should be a good Q...
By David Bank Staff Reporter
SAN FRANCISCO -(Dow Jones)- Most software companies are expected to report strong results for the third quarter, riding trends of Internet growth and the spread of Microsoft Corp.'s Windows NT operating system.
"The sector is still very, very strong," said Melissa Eisenstat, an analyst with Oppenheimer & Co. in New York. For earnings growth to continue, she said, "NT has to keep growing and the Internet has to keep being adopted, and both of those things seem to be happening."
Microsoft (MSFT), of course, is the biggest beneficiary of both trends. The Redmond, Wash.-based company is expected to report revenue of $3.1 billion for its fiscal first quarter, which extended one week longer than usual, said David Readerman, an analyst with NationsBanc Montgomery Securities Inc. in San Francisco. That figure is down slightly from the fiscal fourth-quarter revenue, but up 35% from $2.3 billion in the year-earlier quarter. Readerman expects Microsoft to report net income of $920 million, or 70 cents a share, up 50% from the year-earlier period.
Those figures appear to belie the oft-repeated warnings from Microsoft executives that the company's breakneck growth is slowing. Readerman predicts earnings growth will indeed slow in the next three quarters, to an annual rate of 18%, and won't pick up again until fiscal 1999, when Microsoft first expects to see significant revenue from new versions of both its Windows 95 and Windows NT operating systems.
Already, sales of Windows NT, which also drives demand for Microsoft's suite of business-related applications, has become one of the main drivers of Microsoft's growth. In the fiscal first quarter, revenue from NT, including sales of both the applications and the operating system itself, is expected to top $1 billion for the first time, Readerman said. Sales of the operating system alone nearly quadrupled to 3.7 million units from about 1 million units last year, he said.
Smaller software companies are being pulled along by the sales of NT. For example, Eisenstat expects Legato Systems Inc. (LGTO), Palo Alto, Calif., which produces backup software that runs on NT systems, to post revenue of $19.7 million, up 36% from $14.5 million last year. Eisenstat is forecasting Legato's net income at $3.8 million, or 20 cents a share, up 28% from $2.96 million, or 16 cents a share, last year.
"Their NT business is on fire," she said. "I'm a bicyclist, and I call it drafting; they're drafting behind a guy who's going really fast."
Similarly, Siebel Systems Inc. (SEBL), San Mateo, Calif., which produces sales force automation products based on the NT operating system, is expected to more than double its revenue to $28 million in the quarter ended Sept. 30, from $11.2 million a year ago, Readerman said. He forecasts net income of $4.3 million, up 170% from $1.6 million in the year-earlier period. "It's helping pull-through NT into corporate installations," he said.
Quarterly results from Netscape Communications Corp. (NSCP) will be scrutinized for evidence that the Internet is indeed driving software sales. Readerman of Montgomery Securities said he expects Netscape to report revenue of $145 million, up 45% from $100 million a year earlier. He projects net income of $10 million, or 11 cents a share, up 30% from $7.7 million, or 9 cents a share, in the year-earlier period.
The real indicator of Netscape's progress, however, will be sales of its core server software products, which has remained nearly flat and below $100 million a quarter for the past three quarters. The company has increased its revenue from consulting services and from its heavily trafficked site on the World Wide Web. Readerman said he expects software licensing fees to reach $113 million in the quarter.
"The Internet is certainly consuming a lot of discussion, but is it resulting in real financial rewards for the people who design, develop and sell this stuff?" Readerman said. "The Netscape licensing number is a key indicator of whether corporate buyers are moving from pilot intranet trials to full deployment."
While NT and the Internet are hot, an older sector - software for mainframe computing - is showing surprising durability, analysts said.
Computer Associates International Inc. (CA), Islandia, N.Y., is expected to continue its strong recovery from earlier sales problems in the European market.
"They've put a lot of management time in," Oppenheimer's Eisenstat said. "There's a strong recovery."
Eisenstat is forecasting fiscal second-quarter net income of $258.6 million, or 69 cents a share, on revenue of $1.1 billion. Those forecasts compare with revenue of $990 million and earnings of $223 million, or 59 cents a share, in the year-earlier period.
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Transmitted: 10/15/97 12:46 (L100ZRkn) |
