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Major Software Stocks Surge on SAP Outlook

Technology: German company's forecast fuels optimism that sector is pulling out of last year's sales slump.

January 10, 2002|From Bloomberg News and Times Staff

Major software stocks surged Wednesday after SAP, the largest maker of business-management programs, said it surpassed a reduced 2001 sales forecast.

Most of the stocks closed below their highs for the day, but the rally was another sign that many investors are hungry to jump back into beaten-down tech shares, analysts said.

Germany-based SAP, whose software helps businesses manage inventory, accounting and customer relations, said 2001 sales rose more than 16%, beating the 15% growth rate the company forecast in October when it lowered the target from 20%.

In the fourth quarter alone SAP's license sales, the basic measure of its software sales, totaled about $891 million, well above analysts' forecasts of about $780 million. The company will report complete results Jan. 23.

SAP's U.S.-traded shares jumped $3.22, or 9.7%, to $36.44 on the New York Stock Exchange, after trading as high as $37.98.

SAP's better-than-forecast results bolstered optimism that software companies are pulling out of last year's sales slump, when corporations clamped down on spending as the U.S. economy fell into a recession.

Executives of software leaders Oracle and Siebel Systems have said in recent months that sales are beginning to recover. Oracle executives made upbeat comments Tuesday at a brokerage conference.

Oracle shares rose 98 cents to $16.74, Siebel gained $1.26 to $34.56 and PeopleSoft added 41 cents to $40.90, all on Nasdaq.

Other gainers included Rational Software, up $1.59 to close at $21.84, and BEA Systems, up $1.09 to $20.92, both on Nasdaq. But Microsoft slipped 67 cents to $68.71.

"SAP's the real catalyst," said Noah Blackstein, portfolio manager of the $138-million Dynamic Power American Fund, which holds Siebel, PeopleSoft and Microsoft shares. "You could assume that there's money being spent" on new software.

Oracle Chief Financial Officer Jeff Henley on Tuesday reiterated the fiscal third- and fourth-quarter earnings forecasts he gave Dec. 13, suggesting that sales are on track.

"Each time we pick up one of these straws in the wind, it's a good indication," said Bill Rutherford, whose Rutherford Investment Management oversees about $100 million and holds PeopleSoft shares. "The next three months will tell us a lot."

Oracle is the biggest maker of database software, used to store and organize libraries of computer data. At least two analysts raised their ratings on the company Wednesday.

Even so, some investors said they're skeptical that sales at software companies will bounce back quickly enough to justify the stocks' gains since September.

Oracle shares have rallied 65% from a 52-week low of $10.16 on Sept. 21. Siebel, the largest maker of software to track sales and customer contacts, has more than doubled after falling to a 52-week low on Oct. 1.

Oracle shares now are valued at 38 times analysts' consensus earnings estimate of 45 cents a share for the fiscal year that will end in May, according to earnings-tracker Thomson Financial/IBES.

Siebel shares are valued at 73 times analysts' consensus estimate of 2002 earnings per share.

"The market is getting a little bit ahead of itself," said Francois Olivier, a software analyst at Murphy Investment Management, which holds Oracle shares. "We're not going to go back to where we were 18 months ago."

In the late 1990s, business-software makers benefited as companies rushed to automate more of their operations using the Internet and as dot-coms, flush with venture capital, spent heavily on software and computer hardware.

That spending ground to a halt last year as Internet companies shut down and more established companies decided to hold off on software projects.

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