Risk & Compliance

Blame Sarbox for Earnings Woes, Too?

One analyst maintains that CFOs and CEOs are spending more of their time and money complying with corporate governance and accounting laws, at the ...
Stephen TaubJuly 14, 2004

In the past few weeks, at least two software companies — Veritas Software and Siebel Systems — have warned that earnings for the recently completed quarter came in lower than expected. Now one Wall Street analyst is blaming the shortfall on CFOs and the Sarbanes-Oxley Act.

Piper Jaffray software infrastructure analyst David Rudow said that chief financial officers and chief executive officers are spending more of their time and money complying with corporate governance and accounting laws, at the expense of purchasing new, expensive software systems.

“We believe the CFO’s workload to complete this work is overwhelming, and they may not have the time or budget to sign large software contracts at the last minute of the quarter,” said Rudow, according to Reuters. “We feel this, along with the fairly tight spending environment, are contributing factors to the June quarter misses.”

Rudow reportedly based his opinion on interviews with about 15 companies, including audit consultancies, software vendors, and software buyers.

Section 404 of Sarbanes-Oxley takes effect for many companies beginning with their first fiscal year-end after November 15; many companies are far from putting the finishing touches on their internal controls so that their auditors can give them a clean bill of health. Rudow is confident that companies are simply delaying software deals until the third or fourth quarters.

Not everyone agrees. CIBC analyst Brad Reback told Reuters that “customers and CFOs we’ve spoken to have not indicated Sarbanes-Oxley played a role in their technology buying.” Companies have been more inclined lately to make piecemeal software purchases, he asserted, because of concerns that the economy will slow down in the second half of 2004.

Reback also told Reuters his research indicated that companies such as German-based SAP have actually been more successful at selling pieces of software offerings rather than entire systems. Indeed, last Friday SAP announced that after a preliminary review of its 2004 second-quarter performance, it expects software revenues to have increased by 15 percent compared with the second quarter of 2003.

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