Computer Associates International Inc. (CA), which makes software for
mainframe and server computers used by big businesses, also is expected
to post strong June-quarter results. Analysts expect the Islandia, N.Y.,
company to report earnings between 32 cents and 35 cents a share,
compared with 28 cents a share a year ago, on revenues of slightly over $1
billion.
Brosseau of SG Cowen, who expects earnings of 34 cents a share, said
Computer Associates is benefiting as companies shift big projects from
mainframe computers to smaller, more versatile computers known as
servers. Instead of a few computers in a central room staffed by experts,
companies may have 200 servers scattered around the globe, controlled by
Computer Associates software. Even as it shifts away from its traditional
mainframe business, Computer Associates is gaining market share for
servers, Brosseau said.
Computer Associates' results for the March quarter satisfied investors that
the company didn't suffer from its failed $9.8 billion takeover of Computer
Sciences Corp. (CSC). Computer Associates wanted Computer Sciences
for its service and consulting business. Analysts now expect Computer
Associates to develop its own service business, augmented by small,
targeted acquisitions.
"Demand for that kind of work is very high right now," Galvin, of
Hambrecht & Quist, said.
Acquisitions are a central part of the strategy at Network Associates Inc.
(NETA), a rapidly growing Santa Clara, Calif.-based maker of security
and management software. Formed last year by the merger of McAfee
Associates Inc. and Network General Corp., Network Associates has
completed three acquisitions and announced a fourth in the past eight
months. But analysts say the mergers aren't impeding Network Associates'
performance.
Mary McCaffrey, at BT Alex. Brown Inc., expects the company to report
operating earnings for the second quarter of $51 million, or 40 cents a
share, compared with 28 cents a share for the same quarter last year, on
revenues of $210 million, up from $145 million. The earnings and revenue
estimates are adjusted for mergers, but don't include charges Network
Associates will take for the acquisitions of Trusted Information Systems
and Secure Networks Inc. Network Associates' pending acquisition of Dr
Solomon's Group PLC won't be completed until the September quarter.
"They're in a very comfortable position as the quarter ends," McCaffrey
said. "They continue to put up numbers and beat (Wall Street's) numbers a
little bit."
The acquisitions have helped Network Associates broaden its offerings
from its core antiviral software to programs that help companies manage
their networks. Sooner or later, several analysts said, that will bring the
company into competition with Computer Associates.
"Network Associates and CA are heading for each other," said Paul
Dravis, of NationsBanc Montgomery Securities Inc. "They're coming at it
from very different positions...but they're both very energetic."
Analysts cited several reasons why software companies have avoided the
profit problems plaguing hardware manufacturers: Improving technology
isn't forcing down prices; there is less inventory that loses value while it
waits for a buyer; and more complex computers require more sophisticated
software. In fact, analysts said plunging computer prices may help software
companies, by spurring computer sales and by giving buyers more money
to spend on software.
"The lower the hardware price, the better it is for Microsoft, because
(computer makers) are going to ship more units," said Sherlund, of
Goldman Sachs. "The more units, the more software that's sold."
-Scott Thurm; 201-938-5099 |
