CA, BMC Won't Meet Expectations

FRAMINGHAM (07/07/2000) - Software makers Computer Associates International Inc. and BMC Software Inc. this week warned of first-quarter shortfalls, which they attributed in part to weak European sales and a slump in their mainframe-management software businesses.

In a conference call to analysts this week, CA President and Chief Operating Officer Sanjay Kumar said the Islandia, New York-based company expected to earn between 11 and 16 cents per share in its first fiscal quarter ended June 30, lower than the 55 cents predicted by a First Call/Thomson Financial survey of Wall Street analysts.

In morning trading July 5, the day after CA [NYSE:CA] first announced the expected shortfall, the company's stock price at one point fell 45% from $51.13 per share to $28.50, a new 52-week low.

Paul Rodriguez, managing director of C. E. Unterberg, Towbin in New York, says CA's revenue shortfall resulted in part from IBM's [NYSE:IBM] production cycle.

"IBM has postponed shipping the G7 mainframe computer until late this year or early next" because of a change in its pricing structure, Rodriguez says. "IBM is thinking about charging for what you use, so customers are waiting to see what the [pricing] is."

On July 5, business software maker BMC [Nasdaq:BMCS] in Houston also said its profit for its first quarter ended June 30 would fall short of analysts' predictions. In a statement, BMC said it expected its net earnings to come in between $47 million and $51 million, with per-share earnings of 18 to 21 cents.

Wall Street analysts had predicted 46 cents per share.

"We experienced weakness in our mainframe business at quarter end," BMC Chairman, President and CEO Max Watson said in a statement. "We attribute the shortfall in mainframe license revenues to a lack of a sufficient number of customers committing to enterprise license transactions."

After the announcement, BMC's stock price tumbled 38% to a new 52-week low of $22 per share after starting the day at $35.50.

"We believe the mainframe weakness will persist into the fall, and possibly into [December], when G7 moves into full swing," says Christopher Shilakes, an analyst at Merrill Lynch & Co. in New York. "We think [CA's and BMC's] stocks will likely remain depressed."

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