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.