Compuware Shifts to Crisis Mode - TheStreet

Compuware Shifts to Crisis Mode

The stock plunges after a profit warning attributed to a lazy sales staff.
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Compuware

(CPWR)

shares took a high dive Wednesday,

following a warning that quarterly sales contracts failed to materialize.

Detroit-based Compuware said late Tuesday that it expects first-quarter revenue of about $278 million, 8% short of analysts' expectations for $303 million. It now expects break-even earnings per share; analysts had expected a profit of 11 cents a share.

"I want to remind our investors that Q2 is a difficult quarter, and we will still be in the process of restructuring the business," Chairman and CEO Peter Karmanos said in a conference call Tuesday after the announcement.

Shares dropped $2.53, or 20.8%, to $9.64 in recent Wednesday trading.

Karmanos attributed the warning of "a ridiculously bad quarter" to failure to close product licensing deals during the quarter. "We have a group of salespeople that don't work really hard. You can't win in this business unless you understand it's a 50- to 60-hour work week."

Karmanos, who is taking over leadership of the product sales team, announced the resignation Tuesday of Hank Jallos, a 20-year veteran, who had headed the product division. Karmanos said the company will cut costs by $90 million to $100 million in the quarter, primarily from sales and marketing, where many salespeople failed to make quotas. The company had previously reduced the sales team by some 60 people, bringing the head count down to 430 at the beginning of the first quarter.

He said the sales team may yet be reduced by half, with the top performers inheriting bigger territories. He will also adjust base pay downward, while increasing the commission upside.

"Top performers will be delighted and want bigger quotas and larger territories," Karmanos said. Sales quotas may be raised by 50%.

Karmanos defended the company's product line, consisting of mainframe and distributed software products for enterprise, saying, "We have three of the hottest distributed products in the business. It's a sales execution problem, not a technology problem."

The fact that one salesperson of the Vantage business service management product had made his annual quota during the quarter indicated that earnings failure in the period was not due to any weakness in the product, he said.

"

IBM

(IBM) - Get Report

is not winning on any of the mainframe" deals, and "Mercury

IT management software is going to sleep since it's gone to

Hewlett-Packard

(HPQ) - Get Report

," Karmanos said.

Compuware's Covisint subsidiary, which develops information management software for industry verticals, "had a tremendous quarter," he added.

Karmanos said the company will move to issuing a universal contract, or perpetual license, allowing unlimited software upgrades -- a competitive advantage its competitors have had over Compuware, from a customer perspective.

Chief Financial Officer Laura Fournier said the company had bought back 4.8 million shares for $48 million during the quarter. Karmanos said buybacks would continue.