To all: This on the Sybase rumor from the Motley fool.
FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
Sybase Rumor Mill
The second-largest publicly held vendor of database software Sybase Inc.
(Nasdaq:SYBS - news) , a member of the database industry triumvirate
alongside Oracle (Nasdaq:ORCL - news) and Informix (Nasdaq:IFMX - news)
, moved up $1 1/16 yesterday -- or 15.3%. Today the gains continued as
Sybase rose $5/8 to $8 5/8 by midday. While there was a dearth of news
on the back-to-back price movements, the rumor mill has been churning
out a healthy amount of speculation that Computer Associates (NYSE:CA -
news) is looking to bring Sybase into its software family. If this is
the case, then Computer Associates must be preparing to deal with a very
delinquent child.
Period EPS IBES est
98:2 -0.076
98:1 -1.01 -0.10 *w/out restr. charge ($0.37)
97:4 -0.32 -0.05
97:3 -0.08 -0.06
97:2 -0.23 -0.06
97:1 -0.08 0.00
Sybase has managed to disappoint investors since late 1997, when
excitement surrounding a potential turnaround peaked with a third
quarter earnings report that only missed estimates by $0.02. Computer
Associates, on the other hand, is the leading independent supplier of
systems management software and is benefiting from very strong growth in
the systems management market. Consulting firm International Data Corp.
expects that the overall systems management software market was roughly
$10.6 billion in 1997 and should grow at least 16% annually to $18.9
billion in 2001, with the open systems portion of the market like Unix
products likely to grow 24% annually to over $5 billion and Windows NT
products likely to jump 55% annually to nearly $3.5 billion. As well, ID
C sizes the distributed operations management market -- which includes
storage management -- at $2.95 billion in 1997 and projects growth of
24% annually to $6.65 billion in 2001.
The central issue with Computer Associates buying Sybase -- aside from
the present enterprise cost of around $650 million -- is the return on
invested capital that it can get out of the business in comparison with
its existing projects. Computer Associates has already made substantial
investment in its own object database with an integrated development
environment called Jasmine (which helped bring up SG&A in 1998 to 37% of
revenues). Indeed, the investment seems to be paying off in growth terms
-- in its most recent quarter Computer Associates reported that
client/server revenue hit 44% of total compared to 24% three years ago
thanks to Unicenter and the opportunities available with Jasmine.
Computer Associates could be buying a potentially cheap installed base,
but considering that Sybase's core database product, "adaptive server,"
has lagged its primary competitors for quite some time, it's difficult
to see why Computer Associates would do the deal.
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