In a massive economic downturn like this one, it's tough to talk businesses into new investments in their IT infrastructure. Some businesses don't even know how they'll survive the credit crunch, much less plan for the future. And the wrong stocks are getting punished for that problem.
Enterprise software developer Autodesk
I bet you know what's coming. Autodesk dared to take present market conditions into account when forecasting its own immediate future, which led to disappointing guidance. Fourth-quarter earnings are headed for about half of what the average Wall Street analyst had expected, thanks to slower sales. I appreciate the management team's candor in difficult times. "We realize that there is no quick or easy response to the current economic environment," said Autodesk CEO Carl Bass.
We need to see liquidity in the system. Our customers depend upon it to run our business and I think truthfully if you look right now, we don't have functioning financial systems to the level that allowed normal businesses to do their job. And in an environment in which people can't get credit, the first things on their minds is not how much more software do I need to buy.
Ain't that the truth. Under these conditions, I don't see a whole lot to smile about in the IT sector at large, except for a plethora of well-managed businesses that got hit way too hard by Mr. Market's knee-jerk reactions to the financial market's meltdown. Autodesk still expects to post a profit next quarter, despite the sharp downturn. The company has around $800 million in cash and cash equivalents on hand, with very little debt. The company also has generated over $500 in operating cash flow for the first nine months.
Given all of these positive facts, I'd put Autodesk in the same category as virtualization specialist VMware
Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio. The Motley Fool is investors writing for investors.