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TheStreet Open House

Business Not Bad for Three Software Makers

Three companies that make software for business were rising Wednesday after turning in better-than-expected quarterly results and voicing optimism about the current year.

Computer Associates (CA), Compuware (CPWR) and SAP (SAP) tacked on nice gains as investors eyed a turnaround for the commerce applications sector.

Computer Associates rose 2% to $35.83 after reporting a 68% increase in pro forma net income to $417 million, or 71 cents a share. Thomson Financial/First Call had been looking for a profit of 60 cents.

Cost Cuts

Analysts said the upside surprise came from lower marketing costs, which hit just $457 million, compared with some estimates of $559 million.

"Due to the improvements in operating margin, we are raising our fiscal 2002 and 2003 earnings projections but leaving our revenue estimates essentially unchanged," said George Godfrey, an analyst at ABN Amro.

Under generally accepted accounting principles (GAAP), net losses totaled $231 million, or 40 cents a share, compared with a loss of $342 million, or 59 cents a share, in the same period a year ago. Revenue fell to $749 million from $783 million a year ago, but sales from subscription-based fees, software and other fees rose 61% to $338 million.

In a conference call, CEO Sanjay Kumar said he expects to report a fourth-quarter operating loss of between 4 cents and 5 cents a share on revenue of about $770 million, under generally accepted accounting principles.

Encouraging

Software maker Compuware also delivered solid results last quarter, topping analysts' estimates by 2 cents amid strong growth in mainframe software. The firm posted fiscal third-quarter earnings of $49.3 million, or 13 cents a share, excluding charges, compared with $46.7 million, or 13 cents a share, last year.

Including charges, net income fell 17% to $29.8 million and revenue slid 9% to $450.6 million. Still, software license revenue grew 44% from the previous quarter, which was considered an encouraging sign by analysts. In addition, Compuware said it expects earnings of between 15 cents and 17 cents a share in the fourth quarter, above the current estimate of 14 cents.

Fiscal first-quarter earnings are seen in a range of 12 cents to 14 cents, while second-quarter earnings are expected to hit between 13 cents and 15 cents a share, according to the company. Analysts were looking for 12 cents in the first quarter and 13 cents in the second.

Compuware had jumped 6% to 13.23 in recent trading.

Business software giant SAP added to the positive tone, saying that fourth-quarter sales increased 7% to 2.32 billion euros, meeting consensus estimates. Analysts were also impressed with the firm's license revenue growth, which rose 3% in the U.S.

The company noted that earnings rose slightly to 379 million euros, or 1.21 a share, from 375 million euro, or 1.19 a share, last year. Still, including charges, fourth-quarter operating income fell 8% to 613 million euros.

The stock had risen 5% to 36.08 around midday Wednesday, but some analysts were cautious about the outlook for the company.

SAP said it expects 2002 to be "another challenging year, as software sales trends continue to be unsettled in a tough economic environment." Still, it also said it expects revenue to grow by about 15%, "with stronger software license sales coming in the second half."

Wall Street will be closely watching the results of Siebel Systems (SEBL), which reports after the bell Wednesday and is expected to earn 9 cents a share. Its stock was up $2.47, or 7%, at $35.11 ahead of the news. Also due out later is Blue Martini (BLUE), which is expected to lose 11 cents a share. Blue Martini's shares were losing 10 cents, or 3.8%, to $2.55 in recent trading.

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