Upbeat BMC Software Sees Mixed Impact from HP/EDS Deal

BMC Software (BMC) CEO Bob Beauchamp says his company is not seeing any impact on its business from the slowdown in the economy. And in fact, BMC late yesterday reported strong results for its fiscal fourth quarter ended March (see earnings call transcript), and provided an upbeat outlook for fiscal 2009. The strong results have triggered a nice move by BMC’s shares this morning.

“We had an outstanding quarter, and an outstanding year,” Beauchamp said in an interview with Tech Trader Daily late yesterday. He notes that the company has now met or topped revenue and profit guidance for 12 quarters in a row. He says BMC had strength on both license revenue growth and license bookings; the company outperformed expectations in maintenance revenue and in its mainframe software business. And he notes that the company was able to keep expenses flat.

As noted, Beauchamp says BMC has not experienced any effects from a weakening economy. “We’ve been waiting to see if we would have deals slip or go away, and it hasn’t happened,” he says. “Last quarter, many of our best transactions were with financial services companies.” Beuachamp notes that the company, which typically signs multi-year licensing deals, will have a fewer than usual number of contracts in financial services coming up for renewal, which could work to its advantage if IT spending in the sector weakens.

Beauchamp says IT managers see the company’s IT process optimization tools as a way to drive down labor costs. He also says the current downturn is far different from the one that hit IT spending so far in March 2000: this time, you don’t have the same kind of excess capacity which many companies had in the bubble years. “No large companies have fallen into that trap,” he says.

Beauchamp says he expects continued expansion of the company’s operating margins, which have increased by 600 basis points in each of the last two years. BMC’s operating margin was 29% in the March quarter, and 28% for all of fiscal 2008; he expects the number to top 30% in fiscal 2009, reaching the low-to-mid 30s in three years.

Meanwhile, Beauchamp says the pending acquisition of Electronic Data Systems (EDS) by Hewlett-Packard (HPQ) will have a mixed impact on the company. He sees three ways it will affect BMC’s business. The negative impact, he says, is that EDS has partnered with BMC and used its software in some deals, sometimes replacing already installed HP software. That business will go away. On a more neutral note, he points out that EDS is “a huge mainframe environment,” and will be in good position to sell them software which they otherwise might have purchased from IBM. (The EDS deal seems squarely aimed at increasing HP’s competitive position against Big Blue.) But the real advantage for BMC, he says, is that systems integrators will now view HP as a direct competitor. “I’ve spoken with senior executives from four large tech firms in the last week, and it is safe to say that they all see it this way,” he says. Beauchamp thinks that should give BMC an edge in situations where its software had competed head-to-head with offerings from HP.

Beauchamp says he’s not surprised that HP decided to buy EDS. “I was surprised at how long it took,” he said “It’s been clear that their strategy is to take IBM on. There approach is ‘let’s mimic IBM.’” He thinks HP’s next move will be to acquire more capability in systems integration, to compete with IBM’s 2002 purchase of PWC Consulting.

BMC today is up $1.42, or 3.9%, to $37.85.

Comments

[Analystpats]

Does HP needs a consulting arm to take on IBM is still yet to be watched. HP has evolved from hardware company to a software and services firm. Still IBM has a strong edge over HP due to its PWC consulting wing. The benefits of this has been reaped...however, with some analytical BI services in HP's portfolio might counter for IBM-HP's gap. It may also aquire some business intelligence vendor to full fill its strategy. IBM has done its purchase of Cognos recently. SAP has done its Business Objects...so who is next is yet to be seen?