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Compuware predicts 20 per cent revenue drop

Compuware predicts 20 per cent revenue drop

First it was layoffs and restructuring for global software and services vendor Compuware. Now, the company has unveiled more disappointing news: Preliminary revenue figures for its fourth quarter are expected to be $US400 million to $408 million, down more than $100 million from a year ago.

In its announcement yesterday, Michigan-based Compuware said it will take a pre-tax charge of $45 million to $55 million for the restructuring, which it spelled out on Monday. The company is closing some of its 110 professional services offices and paring its workforce of 12,000, though final numbers aren't being released until all affected workers have been notified, according to a spokeswoman.

Software licence sales are also expected to drop to between $105 million and $107 million, compared with $138.2 million one year ago, while professional services revenues are estimated to be $193 million to $195 million, down from $265.4 million a year ago, according to the company's figures.

The revenue picture for Compuware has been on a downward spiral since last year. In its fourth quarter for 2001, revenues were more than $100 million higher, at $514.5 million.

Compuware's fourth-quarter preliminary revenue figures fall short of the $445 million expected by a consensus of analysts at Boston-based First Call/Thomson Financial.

The company's difficulties, analysts say, aren't a surprise. Pat Cicala, CEO and president of software consulting firm Cicala & Associates, said that Compuware's troubles began several years ago when it charged high prices for software licensing, angering many customers and forcing them to look for alternate, cheaper applications. "Compuware started to fall prey to competitors," she said.

The company has since retreated on its earlier pricing models and often gives customers deals that would have been unheard of three years ago, she said, including higher discounts and better financing or purchasing terms.

The restructuring announced this week makes sense now, she said. "The loss of licence revenue hurt them and they had to do something," Cicala said.

David Floyer, chief technology officer at IT Centrix, a value consultancy in Massachusetts, said the old business model used by companies such as Compuware relied on expanding revenues by buying up smaller software companies, especially in the mainframe area.

The problem, Floyer said, is that the potential target firms have been tapped, leaving Compuware searching for new ways to boost revenues. Another problem is that customers are well-established with their products and don't need as many revenue-generating services.

"This is the sensible thing to do," he said of the restructuring. "The way they grew in the past was through acquisitions and there's nothing to acquire anymore."


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