BMC Software, now a Wall Street darling with a stock price thats doubled in the past two years, has transformed itself from a company struggling to remain profitable to one that is outpacing competitors—despite a relatively flat mainframe management software market.
As it dismissed workers and suffered through acquisition rumors, the company worked to flesh out its business service management strategy through internal developments and acquisitions.
On Feb. 8 the company posted a better-than-expected 9 percent revenue gain and bested its earnings per share estimates at 41 cents a share for its fiscal third quarter of 2007. eWEEK Senior Editor Paula Musich spoke with BMC President and CEO Bob Beauchamp about the turnaround.
BSM is not the easiest concept to grasp, and it generally means different things to different people. Why is it that BMC seems to be getting such good traction now in its BSM strategy?
I think its a couple of things. One is that we hit the sweet spot of managing IT processes consistently. I was on the phone yesterday with the CIO of Lowes, and he talked about the need to manage configuration, change and assets in an integrated and consistent fashion to automate IT operations. We have the bases covered with great prods, methodologies for implementation, a strong Atrium [Configuration Management Database]. We can deliver the architecture to finally manage IT like its part of the business. IT did this for CRM, supply chain, financials and HR. Now theyre doing it for themselves in building an integrated system to manage IT instead of [using] a bunch of point products.
BSM really assumes for the most part the implementation of (IT Infrastructure Library) best practices, but that can be a multi-year effort and involves significant re-engineering of the way IT is organized and managed. Isnt it a very long sales cycle to try to sell technology into that process?
Its not because we dont attempt to get customers to buy off on the entire ITIL lock stock and barrel. In my call with the CIO from Lowes, he said I have to do change management, configuration management and most importantly asset management, but I will do each of those one at a time. People are taking a pragmatic approach. BSM gives you the architecture to build one step at a time, not the entire staircase in one day. We focus on bite-sized implementations—discrete processes one at a time.
We saw big bang projects would not work, so we deliver this with an overall architecture that gives confidence in moving toward a highly integrated method of managing IT, but not in one big buy or one big project.
How well has Atrium (BMCs CMDB) done since it became available? What progress has it made to date?
Its one of the fastest growing products in our history. It is part of a very large percentage of our BSM customer successes. Customers are buying off on the CMDB, its scaling to volume, and in production with large customers. Its the one piece of software in our whole portfolio I was most counting on—that it would work right, scale, and change the industry. Im pleased to report it is delivering everything it was promised to do. Its the glue that pulls it all together.
Taking on the competition
How much of BMCs growth rates are being driven directly or indirectly by the Remedy unit?
We dont break it out. It is part of our Core Business Service Management that includes service management, asset management, change management, transaction management and identity management. That is a whole set of products that didnt exist in BMCs portfolio four years ago. Those products make up our core BSM business, which is over 40 percent of license bookings and revenues. It grew 26 percent year over year this quarter. That is a sub-group of the enterprise service management—our big business unit that includes all our products not in the mainframe service management group. That group grew 17 percent in license booking.
From the earnings call it seems you were suggesting that BMC is taking market share away from competitors. Which competitor(s) is BMC most successful in selling against?
In our two largest deals last quarter, one is a very large insurance company. They replaced millions of dollars of CA mainframe products, HPs help desk and asset management product line, NetIQ and other smaller vendors on systems management to standardize on BMC and our CMDB. The second largest transaction was a global bank in Switzerland that has a stated goal of building the most sophisticated IT environment of all of banking. We beat IBM and HP in that transaction. Those are our two largest deals [in the quarter] and both involve competitive wins/ replacements against our largest competitors. Thats a change. A few years ago it would be capacity upgrades of our existing installed base. That is a fundamental shift.
Is BMC capitalizing on CAs continued struggles?
Yes. I think that we see both in the field as well as in surveys weve done that this is a good time for us to be aggressive against CA as they struggle to regain their legs.
How much market share do you believe BMC is gaining?
It would be very difficult to quantify. With 26 percent license booking growth in core BSM, 18 percent overall and 9 percent revenue growth—thats faster than the market.
Whats the ratio of revenue generated by mainframe software sales versus distributed systems?
Today mainframe is about 40 percent of our business. But Id add our core BSM—fast growing new stuff we didnt have four years ago—is also now about 40 percent of our license business.
How would you characterize the quarter in terms of mainframe revenue historically for BMC?
Mainframe was excellent. We grew customers, total bookings, license bookings. Year-to-date mainframe is up 4 percent in total bookings. It stems a long term decline our industrys been having. I think the markets pretty close to zero. We believe we gained share this quarter in mainframe.
How much did acquisitions contribute to the growth in the quarter?
Its a small percentage of growth. Acquisitions have been a key part of our transformation over the last four years. We have built a strong portfolio of products through internal development. The Atrium CMDB was written in-house. The Remedy help desk was through an acquisition four years ago. Our transaction management business is growing 50 percent year over year and its on track to be $100 million in revenue. Its a combination of internal development and acquisitions.
What holes do you see in your portfolio of BSM products?
There are opportunities for us to continue to expand the strategy, but I dont want to broadcast our next moves. We do consider acquisitions as part of our strategy, and we have companies on our radar screen, but were also a prudent acquirer. Its reasonable to assume we have acquisitions we will do in the next few quarters.
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