MGI Research Blog: Tech Industry Analysis

The Intel Anomaly and the 2H Outlook for Tech Sector Spending

2009-07-22T13:57:34-07:00

The strength of Intel's management and operating expertise was highlighted once again in the 2Q results. Intel (INTC; MGI-X: 2,048) took specific and significant corrective actions to adjust for very tough market conditions, to the delight of press and analysts alike. But what do Intel's results (and commentary) really say about its management team, companies with high MGI scores, and importantly the overall outlook for tech spending for the rest of 2009 and 2010? Beyond the heaping accolades after their 2Q09 earnings call on Tuesday, July 14, 2009, this MGI Research note discusses three things that stand out, and went notably under-reported.

SugarCRM CEO Departs - Open Source SaaS Not Immune to Recession

2009-05-11T13:04:43-07:00

SugarCRM (MGI-X:NR; pvt.), a leader in open source CRM software, announced on Thursday, May 7th, 2009 that its CEO John Roberts was leaving the business effective immediately. As MGI Research discussed in a note published on January 7, 2009, titled, "2009 Outlook for Open Source: Do or Die Time", the halcyon days of easy capital and low demand for near-term profitability for venture-backed open source companies were likely to come to an end this year. The implications of the abrupt CEO change underscore two realities that should replace the rose-colored lenses often applied to the open source market, namely 1) that the recession will benefit open source software (OSS), and 2) downloads are more important than bottomline profits. CEOs of OSS companies should take note of this event - it could be the first of many replacements this year. Investors should note that the success of Linux, and namely RedHat (MGI-X:840; NYSE:RHT) is not transitive - there are plenty of lackluster OSS results, and the OSS business model has not proven to be more efficient or even as profitable, as evidenced by RHT's and Novell's mediocre MGI-X scores.

SAP-Teradata Announcement Reflects Pressure on SAP vs. Oracle

2009-04-28T15:00:53-07:00

The recent SAP-Teradata announcement that SAP's BW (Business Warehouse) will be ported to Teradata (NYSE: TDC; MGI: NR) comes only one week after Oracle's public bid to acquire Sun Microsystems. The press release was light on details - e.g., shipment dates, channel issues, scant mention on either company's website, and in the short term was of greater benefit to Teradata, which extended its ability to re-sell the SAP/Business Objects BI products. Given the tactical nature of the announcement, and the practical reality that it will be at least 6-9 months before customer beta testing of the SAP/Teradata combo, MGI Research sees minimal short term benefit of the announcement to SAP, and minor impact to IBM or Oracle. In the bigger picture, the event highlights the tectonic shift that will occur if Oracle (Nasdaq: ORCL; MGI-X:2,314) closes the Sun (Nasdaq: JAVA; MGI-X:656) transaction. We re-iterate our view that HPQ or IBM are likely bidders for SAP within the next 24-36 months.

OSBC Open Source Conference Highlights

2009-04-01T19:53:34-07:00

We recently attended InfoWorld’s 6th annual OSBC event in San Francisco – where the open source community convenes in a business setting. The major theme was the attraction of open source products' low cost during a period of IT budget contractions. Our major interest was to measure the relative success of open source companies in reaching the enterprise market and their ability to threaten the established vendors. The short conclusion is that open source projects continue to make inroads into Silicon Valley development efforts, but as a business, open source companies have yet to prove their long-term viability with a business model capable of delivering attractive returns to institutional investors. As previous MGI Research has detailed (see Research Note - "2009 Outlook for Open Source - Do or Die Time?"), the total revenues of companies like Alfresco, Jaspersoft, SugarCRM, Talend, and others are not nearly as impressive as the venture dollars these companies have attracted. Surely the pressure is on them to start delivering profits in advance of a desired investor exit.

Conference Notes: Pacific Crest Emerging Technologies Summit

2009-03-02T20:27:58-08:00

We attended a three day tech conference sponsored by Pacific Crest Securities, a technology focused investment bank. Day 1 was dedicated to Data Center and Cloud computing, Day 2 was focused on On-demand/SaaS software, and Day 3 targeted Clean Tech. The event was well-organized, well-attended, and offered a bevy of market and company insights. Unsurprisingly, the overall tone of conference presentations was muted, downbeat and cautious.

Tech Industry Layoffs Quietly Begin

2009-01-10T10:00:00-08:00

News will begin to leak of technology vendors making headcount reductions. The industry publishing firms like Gartner, Forrester, et al are planning or actively executing employee layoffs. As earning season approaches, we expect more announcements of cost control efforts. Those midsize companies not making significant cuts will likely face further cost challenges (and earnings disappointments) later in the year.

Top Ten Tech Surprises in 2009

2009-01-09T15:19:14-08:00

© 2009 MGI RESEARCH, LLC January 9, 2009 In the tradition of Byron Wien’s Top Ten Surprises, here is the MGI Research Top Ten Tech Surprises for 2009. To make our list, the surprise must have a probability of 10%...

Oracle - A Bellwether Prepares to Report

2008-12-16T13:57:43-08:00

Oracle remains one of the best-managed companies in the software industry, with broad and deep distribution channels, as evidenced both by its high operating profitability, high absolute MGI-X score and relative placement within its peer group. Most importantly, Oracle’s MGI-CV (MGI Change Vector) turned negative (-33%) in the August quarter – an indicator that tends to be highly sensitive to performance of large tech companies.Given the current environment, the company has little reason to provide an overly optimistic outlook and we expect management’s commentary to be muted, at best. The company has little incentive to paint a rosy picture going forward with visibility on close rates being so limited. While we have no reason to believe Oracle has blown the quarter, we see many reasons why the outlook will be painted grey and we expect the rest of the software sector valuations to suffer as a result.

Software Maintenance Revenue - Sacred Cow or Hambuger Meat?

2008-11-18T00:18:15-08:00

(c) 2008 MGI RESEARCH, LLC The current downturn has given rise to numerous pieces of fundamentally good analysis on software company valuations that use software maintenance payments as a basis for valuing a business. Comments like “this company sells at...

Soul of a Survivor - Attributes of Winning Tech Companies in a Recession

2008-10-24T19:14:43-07:00

An economic slump will no doubt impact all technology vendors; however, we have long advocated that companies with higher MGI Index (MGI-X) scores are better positioned to withstand a slowdown in IT spending while those with low MGI-X, low efficiency operating models are likely to be clobbered in the absence of proactive action by management.