Goldman Sachs cuts estimates on proprietary app makers, Red Hat

The end may not be near, but Matt Asay of the CNET Blog Network says the writing is on the wall for proprietary software companies.

Remember the good ol' days of enterprise software when a vendor could foist a multimillion-dollar software package on an IT buyer and get away with also charging downstream fees for support and maintenance?

In a sign that this bleak time for IT buyers is at an end (and a bleak period is ahead for proprietary software vendors), Goldman Sachs this week cut its 2008 estimates on a wide range of software companies, citing a softening in capital expenditures for the near term. According to a Barron's blog:

Goldman cut 2008 estimates on many software stocks, focusing on enterprise exposure, pure-plays that could be harmed as customers seeks to purchase good enough substitutes from larger vendors, and vendors who sell big ticket items that could be delayed in a slower spending environment. The firm cut estimates by 1 percent on average...

Linux maker Red Hat didn't escape Goldman's knife, but Microsoft and Oracle did. Why? Because they're buying up so much of the market through consolidation that they fall into the "good enough substitutes from larger vendors" category.

I'm not buying the Red Hat downgrade. Red Hat continues to pick up momentum as buyers shrink from the cost of Unix systems and move to Linux. That trend won't slow in 2008, though it may well be that Red Hat will have to assume a more direct assault on Fortress Redmond to grow at its current pace. The Windows/Linux standoff can't go on much longer.

While The VAR Guy might not be completely right that open-source companies are immune to economic downturns, my daily experience is that open-source vendors are benefiting heartily from a slowdown in spending as precious IT dollars are being spent on service and support, rather than shelfware/licenses.

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