Bear Stearns Downgrades BMC, Tibco On Weak IBM Quarter

One of the clear takeaways from IBM’s (IBM) third quarter results was that the enterprise software business is looking soft. While revenue grew modestly on a reported basis, Bear Stearns software analyst John DiFucci notes that on an organic, constant currency basis, the company suffered a 2% decline overall in software revenue in the quarter, and a 5% drop in middleware revenue.

In particular, IBM cited slippage of large deals in the U.S. financial services industry, no surprise given recent turmoil in the mortgage and credit markets, but sobering nonetheless.

DiFucci Wednesday downgraded the software sector to Underweight from Market Weight, asserting that valuations “have become stretched” given only modestly improving IT spending and increased risk for 2008 “due to the likely reset of IT budgets for the financial services vertical and potential macro issues.” Translation: lenders will likely spend less on tech, and the economy is slowing.

In particular, DiFucci downgraded shares of both BMC Software (BMC) and Tibco (TIBX) to Underperform from Peer Perform.

BMC, he notes, has “appreciated significantly” - about 17% - from early August through Tuesday’s close. He worries that the weak mainframe sales IBM reported Tuesday could weigh on BMC, in addition to the softness in enterprise software sales. DiFucci says he calculates fair value for the stock at about $25.

Tibco shares jumped recently following Oracle’s (ORCL) bid for BEA (BEAS), on the theory that it might be the last decent-sized target left in middleware. But DiFucci says that the weak IBM results in middleware suggests trouble for Tibco as well. He notes that financial services companies have accounted for as much as 30%-40% of Tibco’s revenues in some quarters over the last few years. DiFucci says he sees 13%-26% downside in the stock from Tuesday’s closing price of $8.75.

DiFucci maintains Buy ratings on just two stocks: Oracle and VMware (VMW).

Comments

[DanielJacome]

whatever, sell side.

The Jan 2008 10 strike calls for TIBX are going for 30c, on the ask. Tempting, that is 2 months out, going for 30c, and the upside on the common to be @ the $ is a 25% move from here. Someone SERIOUSLY thinks TIBCO will be acquired by the 3rd week of January....