Enterprise software market won't grow this year, report says

Oracle may weather the current recession better than smaller competitors, even though there won't be growth in the enterprise software market.

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With the iron grip of the recession continuing to delay the start or completion of many IT projects, Gartner Inc. has lowered its worldwide enterprise software revenue projection for 2009 from 6.6% annual growth to flat.

That's the dark cloud. The silver lining -- some might say a rather thin silver lining -- is that the enterprise software market for both applications and infrastructure products has the potential to weather the current downturn better than the one that squashed its growth back in 2001 and 2002.

But larger vendors, including Oracle, expect to sidestep some of the pain of the slowdown this year thanks mainly to their size, more diverse product lineup, steady stream of maintenance fees and geographic balance.

"Most of Oracle's markets are not what we call quarter-to-quarter because they are a true enterprise business, so there may be some wait-and-see on projects right now that are scheduled for 2009. But once economic conditions improve and the green light is given, they can move forward quickly on those intended projects," said Tom Eid, vice president of enterprise for Gartner .

Given the dire economic conditions, coupled with other ongoing cost-cutting measures that were in place before the financial crisis struck, many large Oracle customers can't actually carry out the application and database strategy they established before the crisis hit.

The enterprise software market was performing almost as well in the first three quarters of 2008 as in the first three quarters of 2007, according to Eid -- and then the anvil that is the current economic crisis landed on the head of the market.

"2008 was coming in as a pretty good year until the financial bubble burst," Eid said. "Once that happened, users went forward only with purchases they had to make, and put on hold anything they didn't need."

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Tom Handel, a database administrator with a large Chicago-based financial institution, has felt the rippling effects of the downturn and has delayed his Oracle projects and purchasing decisions.

"We had [signed] off on a pretty important [Oracle-based] transactional application in September, just before all the trouble at Lehman [Brothers]," Handel said. "Once the Lehman thing happened, word came down from the CXO offices that we weren't going to be hiring the additional people we needed to even start the project."

Asked which Oracle products would be most affected over the course of 2009, Eid said the company's infrastructure products could be the first to come under siege, followed by its applications.

"Broadly speaking, infrastructure tends to be affected first because you are doing build, run, manage, which is what infrastructure is all about," he said. "But that also tends to build out faster when conditions improve. Applications tend to feel the slowdown later."

"Things have not come to a screeching halt here; there is still money to be made," Eid added. "You might be able to tie up a financial market in a financial crisis like this, but it is a lot harder to do that to the broader IT market when you realize how embedded these enterprise systems are to everyday life."

Gartner expects revenues worldwide for enterprise software to come in at $222.6 billion this year, up 0.3% from last year's revenue of $221.9 billion. The market research firm said that while most enterprise software segments will have "mildly positive growth rates" over the course of this year, it expects some larger segments -- including PC operating systems, office suites and storage and digital content creation -- to experience negative growth rates.

Gartner warned, however, that even its flat projection for the enterprise market in 2009 could dip into the red by one or two percentage points if economic conditions continue to worsen. But although the general expectation is for a slow economic recovery, an upturn in spending for enterprise software is expected sometime during the first half of 2010.

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