Symbol (Nasdaq): BMCS
52-Week Range: $86.63-$16.13
Price on August 3: $18.63
Market Capitalization: $4.59 billion
When the stock of the fifth-largest computer software company in the world plummets like a wounded quail, losing 75 percent of its value since January and 50 percent in July alone, you know that a bad current earnings report isn’t its only problem.
Not that the earnings of BMC Software aren’t awful. On July 25 the Houston maker of software for mainframe computers reported that in its fiscal first quarter, which ended June 30, earnings per share decreased 52 percent, to 20 cents, compared with the same quarter last year. That’s less than half the 46 cents per share financial analysts polled by First Call/Thomson Financial were expecting before BMC warned on July 5 that first-quarter earnings would fall precipitously.
But a greater cause for concern, say many analysts, is that the reason BMC’s management gave for the shortfall—a slowdown in demand for mainframes and consequently the software needed to run them—can’t fully explain why the company’s latest quarter was such a wipeout.
BMC and fellow software giant Computer Associates International, which also reported lower earnings this quarter, laid much of the blame on sagging demand for mainframe software, resulting from the delay of the release of IBM’s next-generation mainframe platform. Both companies said major customers were putting off software purchases until Big Blue ships the new hardware later this year. “You need to have the hardware to run the software,” explains Raymond Paquet, an analyst with the Gartner Group, an information technology research company in Stamford, Connecticut. “Usually you buy the hardware first.”
But the market clearly does not believe that the delay alone accounts for the depths of last quarter’s shortfall. (Total revenues in the first quarter were $372.7 million, a 7 percent decrease from $400.7 million in the same quarter of fiscal 2000.) Bert Hochfeld, a software analyst with the investment bank Josephthal and Company in New York, who admits to being perplexed by BMC’s dismal overall performance, says the company’s management appears baffled as well. He downgraded the stock to “hold” from “buy” and lowered his earnings per share estimates for fiscal 2001 to $1.61 from $2.21 and for 2002 to $2.02 from $2.72.
Paquet insists that the company’s problems go far beyond the mainframe malaise and include indigestion from two large acquisitions made in 1999, a bumpy sales force reorganization, overselling in the previous quarter to make up for an earnings shortfall in the