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Warning of Earnings Shortfall Sends BMC Software Shares Tumbling

For the third quarter, BMC expects diluted earnings per share to be at least 9 cents below the consensus estimate.

Updated from 11:36 a.m.

BMC Software


threw its shares into a tailspin Wednesday by warning of an earnings shortfall for the third fiscal quarter.

The stock of the software manufacturer closed down 27 7/16, or 36%, to 49 9/16 in Wednesday trading, significantly down from its 52-week high of 86 5/8.

For the third quarter ended Dec. 31, 1999, the company, based in Houston, expects net earnings of $100 million to $110 million, or diluted earnings of 40 cents to 44 cents a share. That's at least 9 cents below the consensus estimate of 53 cents of sell-side analysts polled by

First Call/Thomson Financial

. The figures cited exclude amortization of goodwill and intangible assets.

Revenues are expected to be in the $420 million to $430 million range.

The company also announced that Rick Gardner, head of global sales, has resigned. He joined the company in 1994 from


(IBM) - Get International Business Machines Corporation Report

, where he worked for 19 years.

Max Watson, chairman, president and chief executive of BMC Software, attributed part of the shortfall to weaker-than-expected sales and profits in North America.

In a conference call with analysts, Watson specified that non-recurring issues were at the root of the problem. For instance, customers were more preoccupied with readying themselves for warding off Y2K computer problems than purchasing software. Also, Watson indicated that the sales cycle had been extended because the integration of several acquisitions during the year had resulted in a new suite of offerings from the company, with customers debating whether to renegotiate old contracts or buy a different bundle of products.

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However, analyst Melissa Eisenstat of

CIBC World Markets

believes it likely that BMC still hasn't fully integrated all its products, especially those acquired from its acquisitions of

Boole & Babbage


New Dimension Software


As for Gardner's departure, she noted that "in the best of circumstances, the company will still have to take time to hire someone new, get them firmly ensconced and get the company behind him."

Eisentat downgraded BMC from a strong buy to a hold on today's news. Her firm has not done any underwriting for the company.

BMC Software is set to release its financial results on Jan. 25, 2000.

Shares of


(ORCL) - Get Oracle Corporation Report




also fell on BMC's news. BMC is considered a benchmark company in the software sector.