TIBCO Announces Results That Are 'Better Than Worse Than Expected'

  • Written By: M. Reed
  • Published: April 16 2001

TIBCO Announces Results That Are 'Better Than Worse Than Expected'
M. Reed - April 16, 2001

Event Summary

TIBCO Software (NASDAQ: TIBX) is the latest software vendor to report that they are following a new trend in the stock market: reporting results that exceed lowered analyst expectations. Analysts had expected TIBCO to earn 3 cents per share, down from the 8 cents per share that they originally projected. TIBCO had only recently revised its guidance, on March 7. In the end, TIBCO reported pro forma results of 6 cents per share, up from 1 cent per share for the first fiscal quarter of 2000.

TIBCO had pro forma operating income for the first fiscal quarter of $3.5 million, up from $153,000 for the first fiscal quarter of 2000. TIBCO had pro forma net income of $12.4 million, up from $1.3 million for the first quarter of the prior year. According to Vivek Ranadiv, chairman and CEO of TIBCO Software "TIBCO's fundamental business remains strong. Our customers and partners are leaders in their industries, our technology is essential to the success of our customers' business, and our balance sheet is solid. Despite the slowing economy, we nearly doubled our revenue over the same quarter last year. We remain critical for our customers' success by providing infrastructure software that enables them to improve operating efficiencies, reduce costs and capitalize on new revenue opportunities."

During the quarter, TIBCO added 111 new direct customers and announced new or expanded business with companies including FedEx Corporation, Chevron, Procter & Gamble, and Delta Air Lines. In addition, the vendor released 17 new products or versions of products in the first quarter, including XML Canon/ Developer, TIB/IntegrationManager 2.0 and a number of new adapters to leading packaged applications.

Market Impact

This announcement by TIBCO follows closely on the heels on a similar announcement by Oracle on March 15. Many other vendors have also met the same fate. It is becoming impossible for them to predict what confidence level should be assigned to their sales pipeline since the economy is so skittish. Perhaps the current environment for software vendors was best described by Oracle CFO Jeffrey O. Henley, who stated "The U.S. economic downturn over the past several months clearly affected our revenue and profit growth more than we anticipated, due to a sharp downturn in completed transactions in the last few days of the quarter, and the current economic uncertainty continues to limit our visibility going forward."

User Recommendations

Customers evaluating large software packages have a strong advantage at this point. It has always been true that vendor sales representatives are under increased pressure to close deals as the end of a quarter or fiscal year approaches. With the market downturn and the recent tendency of companies to defer large purchases until later in the year, a substantial bargaining chip can be gained just by agreeing to sign on the bottom line. Prospects should be able to negotiate serious pricing concessions from vendors, including payment terms and licensing and maintenance agreements.

It is clear that a savvy customer can negotiate much better terms right now than a free coffee mug and a tote bag. Some suggestions for further arm-twisting beyond just getting the product for a lower license cost would include:

  • Eliminate "named user" pricing and replace it with "concurrent user" pricing. This can greatly reduce overall costs over time, especially if many users are casual and do not spend much time connected to the software. Vendors much prefer the named user model because it can greatly increase their profit margin. They will be loathe to eliminate it.

  • Eliminate the first year (or more) of product maintenance (generally priced at 15% of product cost, per year).

  • Negotiate for free training and on-site classes (beyond what the vendor may already include) for both end-users and administrators.

  • Eliminate the cost of consulting for initial installation and testing.

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