BMC Rounds Profit Bend

New chief Beauchamp on financial trouble, acquisitions, bursting the dot-com bubble.

BMC Software Inc. is pointing to its third-fiscal-quarter results as proof it has turned the corner on shrinking revenue and earnings. Like other predominantly mainframe software providers, the Houston-based company suffered through a series of bad quarters last year due to an overcapacity in mainframe mips and the late arrival of IBMs latest mainframe processor. But with revenue up sequentially from this years second fiscal quarter, at $385.5 million, the infrastructure management software provider has improved its business across the board. New President and CEO Robert Beauchamp, who has taken over from longtime leader Max Watson, used the improved financial news to discuss with eWeek Senior Editor Paula Musich the issues facing the $1.7 billion company.

eWeek: Do you intend to set a new direction for the company?

Beauchamp: Not from a high-level strategy standpoint. From a tactical standpoint, every new manager is going to make some changes. Ill make my mark over time. There will be no newsworthy changes immediately.

eWeek: How would you rate the companys efforts to execute the strategy thats already in place?

Beauchamp: For most of the last 10 years, its been excellent. Last year was ugly.

The whole industry saw a down year. There were several macro issues involved. But the quarter we just completed is some indication that were doing better. We had good sequential growth across almost every product line and across almost every region.

We view it as an indication that things are on track and proceeding forward.

eWeek: Do you believe the integration problems involved in acquiring several large companies in the past 18 months are behind you?

Beauchamp: They are certainly largely worked through. Its not something that ever completely goes away. If you look at the last quarter, some of our brightest performers were acquired companies.

New Dimension [Software Inc., renamed the In Control business unit] products were up 24 percent in the quarter. We believe that product set had a limited channel before. Now theres a much larger channel, and the sales force integration issues are resolved.

Plus, weve integrated the products of Boole & Babbage [Inc.] and BGS Systems [Inc.], and we are seeing synergies there.

eWeek: Why did BMC have high turnover in the sales force? Was it related to the integration of acquired companies? Are those issues behind you now?

Beauchamp: Our turnover has been cut in half from what it was at its peak. Weve returned to normalcy. There was quite a bit of turmoil with the integrated sales forces. Combined with that, we had some disappointing quarters. The dot-com bubble was also a part of that. Now that the bubble has popped, BMC has returned to predictable growth, and sales force integration issues have lessened.

eWeek: Are product development cycles where they need to be?

Beauchamp: You need to constantly keep pressure on improving development cycles. But I can tell you they are improved. [The time] from conception to product launch is much shorter than it was a few years ago.

eWeek: Do you see any holes in BMCs product line now?

Beauchamp: BMC is actively looking to increase its investment in the highest growth areas. There is clearly explosive demand for managing storage. Investments will be in that area. In slower areas, well be a little more conservative in our investment strategy.

eWeek: Have you seen any changes in the competitive landscape? Specifically, do you see NetIQ Corp., with its aggressive acquisition strategy, as being a more significant competitor—especially with its Microsoft Corp. alliance?

Beauchamp: They are a strong niche competitor. We dont view [NetIQs $1 billion acquisition of WebTrends Corp.] as competitive. Perhaps their focus will spread out a bit.

Microsoft is still a good partner, although [NetIQs alliance with Microsoft] does have some impact on our strategy for managing a Microsoft environment.

In enterprise management, few customers want to be the integrator of different management tools for every platform they have. Most organizations will have a lot of everything. Point products are an integrators nightmare.

BMC has a consistent management layer and can give the customer a common experience in managing a complex environment.

eWeek: Does BMCs professional services operation play a role in that?

Beauchamp: More and more the customers do not have the talent, the time and the expertise in systems management. When they turn to BMC, they look for help to develop an enterprise management environment using best practices. We provide rapid time to value, and the professional services organization is an important component of that.

eWeek: BMCs third-fiscal-quarter revenue and earnings were up sequentially over the second quarter, but they were still lower than the same quarter one year ago. Has the company really turned the corner, even with the prospect of an economic slowdown on the horizon?

Beauchamp: Were optimistic for the long-term outlook for the mainframe and distributed systems business. Weve not seen much evidence of a slowdown. In an economic downturn, customers will look for performance improvements from their existing investments. A slowdown for BMC products might not be as severe as for other market segments.