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Research for institutional technology investors and select industry
experts from the desk of Rob Tholemeier at First Albany.
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FAC/Equities - A division of First Albany Corporation
Primary Analyst: Robert Tholemeier (212) 273-7158
Secondary Analyst: Mark Murphy
February 12, 1998
Informix Corporation (OTC: IFMX)
Price: $7 3/8
Rating: Underperform
52-wk range: $20 3/8 - $4
Shares Out: 151.6 million
Market Cap.: $1,118 million
F1995 EPS: $0.26
F1996 EPS: $(0.44)
F1997 EPS: $(1.37)
F1998E EPS: $(0.17)
F1995 REV: $632.8 million
F1996 REV: $727.8 million
F1997 REV: $662.3 million
F1998E REV: $631.8 million
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Database Revenues Spiral Down
Yesterday after the close of the market Informix Corporation reported
Q4/97 results. Total revenue was reported at $181 million compared to
our estimate of $159 million and fully diluted EPS of $0.05 was
significantly above our estimate of a loss of $0.30 and the consensus
estimate of a loss of $0.16. Primarily as a result of a lowered cost
structure for the company, we are increasing our 1998 EPS estimate to
a loss of $0.17 from a loss of $1.17.
Reported License Revenue Down 30% Year/Year; Real License Revenue Down 40% Year/Year
Reported license revenue for Q4 was $105.0 million, down 30% from
Q4/96 (restated) license revenue of $149.8 million. However, the
reported $105.0 million includes $15.1 million of customer advances in
unearned revenue. This $15.1 million is revenue reinstated from
previous restatements. "New" license revenue for Q4 was therefore
$89.9 million, down 40% Y/Y. Services revenue of $76.2 million was up
14% year/year and exceeded our estimate of $74.4 million. In
comparison to a weak Q3, "new" license revenue was up 16% sequentially
and services revenue was up 5% sequentially.
Good Progress Made in Lowering the Cost Structure
Total costs and expenses of $164.4 million were far below our estimate
of $204.0 million. Management has excelled in this area, as voluntary
attrition and other head count reductions resulted in sales and
marketing expenditures of $69.3 million versus our estimate of $97.9
million. Additionally, licensing costs were $2.5 million below our
projections; servicing costs were $4.2 million below our projections;
R&D expenditures were $3.2 million below our projections; and G&A
expenditures were $0.9 million below our projections. We think this
greatly reduced cost structure will continue into 1998; as a result,
we have increased our 1998 EPS estimates as outlined above.
Informix's cash balance improved by $60 million to $155.5 million
despite cash outflow of $48.3 million, which was counteracted by: 1)
proceeds from the sale of property in Santa Clara and 2) the private
offering of convertible preferred stock. DSOs decreased from 84 to
72, partially as a result of more focused management of the company's
receivables position.
Warnings About Q1
While management seemed happy with Q4 results, cautionary statements
were made with respect to the (current) Q1/98 quarter: Q1 is
traditionally weak, there is uncertainty in the database industry, and
Informix expects "stronger, tougher competition."
We Think There IS Saturation at the High End
Management reiterated that its focus is on the high-end of the
database market and highlighted three specific horizontal application
areas therein: 1) high-performance OLTP, 2) Data warehousing, and 3)
Web and content management. Significantly, the company does NOT see a
lack of demand, saying "[We] do not see any near-term constraint
driven by market saturation. We think this is especially true at the
high end, as [we] have defined it. This is where [we] believe the
market is growing faster than average for the database industry. That
part of the market values a highly differentiated product and
consequently there is more attractive pricing. It's where our
competitors are drifting elsewhere." This differs from our research,
which indicates that there currently is saturation at the high end,
and more importantly, we see competition heating up in this area
rather than "drifting elsewhere." Specifically, we continue to think
that the current state of saturation, as evinced by recent lackluster
database server revenue growth at Oracle (OTC: ORCL-$26 15/16-Neutral)
and Sybase (OTC: SYBS-$9 3/16-Buy), is a result of IT departments
purchasing more database licenses than they have deployed. We think
this current state of saturation will continue until enterprise
applications deployments speed up to draw down the database license
backlog.
To us it seems the competitive situation is heating up for Informix.
Informix has attributed much of its database success to DW wins in
customer sites with a different database as the corporate standard.
We think this will be difficult to sustain as users require more
"solution" oriented DW software purchases (i.e., data movement
technology, tools, services, etc.). Competition from Oracle will be
especially brutal as new DW solutions roll out this year. Sybase's
clearly articulated intent to move into data warehousing was
demonstrated yesterday by its purchase of Intellidex Systems. NCR's
Teradata is the most scaleable database out there, with 2-3x the
scaleable performance of the rest; we are seeing resurgance here. We
also expect the powerful combination of Compaq (NYSE: CPQ-$36
7/16)/Tandem/DEC (NYSE: $62) to reinvigorate the combined entities'
sales of Tandem Non-Stop SQL database on top of clustered Compaq
servers running on NT -- supported, installed, and maintained by DEC's
legions of consultants. Microsoft SQL Server (OTC: MSFT-$158 7/8),
while not at the high end, will create marketing challenges for
already-weakened Informix. On top of that, we are expecting and have
seen pressure from IBM (NYSE: $102 11/16) to make additional headway
in the open database market. The troubling thing for Informix in the
IBM offering is that IBM's universal database server can be profitably
marketed at much lower prices because of the lift from concomitant
hardware sales.
Informix's declining revenues, increased competition, and reluctance
to restructure and do additional cost-cutting make this stock
unattractive. (Management expressed plans for no further head count
reductions.) We reiterate our Underperform rating on shares of
Informix.
First Albany makes a market in shares of ORCL and SYBS.
More information is available on request.
The material herein, while not guaranteed, is based on information
believed reliable and accurate. It is not to be deemed an offer or
solicitation on our part with respect to sale or purchase of any
securities. Our corporation or its officers, directors, or
stockholders, or members of their families, may at times have a
position in the securities mentioned and may make purchases or sales
of these securities while this report is in circulation. Due to
differing disciplines and criteria utilized, our quantitative and
fundamental analysts may have differing opinions on these securities.
Should you have any specific investment questions, please contact your
First Albany Investment Executive. Our main office is located in
Albany, NY. First Albany Corporation, Member New York Stock Exchange, Inc. and other principal exchanges. Copyright ? 1997. |
