Computer Associates, BMC Predict Q1 Shortfall

FRAMINGHAM (07/05/2000) - Software makers Computer Associates International Inc. and BMC Software Inc. are both warning of earnings shortfalls due in part to weak European sales and a slump in their mainframe businesses.

The soft mainframe sales are at least partially connected to delays in shipments of big iron from IBM Corp.

On Monday, Islandia, New York-based CA announced that it expected that results for its first fiscal quarter, which ended June 30, would fall short of analysts' predictions. The company said it expected revenue of $1.25 billion to $1.3 billion, compared with revenue of $1.22 billion for the same period last year.

In a conference call with analysts today, CA President and Chief Operating Officer Sanjay Kumar said that, excluding gains, charges and amortization, the company expected to earn 11 cents to 16 cents per share for the period, far less than the 55 cents predicted by a survey of Wall Street analysts by First Call/Thomson Financial. The company said it would report first-quarter results on July 20, after the market closes.

Wall Street hammered CA's stock in trading this morning, dropping the value of its shares 45%, from $51.13 to $28.50, a 52-week low.

Kumar said part of the company's problems stemmed from its inability to nail down several large contracts that were expected to close by the end of the quarter.

Paul Rodriguez, managing director of C.E. Unterberg, Towbin in New York, said CA's revenue shortfall resulted, in part, from IBM's revised mainframe 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 said.

"IBM is thinking about charging for what you use, so customers are waiting to see what the [new pricing structure] is. They're saying they want to cut the same deal with CA as with IBM."

Today, Houston-based BMC also said its profits for the first fiscal quarter, ended June 30, would fall short of analysts' predictions. In a statement, BMC said it expected its net earnings to come in at $47 million to $51 million, with earnings per share of 18 cents to 21 cents. A year ago, BMC had earnings of $105.3 million, or 42 cents per share. Wall Street analysts had predicted 46 cents per share.

BMC also said its revenue would be anywhere from 6.5% to 9% lower than the same period a year ago, from $400.7 million last year to $365 million to $375 million this year.

"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, shares of BMC tumbled 38% to a 52-week low of $22.00, after starting the day at $35.50.

"BMC indicated that, like CA, its mainframe business is the reason for the shortfall," said Christopher Shilakes, an analyst at Merrill Lynch Global Securities. "We believe the mainframe weakness will persist into the fall, and possibly into [December], when G7 moves into full swing. In our view, this is more than a first-quarter issue. We think both stocks will likely remain depressed."

Shilakes added that he didn't think the weakness in the mainframe business would extend into e-commerce companies, because they are positioned in more dynamic markets.