In the case of software companies, the market has rewarded their shares because their balance sheets are attractive, said David Rudow, an analyst at Thrivent Financial in Minneapolis. The balance sheets look good because they include a steady stream of software maintenance revenues from existing customers, he said.
"A lot of software companies have strong maintenance revenues that have 70 to 80 percent gross margins," said Rudow, a buy-side analyst who doesn't publish stock recommendations.
While corporate software firms such as Lawson aren't getting as much new business or software licensing during the recession, the company will be protected as long as Lawson can hang on to its existing customers and thus protect the recurring software maintenance revenue, Rudow said.
Lawson has, if anything, been the voice of caution about its fourth quarter. In its third-quarter filing with the Securities and Exchange Commission, the company said its software licensing -- the up-front transaction that later generates continuing revenues from software maintenance and services -- was under pressure from the "weakening of the global economy and the fallout from the financial market crisis" and "will continue to be so for the remainder of our fiscal 2009."
Said Rudow: "For corporate customers, anything big and expensive that takes time to deploy is easy to skip for six to 12 months."
He doesn't expect a turnaround in the market Lawson serves until the second half of 2010.
"Everybody is hoping for flat corporate information technology budgets next year," Rudow said. "But it's hard to say because these market conditions are unprecedented."
Steve Alexander --612-673-4553
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