During the fourth-quarter earnings conference call yesterday, BMC (NYSE: BMC) CEO Bob Beauchamp talked about yet another tech acronym: BSM (business service management). This is a key product offering of BMC -- software for large companies that need to do things like reduce downtime of computer systems, track IT (information technology) assets, allow or prevent access to IT systems, and so on. Beauchamp was certainly upbeat and said BSM was at the "tipping point" of growth.
That's good -- as long as things tip up. However, top-line growth has not tipped much in any direction, with revenues increasing a measly 3% to $408 million in the first quarter. The company was able to pump net income up to $66 million, or $0.31 cents per share, which compares to net income of $15.5 million, or $0.07 per share, in the same period a year ago (which included a lot of restructuring charges). And over the past year, management has hit its goal of reducing costs by $100 million.
Digging deeper
To better understand BSM, let's look at UBS. UBS is a global financial powerhouse and definitely has a complex IT infrastructure. After all, through M&A, the company has various divisions, such as Warburg, PaineWebber, and so on. Basically, UBS wanted to make sure it was providing the best service to customers. That means quick response time to requests, minimizing downtime of services (such as a website), or getting real-time alerts if applications are having troubles (perhaps the online banking system is failing). With BSM, UBS was able to track its IT system to effectively respond to problems before they affected its customer experience.
True, this is valuable for major companies, but these types of companies tend to move slowly when adopting new technologies. Thus, a "tipping point" in the enterprise market often signals a modest increase, not strong growth.
Besides, major customers are not as amenable to spending large amounts on new software. New purchases are often the result of intense negotiation on price, especially since customers have a choice of vendors like CA (NYSE: CA) and Hewlett-Packard (NYSE: HPQ).
Besides, the fact remains that about a third of BMC's business derives from software sales to the mainframe market. Yes, that market's growth tipped decades ago and has been in perennial decline. Unfortunately, this is a drag on the overall growth of BMC.
BMC resembles a mature cash cow more than a company on the verge of a growth spurt. It has $1.34 billion in cash in the bank and is expected to generate cash flow from operations of $400 million to $450 million in fiscal 2007.
As for revenue growth, the company's guidance for fiscal 2007 is for "low to mid single digits."
Foolish conclusions
Those companies showing strong top-line growth in the enterprise world, such as Red Hat (Nasdaq: RHAT) and Salesforce.com (NYSE: CRM), are talking about visionary technology -- things like offering software through a Web browser (on-demand) or using open source (software developed by a global community of developers via the Internet). But Beauchamp made no mention of such things, and for that reason, I'd rather focus my attention elsewhere.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
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