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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.
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 2007, around forty percent of its revenue still comes from the mainframe market, which has been declining since the 1990s.[1] The company's 2007 revenue was also lower than expected primarily due to a shortfall in mainframe software product revenue, which decreased $18.1 million or 3.6% from the previous year.[2] 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.[3] 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. [edit] Business FinancialsFor fiscal year 2007, revenue for Compuware increased slightly from $1.205 billion to $1.213 billion while net income increased from $142 million to $158 million.[4] Compuware's revenue comes from license fees, maintenance costs, and professional services:
The largest portion of Compuware's revenue comes from maintenance fees and professional services fees at 37.7% and 38.9% respectively for fiscal year 2007 while software license fees make up the rest of its revenue.[5] Compuware's software revenue come from two markets, distributed computing systems and mainframes. Distributed software product revenue increased 12.7% to $256.2 million due to increases in licence and maintenance revenue from performance-related software.[6] Mainframe software product revenue decreased 3.5% to $484.8 million due to lower license revenue. Overall, license fees decreased 4.5% to $283.4 million while maintenance fees increased 5.5% to $457.6 million.[7] Revenue from Compuware's IT services decreased 0.7% in 2007 to $472.0 million as companies in the US cut costs. Budget reductions in IT departments in local and state governments and in the automotive industry especially affected Compuware's revenue.[8] Revenue from Europe and Africa increased in 2007 but still only made up 14.3% of total revenue. Compuware's revenue and net income for the past five years. Compuware's revenue has fluctuated only slight during the past five years while net income has generally been increasing due to cost-cutting measures and higher profit margins from their products and professional services.[9] Breakdown of revenue for Compuware in 2007 by division. Revenue's from their professional services has decreased due to reduced spending at many US companies.[10] Breakdown of product revenue for Compuware by region for the past three years. Compuware has direct sales staffs and independent distributors in over 60 countries.[11] [edit] Trends and Forces[edit] Compuware Relies on Their Customers' Continued Use of IBM and IBM-Compatible HardwareThe majority of Compuware's software products rely on the use of IBM and IBM-compatible mainframe computers.[12] In addition, their products operate in conjunction with IBM systems software. Drastic changes in IBM's hardware or software would break compatibility with Compuware's products, causing both lost revenue and potentially expensive research and development costs. Shifts in hardware usage by its customers to other mainframe vendors would also break compatibility with Compuware's products since IBM uses many proprietary hardware components. [edit] Compuware is Dependent on its Mainframe Business, which is Being Replaced by Distributed Computing TechnologiesApproximately 40 percent of Compuware's 2007 revenue is related to the mainframe market, which has been declining since the 1990s.[13] 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 from $526 million to $503 million to $485 million during 2005 to 2007. 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. [edit] Compuware Will Face More Competition from Hardware Manufactures Bundling in Their Own SoftwareCompanies 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. [edit] Decline in the U.S. Automotive Industry Will Hurt Compuware's RevenueApproximately 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.[14] 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. [edit] CompetitionCompuware 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.
Compuware2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available
[edit] References
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The Shelf
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