Back in early July, enterprise software company Compuware (Nasdaq: CPWR ) gave Wall Street a jolt. The stock price plunged 20% on a weak sales forecast, and the company's president, Hank Jallos, resigned. Now, about half of the sales force may get pink slips.
According to last week's earnings announcement, Compuware's fiscal first-quarter revenue fell 5.7% to $279.4 million, and license revenue was off 29% to $47.2 million. License revenue is critical, since it generally leads to ongoing maintenance and service fees.
Net income was breakeven, and cash flows from operations came to $37.8 million. The company has about $339.4 million in the bank.
One bright spot is Compuware's Covisint division, which helps manage supply chains for customers such as General Motors (NYSE: GM ) , Johnson Controls (NYSE: JCI ) , and CIGNA (NYSE: CI ) . First-quarter revenue here increased 49.3% to $9.87 million, and there was a profit of $630,000.
But as Compuware's CEO, Peter Karmanos Jr., said on the conference call, the sales team "faces a serious sales-execution problem." He even apologized to his shareholders. While he plans to attack the problem quickly, the solution will be far from easy. It often takes nine months to get a sales force productive.
In the meantime, rivals such as IBM (NYSE: IBM ) , BMC (NYSE: BMC ) , and Hewlett-Packard (NYSE: HPQ ) will likely capitalize on the situation. It could ultimately lead to even more revenue deterioration.
As I noted in an earlier column, there was a good amount of buyout buzz recently surrounding Compuware. And a deal may eventually happen. But in light of the problems at the company, there probably won't be much of a premium.
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares of companies mentioned in this article. He is currently ranked 1,590 out of more than 60,000 participants in Motley Fool CAPS.