Software sales may have taken a hit during the global economic slowdown, but BMC Software ( BMC) says that virtualization and cloud computing will provide plenty of upside during the coming months. "Enterprises are looking for a single platform to manage physical environments, virtual environments and cloud environments," BMC CEO Bob Beauchamp told TheStreet.com. "It needs to be inside of a single umbrella management environment; otherwise you really have some chaos." Speaking after BMC's recent analyst day, Beauchamp called this a gilt-edged opportunity for his firm, which reports its first-quarter results next month. BMC, which touts a slew of software for managing data center gear, recently clinched a deal to package its software with Cisco's ( CSCO) much-hyped UCS device. "What we sell has become very, very important -- it's driving cost out long-term," said Beauchamp, explaining that the virtual world, in particular, brings both benefits and challenges. Virtualization, which lets users divide physical hardware into multiple "virtual" chunks, is becoming more popular among those looking to juggle several operating systems and applications. The technology also is one way that budget-minded firms can reduce the amount of hardware within their data centers. For sure, users can now quickly deploy many more "virtual" than physical servers, but Beauchamp warns that this trend brings its own headaches. "You can get the utilization rates up significantly in your hardware platforms," he said. "But at the same time, the cost to manage a physical server, the administration of it, is the same, physical versus virtual."
This means that a 10-fold increase in virtual severs equals a 10-fold increase in operational expenditure, according to Beauchamp, hence the need for management software. Despite BMC's bullishness, the last few months have not been the easiest for software vendors, as evidenced by Microsoft's ( MSFT) recent fourth-quarter results. Tech behemoth IBM ( IBM) also saw its software revenue slip 7% year over year in its recent second-quarter results, and Hewlett-Packard's ( HPQ) software sales declined 15% during the same period. BMC rival CA ( CA) completes the picture, with revenue falling 4.6% year over year. As for BMC, the company's fourth-quarter cash flow and revenue came in below forecasts. "That really was just a timing issue," said Beauchamp, adding that deals came in late in the quarter. "It brought in just a few million, just a little bit, reduction in the cash that was expected, but we're going to make that up next quarter." The CEO explained that BMC's software, both mainframe and non-mainframe, is now more than a billion dollar business. Licensed bookings for the Houston, Texas-based firm's Enterprise Service Management (ESM) offerings grew more than 25% in the fourth quarter, and more than 30% in fiscal 2009, he said. BMC reaffirmed its fiscal 2010 guidance during its recent analyst meeting, reiterating its commitment to earnings between $2.37 and $2.47 a share. Analysts surveyed by Thomson Reuters are expecting earnings of $2.42 for the year. Beauchamp, however, confirmed that BMC has not baked any revenue from Cisco's UCS offering into his firm's 2010 guidance.
"I expect to see some revenue from it this year, but until we see it really move to a material amount, we're not going to let it modify our guidance," he said. "But I think, by next year, we should start seeing some revenue impact to the company." Analysts are expecting BMC to post earnings of 49 cents a share and revenue of $441.1 million when it reports its first-quarter results next week.