BMC Software crumbles on profit warning

BMC Software Inc. (Nasdaq: BMCS) said Wednesday it would earn less than half what analysts were predicting for its first quarter due to weakness in its mainframe business.

Shares were down 12 1/16 to 23 7/16, or 34 percent Wednesday. Weakness in mainframe software business also dinged competitor Computer Associates (NYSE: CA), which said it will miss first quarter earnings.

The theory is that customers have become skittish about possible changes to IBM Corp.'s (NYSE: IBM) System 390 mainframe business. There is speculation that IBM may be working on an architecture update or a revamp of the pricing model.

BMC CEO Max Watson told analysts Wednesday that mainframe revenue had dropped more than 30 percent from the year ago quarter. He said demand for MIPS-based enterprise license transactions were well below estimates. MIPS, or millions of instructions per second, is a measure of demand for mainframe computing capacity.

But while Watson acknowledged the mainframe concern, he said the company still needed to review its numbers before placing the blame solely with that.

"I don't want to lay it at the foot of any particular cause," he said.

"Generally speaking, historically, we have not seen a near time uptick or downtick based upon IBM hardware (changes)," he said.

The company now expects revenues for its first quarter ended June 30, 2000 will be between $365 million and $375 million, below estimates, and below last year's first quarter revenue of $400.7 million

Net earnings are estimated to be in the range of $47 million to $51 million -- below last year's net earnings of $105.3 million. Diluted earnings per share are expected to be between 18 and 21 cents a share, well last year's earnings of 42 cents a share. The figure is also less than half of First Call Corp.'s consensus estimate of 49 cents a share.

Both earnings figures exclude amortization of goodwill and intangible assets.

The company said it depends each quarter on a high percentage of license revenue closing in the last days or day of the quarter, but experienced weakness in its mainframe business at this quarter's end. It attributes the shortfall to a lack of customers.

BMC expects to release complete results for the first quarter on July 25. Aside from Computer Associates, the company competes with Compuware (Nasdaq: CPWR) and IBM (NYSE: IBM).

Margaret Kane contributed to this report.