IBM’s Weak Results Weigh On Software Sector

As noted earlier, IBM (IBM) shares are taking a pounding today, as analysts zero in on the company’s weak results in the U.S. market in the first quarter. Investors aren’t necessarily waiting around to see if results from other major software vendors might be similarly afflicted; instead, they are simply selling them.

John DiFucci, an analyst at Bear Stearns, asserts that the most important numbers in IBM’s report for software investors were the 6% growth on a constant currency basis for its key branded middleware segment and 2% growth on a constant currency basis for the overall software segment. That compares to fourth quarter growth of 10% for middleware and 6% overall. In a research note he wrote:

The relative valuations of software companies are at about the mid-point of their historical range, which we believe is rich, given the recent consensus admission (in our opinion) that software is likely no longer a hyper-growth market, which is validated by IBM’s recent results.

Merrill Lynch’s Kash Rangan notes today that U.S. software spending is now higher than it was either during the Y2K period or during the Internet bubble. “The data indicated that U.S. software spending is at high levels relative to historical norms and does not have enough cushion if we get spending headwinds,” he wrote in a research note.

Most enterprise software stocks are down today; here is a sampler:

BEA (BEAS), which competes with IBM’s Websphere, is down 23 cents at $12.12.

Tibco (TIBX), another Websphere rival, is unchanged at $9.36.

Microsoft (MSFT), an IBM rival in database software, among other places, is down 35 cents at $28.50.

Oracle (ORCL), which competes with IBM in database and middleware, is down 7 cents at $18.82.

IBM vs. MSFT vs. ORCL vs. TIBX vs. BEAS 1-yr chart