BMCS ($32 nice~pre announce) Earnings Down But Rebound Begins
by Ilaina Jonas
NEW YORK (Reuters) - Systems management software maker BMC Software Inc. (NasdaqNM:BMCS - news) on Thursday reported fiscal third-quarter earnings that beat previously raised expectations by 3 cents, rebounding after two disappointing quarters.
But the company's new chief executive, Bob Beauchamp, said the turnaround did not stem from the recent shipping of IBM's new mainframe.
Beauchamp attributed the uptick to better sales channels from new acquisitions, good sales execution, and recovery from the ''Y2K hangover'' effects that dampened spending.
``Things kept getting better and better,'' Beauchamp told Reuters. And despite some dire predictions about corporate spending on mainframe products some earlier surveys had forecast, Beauchamp said he has not seen any ``obvious'' effects on BMC.
For the quarter ended Dec. 31, the Houston-based maker of software that helps mainframe and distributed-system computers run smoothly said it earned $58.8 million, or 24 cents a share cents a share, 44 percent lower than last year. The current figures excluded special charges and amortization of goodwill and intangible assets but included a one-time gain of 2 cents from a real estate sale.
Analysts had expected the company to earn 19 cents a share, excluding the gain, up from the 16 cents a share before the company revised its forecast Jan. 3.
BMC said it generated $385.5 million in revenues for the quarter, down from the 426.4 the same time the previous year but rebounding from the $62.5 million in the prior quarter.
It was the comparison to the previous quarter that most investment eyes were watching. Earnings were 19 percent higher than the fiscal second quarter. North American license revenue was up 20 percent from the previous quarter and International licenses rose 45 percent.
Revenues from distributed system products and services were down 3 percent from last year, but up 2 percent from the prior quarter. Finally, revenues from mainframe products and services rose 66 percent over the second quarter.
Chief Financial Officer William Austin said he believes BMC has turned the corner.
In the fiscal fourth quarter, the company expects revenue to grow $15 million to $25 million above the fiscal third quarter. Earnings before charges and amortization are expected to be in the range of 23 cents to 25 cents a share. Prior to the forecast, analysts had expected the company to earn 22 cents a share in the fourth quarter, according to First Call/Thomson Financial.
In the prior six months, revenues of BMC and its rivals fell along with the demand for mainframe products. The manufacturers attributed the sluggishness to delays in new orders pending the release of International Business Machines Corp.'s (NYSE:IBM - news) new mainframe and pricing.
About 52 percent of BMC's third-quarter license revenues came from mainframe software license sales.
Other mainframe software makers -- Computer Associates International Inc. (NYSE:CA - news) and Compuware Corp. (NasdaqNM:CPWR - news) -- have not yet reported.
However, IBM's new Z900 mainframe line launched in December and helped drive Big Blue's profits up nearly 28 percent.
But Beauchamp said he did not expect the Z900 to impact his company until the end of the first fiscal quarter or the second-fiscal quarter.
``Just because a customer takes possession of a system, doesn't mean they have increased (demand for software)'' he said. ''It means they have a box on the floor.''
The software sales don't kick in until the so-called anniversary date, the one time a year a company's mainframe capacity is reported. BMC then charges the customer by the new capacity.
That could explain why in after-hours trading, when BMC traded at $29-5/8, it lost some of the 19 percent, or $4-11/16, rise its stock saw in regular trading before earnings were released.
``I kept telling people 'You can't say IBM is shipping and now it's a pickup for BMC,' `` Deutsche Banc Alex.Brown analyst W. Christopher Mortenson said.
Still, just the buzz surrounding the shipment means the uncertainty is over and will have a positive effect on mainframe software sellers, said Robert Johnson, managing director of ABN AMRO software stocks.
``We've got that yet to look forward to,'' he said.
When the new mainframe arrives and customers call BMC, that gets a salesman and the company's menu of products through the door, he said.
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