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Lawson Software Gets a Boost

Piper ups its rating on the firm.
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Shares of

Lawson Software


got a much needed boost Tuesday, trading up 30 cents, or 5.2%, to $6.02 after Piper Jaffray raised it to outperform.

Piper analyst David Rudow said he believes the company will be able to reduce sharply research and development expenses -- in 2004 the ratio of R&D costs to license revenue was 70%, far higher than the industry average. Rudow wrote in a note to clients that if the company can deliver on its promise to reduce total costs, it could add an additional 5 cents to 7 cents a share to his fiscal 2007 estimates.

He also believes the pending merger with


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, a Swedish software vendor, will be a plus for the company, and he said he was impressed with newly appointed CEO Harry Debes.

"Given Lawson's current low valuation, we think expectations for the company are minimal and the new CEO should be able to generate some quick operational wins that should increase the valuation," Rudow said. (Piper Jaffray does not have a current investment banking relationship with Lawson.)

Lawson has had a tough year. Before Tuesday's upward move, the St. Paul, Minn., company's stock was down 17% while software stocks, as represented by the Goldman Sachs Software Index, were off just 7%.

License revenue, a key indicator of growth, has fallen sharply year over year for four straight quarters. In the same period, total revenue growth was less than 2% a quarter.

In a recent interview with

, Debes said he doesn't expect "enormous" cost savings as a result of the merger, but the combined companies, "now behind the curve on outsourcing," will ultimately reap "huge savings" using foreign-based teams of consultants and other employees.

In at least one area, however, the company will spend more. Debes attributed the sharp decline in license revenue to previous management's decision to reduce the sales force. He said he expects to add 15 reps in the next few quarters.