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Another Reason to Hate Compliance

Instead of becoming a boon for storage companies, compliance might actually be hurting software sales.

Backup and recovery vendors Veritas Software Corp. (Nasdaq: VRTS)
and BakBone Software Inc. (Toronto: BKB) admitted their sales were disappointing for the quarter that ended in June, and thats also been the case with large software companies outside the storage sector. (See BakBone Announces 1Q Earnings and Veritas Takes a Dive). BMC Software Inc. (NYSE: BMC), PeopleSoft Inc. (Nasdaq: PSFT), Siebel Systems Inc. (Nasdaq: SEBL), and Sybase Inc.

are among the major software companies who preannounced earnings below expectations. The common theme for their underperformance has been poor U.S. sales in June.

One analyst, David Rudow of U.S. Bancorp Piper Jaffray, suggests that CFOs are too preoccupied with getting their companies into compliance with Sarbanes-Oxley to take on any major software installations. “We believe the CFO’s workload to complete this [compliance] is overwhelming, and they might not have the time or budget to sign large software contracts at the last minute of the quarter,” Rudow wrote in a research note today.

He also wrote that consultants are advising companies to hold off on applications that touch financial systems until they reach compliance.

This is a critical time for large companies in regards to Sarbanes-Oxley. Annual reports for companies with more than $75 million in market capital whose fiscal years end on or after Nov. 15 must be compliant this year. Rudow writes that software sales are probably just delayed until compliance work is finished, but that it might take until the last quarter of the year before they pick up.

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