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System Software Suppliers Slip Seriously

Written By: M. Reed
Published On: August 8 2000

System System Software Suppliers Slip Seriously
M. Reed - August 8, 2000

Event Summary

Shares of Computer Associates, BMC Software, Compuware Corporation, and others have suffered serious setbacks on the stock market in recent days due to shortfalls in revenue. Most vendors blame it on a failure to close large deals near the end of the quarter. Once again, the dreaded Wall Street "whisper number" has not been made, and the stock market has reacted harshly. Sales of mainframe software have softened, causing much of the shortfall.

As examples, shares in Computer Associates (NYSE:CA) dropped as much as 42 percent at one point, even though their revenue has increased to approximately $1.25 billion, compared to $1.22 billion in the same quarter last year. BMC Software (NASDAQ: BMCS) dropped 31 percent after it announced an approximate 50 percent drop in revenue compared to the same quarter in the prior year.

Market Impact

Many of the vendors are blaming the delays in contract closings on customers who are delaying purchases until the release of IBM's new G7 IBM mainframe hardware, and general softness in the mainframe business.

Computer Associates held its annual analyst conference in conjunction with CAWorld in New Orleans in June, and gave no indication that there would be problems with forecasted revenue, particularly in the EMEA (Europe, Middle East, and Africa) market. According to a recent statement from Sanjay Kumar, president and COO of CA, "We intend to work aggressively to address the performance issues in our European business."

Beth Chappell, Executive Vice President of Corporate Communications and Investor Relations for Compuware (NASDAQ: CPWR) stated, "We are very disappointed with our software sales results. In spite of our best efforts to work closely with the investment community to set reasonable and attainable expectations for the quarter, the softness of the market had a significant impact on our results. Once again, we had several large deals that did not come in at the end of the quarter."

User Recommendations

These companies are direct competitors, and are all suffering the same fate in the stock market. This indicates to TEC that it is the general market that is in a downturn, and not necessarily the software firms themselves. Customers should continue to evaluate software from these companies, while keeping a watchful eye on their market capitalization. In particular, Computer Associates has been fond of acquiring competitors (most recently Platinum Technology and Sterling Software, the two largest software acquisitions in U.S. history). Either BMC or Compuware could be next if they are not careful.

 
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