Mr. Bayer: I focus on three areas. One is the field of enterprise computing, including enterprise resource planning, human capital management, manufacturing- oriented software, supply chain management, project and product management, and customer relationship management. There are clearly a number of substations within enterprise computing. Currently, we cover Lawson Software (LWSN) and Deltek (PROJ) within enterprise resource planning. The second area that we cover can loosely be thought of as system software, which also includes the cloud computing space. These are companies that support the infrastructure for the enterprise and access to the cloud. We cover two companies in that area: Red Hat (RHT) and CommVault (CVLT). And then there is vertical market software - companies that take some of the concepts we just described and apply them to any individual industry segments. We cover athenahealth (ATHN), which is a combination of specialized software for the medical industry that takes advantage of enterprise and cloud-based computing industries. We also cover DemandTec (DMAN). DemandTec is a very interesting company that has specialized software and services for helping retailers optimize their product mix, helping the producers of products for retailers, which are basically consumer product companies, optimize their pricing and product offerings for the retailers, since the retailers have thousands and thousands of products on the shelves, supermarkets, after superstores of that nature. It's a very interesting company. This space is a lot of fun actually because there's some interesting companies doing some very unique things.
TWST: Generally speaking, how are people faring in this economic situation? The
conventional wisdom seems to be that software companies are doing reasonably
well and hardware companies are being laid low.
Mr. Bayer: There is a two-part answer. In terms of new license sales, the
industry's growth has definitely slowed. The software industry in general has
been doing somewhat better than the hardware industry. In general, many software
companies have had growth in the range of 20% to 40% in the last few years. That
growth has gone down to anywhere from single digits to negative, but not hugely
negative - not down 40%. But some of the companies may be down 15%. So the
growth has clearly slowed, I would say, on average about 20% from what it had
been, depending on the industry segment. That's on the license side.
But what I think has been very interesting to the institutional investor is that
the maintenance space has been very stable for these companies. And many of
these stocks are trading in large part at the moment on multiples of revenues
from maintenance streams. So the good news is that there is protection on cash
flows for these companies because the maintenance revenues are highly
predictable and recurring. And until such time as the license work begins to
accelerate, you have a base level of cash flow to these companies that I think
can over time be supplemented by renewed license growth and renewed demand for
services associated with installing new software packages.
Tickers included in this excerpt: ATHN, CVLT, DMAN, LWSN, PROJ, RHT
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.