Compuware Warns of Revenue, Earnings Shortfalls

Compuware issued a warning that financial results for its second fiscal quarter will be below expectations, citing an anticipated shortfall in license fees from sales of its mainframe software. That marks the third straight quarter in which Compuware has failed to meet the consensus earnings expectations of Wall Street analysts.

The Farmington Hills, Mich.-based software vendor said revenue for its second quarter, ended Sept. 30, are expected to come in between $US474 million and $US487 million, off sharply from $US568 million in the same three months of last year. License-fee revenue is likely to range from $US100 million to $US105 million, less than half the $US212 million recorded in the year-earlier second quarter, Compuware added.

Second-quarter maintenance revenue is expected to be $US110 million to $US115 million, the company said, while revenue from professional services is likely to total about $US267 million. Earnings should total 4 cents to 6 cents on a per-share basis, less than half what analysts were projecting for the second quarter. The final results are due Oct. 19.

"Quarterly revenues were lower than expected due to a shortfall in software license sales," said Compuware spokeswoman Beth Chappell, in a statement. "We are not satisfied with these results." Compuware still believes its product strategy is on track, Chappell added. But the company needs to "successfully complete our transition from a large-deal oriented sales force to a high volume, transaction-oriented sales model," she said. "Execution is everything."

Part of the company's problems this quarter may have been caused by users who put off signing multiyear software license deals in anticipation of new pricing options being offered in connection with IBM's just-announced 64-bit Z900 mainframes (see story), said David Floyer, an analyst at Mountain View, Calif.-based consultancy IT Centrix Inc.

The new IBM systems not only provide nearly twice as much performance as previous mainframes but also support a new usage-based software pricing model called Work Load Pricing, which promises to make software licenses less expensive and more manageable over the next few years.

"A lot of people are going to be extremely reluctant [about] getting into long-term software license deals without first taking a look at the new option," Floyer said. "There's going to be a lot of reassessment of pricing models." As a result, he predicted, other mainframe software vendors are likely to see similar license-fee slowdowns in the next few months.

Floyer and other analysts pointed to the same reason when Computer Associates International Inc. and BMC Software Inc. stunned users and analysts in July by issuing similar warnings of lower-than-expected revenues for this year's second calendar quarter.

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