PeopleSoft Slightly Off Analysts' Mark

Tightened IT budgets were cited by CRM software provider PeopleSoft Inc. as the cause of its drop in second-quarter sales and profits. The Pleasanton, Calif.-based business software maker said its net income fell to $36 million, or 11 cents per diluted share, for its second quarter ended June, from $47.4 million, or 15 cents per share, for the same period a year ago. The most recent quarter included a non-recurring acquisition-related charge of $8.7 million for purchased in-process research and development. Revenue for the quarter came in at $482.2 million, down from $544.5 million for the corresponding quarter last year. In April, PeopleSoft forecast second-quarter earnings, before charges, of 14 cents a share. Analysts expected the company to earn 13 cents a share on total revenue of $473.8 million, according to tracking firm Thomson Financial/First Call. The company's cash and investment balances at the end of the quarter were $1.8 billion. Cash flow from operations was $74 million for the quarter. The reported results for the six months ended June 30, 2002 also include a non-recurring acquisition-related charge of $2.8 million or $1.7 million after-tax. Company executives say the inclusion of these non-recurring items in reported net income for the six months ended June 30, decreases earnings per share by 3 cents to 25 cents per share, from 28 cents per share. PeopleSoft president and Chief Executive Craig Conway in a prepared statement said, "PeopleSoft delivered a solid financial performance in a tough economic environment." In the most recently ended three month period, PeopleSoft signed deals with a variety of new and existing customers including; Cingular Wireless, Dell Computer Corp., the U.S. Department of Defense, Duke Energy, Sun Microsystems Inc., Sybase Inc, Toronto-Dominion Bank, University of Rochester, and Verizon. PeopleSoft also increased the size of its deals from around $600,000 to $640,000. According to a financial analyst with a Boston-based investment house, who asked not to be named, that bodes well for PeopleSoft. "All the analysts are saying 'show me the big deals," he says. "But in this environment large deals aren't around. I would rather see a company have a lot of deals closer to $650,000 than relying on one customer for a multi-million dollar deal. Spreading around the risk is good." He also says there are a handful of reasons that PeopleSoft is in a good position; accounting issues and confusion related to the accounting practices with its subsidiary, Momentum Business Applications, have been resolved; the company is beefing up its presence in Asia Pacific, a potentially lucrative market; and it has a very strong cash position of more than $1 billion. There is likely to be further market consolidation, with companies either being acquired or going out of business, but PeopleSoft will be on the survivors along with Siebel, he says. Siebel Systems Inc. may be a survivor, but like rivals, it is enduring some hard times. Wednesday the CRM market leader announced job cuts and posted a smaller-than-expected second-quarter profit on revenue that was down 28 percent from a year ago. The San Mateo, Calif.-based company plans to slash its employee head count by nearly 16 percent to 6,000 next quarter in order to bring expenses more in line with lower revenue Chief Executive and founder Tom Siebel expects third-quarter results will be about the same or lower than the second quarter. He also says that the fourth quarter may be flat. In addition, SAP on Thursday reported weaker sales in key segments and a decline in the United States revenue. A week ago, Europe's biggest software maker stunned financial analysts by slashing its 2002 sales forecast. That warning came after posting preliminary second-quarter results well short of analyst forecasts. SAP last week cut its forecast of 15 percent sales growth for 2002 to between 5 and 10 percent after preliminarily reporting a 4 percent decline in second-quarter sales to $1.81 billion, compared with the same period a year earlier, and a 23 percent fall in operating profit to $326 million. SAP results reported Thursday showed that the company continued to suffer in the U.S. where its license sales dropped 32 percent to $100.55 million in the second quarter that ended June 30, compared with the same period a year earlier. This comes on the heels of a 28 percent slide in the first quarter. Overall licensing revenue also dropped 23 percent in the second quarter to $499 million, compared with the corresponding quarter a last year. SAP's CRM revenue fell 3 percent from the same period last year to $101.5 million. In supply-chain management, SAP's revenues were down 31 percent from 2001 to $104.6 million Despite the slowdown, SAP has not announced job cuts and instead is working on an internal reorganization, has put in place a hiring freeze and implemented tighter cost controls.