Compuware Corporation (NASDAQ:CPWR) sells software to the IT department of large companies. These software products do everything from automatically managing requests for IT resources and services to monitoring the application response times for every user of an application. Compuware charges its customers licensing fees and offers maintenance contracts for technical support of their products. The company also offers a broad range of IT services such as outsourcing, project management, resource planning, and customer relationship management. With over 23,000 customers, Compuware's clients include over 70% of Fortune 500 companies; however, no single customer makes up more than 10% of CPWR's total sales.
The company began offering products and professional services for mainframe computers in the 1970's and expanded its offering to distributed systems, which consist of a network of computers running simultaneously, in the 1990's. However, in 2010 (CPWR's fiscal year ends on March 31 of each year), 48.8% of its revenue still came from the mainframe market, which has been declining since the 1990s. While the increasing complexity of IT departments offers opportunities for Compuware to grow, competition in the distributed systems market is greater than in the mainframe market due to the large number of vendors. Large IT companies such as IBM and HP also offer bundled services such as both hardware and software products that compete directly with Compuware's software offerings.
In 2010, CPWR earned total revenues of $892 million, a decline from its 2009 revenues of $1.1 billion. However, despite the decrease in total revenues, CPWR was able to keep its net income steady. Between 2009 and 2010, CPWR had its net income increase from $140 million in 2009 to $141 million in 2010.
Compuware's revenue comes from license fees, maintenance costs, and professional services:
Compuware sells its software through licenses that customers buy to use their products for a period of time. These contracts are often multi-year and are very lucrative. Compuware also offers trial periods to customers after which customers must buy licenses if they wish to continue using the software.
Compuware's customers may decide to buy support services for the products they use. These agreements can be renewed each year for an annual fee based on the license price of the product and gives customers access to technical support and advice as well as any product updates.
Compuware offers professional services in three primary areas: application delivery, service management, and IT portfolio management. Application delivery services allow companies to develop applications to meet business needs, service management services allows companies to measure and manage infrastructure performance from a business perspective, and IT portfolio management allows IT executives to make better investment decisions by measuring the value of IT products.
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Mainframes are being replaced by distributed computing networks, and Compuware's revenue from its mainframe division has been declining for the last couple of years. Compuware also competes with companies such as CA and BMC, both of which also rely on the mainframe market for over 40% of their revenue.
Companies such as IBM and HP sell both hardware and IT management software. These companies have been aggressively promoting bundled offerings to their clients while Compuware relies on other companies to provide the hardware to implement its products. IBM, especially, has been using its mainframe installation base to offer clients software and consulting services. Compuware's software also relies on IBM's hardware and software, which puts it in a tough position as some of its products overlap with IBM's own IT management offerings.
Approximately 33% of Compuware's worldwide professional services revenue comes from customers in the automotive industry, with a large part of that related to U.S. domestic automotive manufacturers. Many of these companies such as Ford Motor Company (F) and General Motors (GM) are currently engaged in restructuring and cost-cutting efforts, leading to decreasing IT expenditures. Demand for Compuware's services, therefore, has decreased and may decrease further as increasing oil prices continue to hurt demand for automotive purchases.
Compuware faces competition from large, diversified technology companies such as IBM and HP, other IT management companies such as CA, BMC Software (BMC), Accenture, and niche companies such as EMC and Symantec. The IT services sector is also becoming more consolidated as larger companies acquire smaller ones, which would be favorable for large companies like IBM and HP with large cash reserves.