Merant Goes South on the Stock Market

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Merant Goes South on the Stock Market
M. Reed - September 5, 2000

Event Summary

Shares of Merant, the provider of PVCS, a major software configuration management product (acquired from Intersolv), in addition to other software, have dropped more than 24 percent after the company released preliminary financial estimates for its first fiscal quarter recently-ended, showing revenues likely will be about 17 percent less than the previous year due to a decline in COBOL license fees.

Revenues for the first fiscal quarter are preliminarily estimated to be in the range of $72 million to $73 million, compared to $87.6 million for the same period last year, Merant officials said in a teleconference call and statement. Pre-tax losses for the quarter ended July 31 are estimated to be in the range of $8.5 million to $9.5 million excluding goodwill amortization. The above pre-tax loss range also is estimated before a goodwill charge of roughly $3.3 million.

"COBOL license fees worldwide have declined significantly below expectations and our forecast," said Merant President and Chief Executive Officer Gary Greenfield. He also stated that Merant had originally expected double-digit growth.

Nevertheless, Greenfield said "Egility e-business revenue continues to grow, but didn't accelerate as much as originally anticipated. But operating costs in the first quarter of this fiscal year have declined by more than $10 million as planned, compared with the fourth quarter ended April 30", he added.

Merant officials said they weren't sure of the reasons for the missed projections, though Greenfield said COBOL fees fell "definitely beyond the teens" percentage-wise. He further said another cause might be related to the company's recent reorganization of its sales force. "We intend to continue to thoroughly evaluate the cause for this revenue shortfall while accelerating our e-business transition, and take action to improve execution and return to profitability," he added. Greenfield emphasized that the company is not suffering a cash problem.

Market Impact

Once again, another vendor has stated that growth and license revenues in the mainframe arena are softer than expected (see "System Suppliers Slip Seriously", August 8, 2000 for further details on other vendors in the same boat.)

It is not surprising that COBOL revenues have begun to decline, given the end of the "Y2K" crisis. PVCS has long been a strong candidate for software developers in need of version management and software build control. It will continue to be strong in this space, irrespective of its current stock market woes, although it may become a takeover candidate for a larger firm (i.e., Computer Associates), and should be examined closely at the financial level.

User Recommendations

Companies looking at Software Configuration Management tools should include Merant PVCS on a long list of candidates. It is also capable of tracking changes in Oracle's ERP suite, and assesses dependencies and impacts of change, as well as integrating with Tivoli. In addition, PVCS products integrate issue and change management into SCC-compliant IDEs, which allow information interchange between different SCM products, such as Visual Studio and Powerbuilder.

The products in this suite have long been leaders in their field, and should be evaluated by the customer's programmers to determine their fit within the particular environment(s) being considered. The additional consideration should be a financial one, given Merant's current weakness in the stock market. This weakness could potentially be exploited by customers to improve pricing on the products, especially near the end of a quarter or fiscal year.

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