DETROIT ? Compuware, one of Michigan’s largest software developers, needs a makeover, contends Tom Taulli, author of The Complete M&A Handbook, in an article he wrote for The Motley Fool.Com blog.
Taulli wrote: Back in early July, enterprise software company Compuware gave Wall Street a jolt. The stock price plunged 20% on a weak sales forecast, and the company’s president, Hank Jallos, resigned. Now, about half of the sales force may get pink slips.
According to last month?s earnings announcement, Compuware’s fiscal first-quarter revenue fell 5.7 percent to $279.4 million, and license revenue was off 29% to $47.2 million. License revenue is critical, since it generally leads to ongoing maintenance and service fees.
Net income was breakeven, and cash flows from operations came to $37.8 million. The company has about $339.4 million in the bank.
One bright spot is Compuware’s Covisint division, which helps manage supply chains for customers such as General Motors, Johnson Controls, and CIGNA. First-quarter revenue here increased 49.3 percent to $9.87 million, and there was a profit of $630,000.
But as Compuware’s CEO, Peter Karmanos Jr., said on the conference call, the sales team “faces a serious sales-execution problem.” He even apologized to his shareholders. While he plans to attack the problem quickly, the solution will be far from easy. It often takes nine months to get a sales force productive.
In the meantime, rivals such as IBM, BMC, and Hewlett-Packard will likely capitalize on the situation. It could ultimately lead to even more revenue deterioration.
As I noted in an earlier column, there was a good amount of buyout buzz recently surrounding Compuware. And a deal may eventually happen. But in light of the problems at the company, there probably won’t be much of a premium.
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