"As more large enterprises report slower revenue growth due to slower worldwide GDP growth, we believe this creates a more challenging capital spending spending environment for big-ticket software systems," noted Goldman Sachs analyst Rick Sherlund in his downgrade of PeopleSoft.
That downgrade - along with Morgan Stanley Dean Witter cut on PeopleSoft to "neutral" from "strong buy" - clipped more than one-quarter off PeopleSoft shares. The stock now trades at half the level it did in July.
PeopleSoft stock lost 8 3/16 to 24 5/16 on Friday.
Not that the woes have been confined to PeopleSoft.
SAP - Europe's largest software company - listed its American Depositary Receipts on the NYSE at 60 in the beginning of August. The ADRs traded down 2 1/8 to 33 3/4 on Friday.
Shares for SAP (SAP) were hurt by the fact that Morgan Stanley reduced SAP's earnings outlook for 1999 to 77 cents per share from 79 cents.
Also, Baan (BAANF) stock slipped to a new 52-week low on Friday, dipping 2 1/16 to 22 3/16. These shares went for more than 50 in April.
"The rout that has been occurring reflects fear from portfolio managers that a recession could come," said Robert Kugel, analyst at FAC/Equities - First Albany.
Indeed, U.S. President Bill Clinton said Friday that half the world is currently in a recession.
And the International Monetary Fund released a revised forecast that slashed its estimate of growth. The 182-member body projects that the global economy will slow to a 2 percent growth rate this year, the poorest showing in seven years. The rate is expected to slightly rebound to 2.5 percent growth in 1999.
Kugel said that software companies face particular difficulties because as "early stage companies," most haven't been though recessions in the past. The tremendous growth of the software industry has more or less run along with the recent bull market.
"Software companies aren't like machinery companies," Kugel added, where analysts can make projections based on historic spending patterns, for example.
Written By Brenon Daly