To: Johnny Canuck who wrote (28641 ) 10/4/2000 12:19:52 PM From: Johnny Canuck Read Replies (1) | Respond to Mainframe Warnings : In a repeat performance from JunQ, both Computer Associates (CA) and BMC Software (BMCS) have warned that SepQ will also come in lower-than-expected. However, CA is trading up over $1 in a weak tech market and BMCS is down only 1/2. That the companies would pre-announce was expected. The issue was by how much each would miss. Computer Associates expects to earn $0.50-$0.54 in the quarter which was not a huge miss from the $0.56 consensus, whereas, BMCS had more of a miss as the company is forecasting a $0.10-$0.12 profit vs consensus of $0.25....Last time, CA attributed the shortfall to poor European sales and lower-than-expected sales growth from its system-management software causing a severe drop in operating margin to 22%, down from 54% in the previous qtr. As for this quarter and next, uncertainty over mainframe software pricing continues to be a problem for the sector. Specifically, the shortfall at BMCS was as a result of its not getting enough customers for its larger transactions. Going forward, analysts are expecting a so-so December qtr with significant improvement expected in the March 2001 quarter...For these stocks to return to favor, we believe the they need to become less back-end loaded and focus more strongly on the subscription-oriented business models whereby larger transactions are generally recognized over multiple quarters or years which should help to reduce the choppiness in the quarterly reports. Smaller players in the software space are doing just that and are being rewarded with higher valuations. Investors are not willing to assign higher valuations when there is more uncertainty with the likes of BMCS and CA that rely on a higher percentage of large transactions that close at quarter end. Smaller stocks with exposure to this sector are Compuware (CPWR) and NEON Systems (NESY). -- Robert J. Reid, Briefing.com
