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BMC Software drops on earnings warning

Shares plummet after the maker of software that manages computer systems says its third-quarter earnings will fall below expectations.

Shares of BMC Software plummeted about 35 percent today after the maker of software that manages computer systems said its third-quarter earnings will fall below expectations.

BMC stock fell 27.44 to 49.56.

Several analyst firms downgraded BMC's stock after company executives announced that it would make a third-quarter profit of $100 million to $110 million, or 40 cents to 44 cents per share. Wall Street analysts had predicted earnings of 53 cents per share.

For the fiscal third quarter ended Dec. 31, BMC expects to report revenue between $420 million and $430 million, below analysts' expectations of $444 million to $468 million.

Merrill Lynch lowered the firm's rating from "buy" to "neutral," while Standard & Poor's Equity Group dropped BMC's rating from "buy" to "hold."

In a conference call with financial analysts, BMC executives said the company failed to close several big sales deals in North America this winter.

Analysts believe BMC is having problems integrating two companies it recently acquired: mainframe software maker Boole & Babbage and management software maker New Dimension Software.

"The company didn't seem sure of what caused the problem. They hinted that it may be more than Y2K, but they're not so sure. It could be more than that," said analyst Brian Goodstadt, of Standard & Poor's Equity Group. "Until they get a better handle on the problem, I'm concerned about it."

Some software firms have worried that businesses would hold off on major software purchases until the year 2000 as they raced to fix potential problems caused by the Year 2000 bug. But database giant Oracle recently reported a stellar fall quarter.

Analysts said trying to integrate BMC with the two companies it just purchased may have caused customer confusion and hurt sales.

"This is a sales execution issue…My guess is they're still sorting out at some level who does what to whom. Mergers are always tough," said analyst Bert Hochfeld, of Josephthal & Co., who has maintained his "buy" rating on the company.

"It will take awhile to fix what ails them. But this is a good company with sound management. They've got great products, and this is a good market for their products. It will work out," he added.

BMC plans to release final third-quarter results on Jan. 25.