CA, BMC See Shares Dive in Wake of Profit Warnings

SAN FRANCISCO (07/05/2000) - Computer Associates International Inc. and a smaller rival, BMC Software Inc., each saw their share price plummet about 40 percent Wednesday after issuing warnings that their upcoming financial results would fall short of expectations.

Both vendors cited an expected decline in the sale of software products sold with mainframe computers. In particular, CA said a new version of IBM Corp.'s mainframe due later this year may have caused some anxiety among customers and led them to delay purchases.

CA's shares ended the day Wednesday at US$29.31, down 43 percent from their previous close. BMC ended the day at $21.31, a drop of about 40 percent. CA was the most heavily-traded issue on the New York Stock Exchange, while BMC shared the same dubious honor on the Nasdaq exchange.

In a conference call Wednesday afternoon, Sanjay Kumar, CA's president and chief operating officer, said three factors led CA to revise its expectations for the period -- a handful of larger sales fell through towards the end of the quarter; CA's sales team in Europe continued to underperform; and OS/390 mainframe sales were slower than expected.

In particular, some of CA's customers were "nervous" about an upgraded mainframe computer, dubbed G7, due from IBM later this year, Kumar said. The new hardware may be accompanied by a new pricing structure, according to Kumar, although he added that he hadn't heard this directly from IBM.

"We started hearing stories of industry analysts telling people the (OS/390) architecture is going to change, (so) hold up," Kumar said. One large customer called the CA chief looking for his personal assurance that the new hardware wouldn't "radically change the way we do business with OS/390," Kumar added.

An IBM spokeswoman Wednesday declined to offer any details about the new hardware from IBM, although she confirmed that an OS/390 upgrade is due in the September/October time frame.

BMC executives chose not to speculate on why orders for its mainframe software have declined. "We're still peeling back the skin of the onion," a company spokesman said.

CA announced Monday that sales for the first fiscal quarter of 2000 would likely be between $1.25 billion and $1.3 billion. This would be only slightly better than the $1.22 billion for the first quarter of last year. Earnings per share excluding amortization and one-time gains is likely to be in the region of 11 cents to 16 cents, Kumar said Wednesday. Wall Street had been hoping for a profit of 55 cents a share when the company reports its results July 20, according to analysts polled by First Call/Thomson Financial.

Meanwhile, Wednesday, BMC said revenue for its first fiscal quarter would be in the range of $365 million to $375 million, down from $400.7 million last year.

Diluted earnings per share are expected to be 18 cents to 21 cents, compared with analyst expectations of 46 cents per share. BMC's results are due July 17.

Not surprisingly, both companies took a beating from the investment community.

Among the nine investment banks that downgraded CA Wednesday, Banc of America Securities and J.P. Morgan & Co. Inc. each dropped the company from a "Buy" rating to "Market Perform," while Morgan Stanley Dean Witter & Co. downgraded CA from a "Strong Buy" to "Out Perform." BMC also saw its stock downgraded by several analysts.

"I'm very sorry to disappoint, it's not something we expected to do," Kumar said in Wednesday's teleconference. The company is taking a hard look at its sales force in Europe, which has been underperforming for several quarters, and expects to make further changes there, he said.

Looking ahead, Kumar wasn't much more upbeat about CA's next financial quarter.

The company hopes to see growth of 20 percent year-over-year in its mainframe business, down from its previous estimate of 25 percent growth. While Kumar is confident that mainframe sales will pick up in the longer term, "the issue is what happens in the interim," he said.

The news from two of its software partners -- CA and BMC -- also didn't help IBM's share price. Big Blue saw its shares on the New York Stock Exchange close Wednesday at $105, down 4.1 percent.

CA, in Islandia, New York, can be reached at +1-516-342-5224 or at http://www.cai.com/. BMC, in Houston, Texas, can be contacted at +1-713-918-8800, and on the Web at http://www.bmc.com/.

(Marc Ferranti in New York and Rick Perera in Berlin contributed to this report.)

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