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By Eric J. Savitz 

The 2023 outlook for enterprise spending looks muted at best, as many companies tighten their purse strings to prepare for a potential economic downturn. That trend has analysts who track the sector alert for signs of trouble, and tempering their expectations for the rest of the year.

Piper Sandler analyst James Fish, for instance, on Tuesday slashed estimates for companies in what he calls the "cloud automation" market, which includes cloud-based communications service and software stocks and the hardware companies that serve them.

Fish cut his ratings for RingCentral, DigitalOcean and Bandwidth shares to Neutral from Overweight, while upgrading the call center software provider NICE Systems to Overweight from Neutral.

In early trading Tuesday, NICE (ticker: NICE) is up 2.8%, to $204.48, while Bandwidth $(BAND)$ is off 11.2%, to $20.95. Both Ring $(RNG)$ and DigitalOcean $(DOCN)$ are fractionally lower.

For RingCentral, his view is that expected improvements in gross margins are already priced into the stock; he also notes that Ring has a per-user pricing model, with significant exposure to smaller companies, and that there is risk to the business in an economic downturn.

Fish also sees potential ongoing fallout for Ring from the financial issues at distribution partner Avaya $(AVYA)$, which is close to filing for Chapter 11 bankruptcy protection. And Fish sees growing competition, in particular from Microsoft Teams.

For Bandwidth, a provider of messaging and voice services that resells services from Microsoft and others, he likewise sees risks that layoffs and hiring freezes will slow growth. "We see better relative valuation in other names in our universe," Fish writes.

As for DigitalOcean, Fish writes that he has "rising concerns" about the cloud services provider's exposure to the small and medium-size business segment and to developers, with both macro pressure and growing competitive threats. "We are moving to a Neutral [rating] as we await a better valuation and turn in normalized trends," he writes.

On the other hand, Fish has turned bullish on NICE, which he thinks could benefit from troubles at legacy communications infrastructure providers such as Avaya and Mitel; he also sees Cisco Systems $(CSCO)$ losing market share in communications hardware. He sees those issues expanding in 2023, giving an opening to cloud-based communications firms like NICE.

Write to Eric J. Savitz at eric.savitz@barrons.com

(END) Dow Jones Newswires

January 17, 2023 11:56 ET (16:56 GMT)

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