared over the next several quarters as the outlook remains dim for both.