VMware (VMW) Coming In Over 10% Above Wall Street Estimates; Senior Analyst Answers Investors Questions On The Sector
March 8, 2010 - The Wall Street Transcript has just published Business & Application Software Report offering a timely review of the Multimedia Software sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Brent C. Williams, prior to joining Benchmark in March 2007, spent eight months as Managing Director of Research at Hapoalim Securities USA, a startup division of the largest bank in Israel. His 10 years of experience covering software companies also includes six and a half years at KeyBanc Capital Markets, and three years at Needham & Company. His coverage list has included database vendors, middleware/connectivity vendors, operating system vendors plus leading business intelligence software vendors.
He also managed other senior analysts focusing on enterprise applications and other infrastructure software segments. Mr. Williams has been involved with the software business since the late 1970s. He has built innovative products, ranging from manufacturing and financial applications to clinical medical software on a variety of platforms, from PCs to mainframes. Mr. Williams earned a Bachelor of Arts degree from the University of California at Berkeley.
TWST: Where do you focus your attention in the software space?
Mr. Williams: I've been in and around the software business since the late 1970s. Most of that time I have been on the infrastructure side, which is the core platform for building and delivering applications. That platform includes everything from operating systems, databases, programming tools up through application servers, business intelligence tools and Internet programming technologies. In my industry days, I was an engineer who built many of these technologies. In particular, I worked on database engines and programming tools. I was an Analyst who covered these sectors at IDC and Gartner Group, and on the Street. I have been covering them for about 13 years.
My current coverage includes three different categories: operating systems, data management, i.e., the database companies, and connectivity and integration software. My coverage list includes operating system companies like Citrix (CTXS), Microsoft (MSFT), Novell (NOVL), Red Hat (RHT) and VMware (VMW). I used to cover Wind River Systems, which makes operating systems inside electronic equipment, before they were acquired. Integration, middleware and development tools is mainly Informatica (INFA) and Tibco (TIBX). On the database side, it's Oracle (ORCL), Sybase (SY) and Progress Software (PRGS). I'm also working on a few names related to this and another major new sector.
TWST: Is that kind of where we are at now?
Mr. Williams: Yes, we are actually a little beyond that phase now. We started to see the beginning of that sort of behavior around the middle of last year, and it continued to get more pronounced. And what we have seen with companies reporting November and December quarters thus far is that on the infrastructure side, generally people have blown out the numbers. I mean, you had VMware coming in over 10% above Street estimates; Sybase, pretty close to that number, and a couple of others - Microsoft, similarly, but mostly due to consumer adoption of Windows 7. Even though the upside number was pretty big, I wouldn't necessarily call Microsoft as an example of this trend. But you saw Informatica, another company same thing, just flew past the number. It wasn't likely they just bagged a couple of large deals, but they were saying, "Hey, customers had money to spend, they knew they needed to spend it like that."
TWST: In light of all the changes going on, is it time for investors to look at the space or is it too early?
Mr. Williams: I think it is absolutely time to look at the space. You have to understand that in the short term, you are going to see some aggressive moves on these stocks as they beat numbers by solid margins. The stocks are going to be fairly volatile right now. Later in a cycle, when things are kind of running on rails as far as upsides to top-line growth, the stocks aren't as volatile. The second thing is you want to start understanding these technology shifts that we are talking about, even though they aren't going to hit for a while yet.
You need to start doing the work to understand this stuff and get out in front of it. So if somebody hands you a three-page white paper on cloud computing, that doesn't prepare you to figure out what's important and what the subtle sort of follow-on effects of cloud computing are, and thus what stocks to buy. If investing were that easy, it wouldn't pay that well. And so you need to start asking yourself, "What are the major dislocations? What are going to be the catalysts for those?
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