For the Q1 08, sales came in at $278 million, a drop of $35 million from the previous quarter. That included $113.5 million in maintenance and $117.5 million in professional services. But more importantly, the numbers came in on paltry new software sales of only $47 million, which dropped from $73.2 million from the quarter before
Chairman and CEO Peter Karmanos placed the blame on extremely poor sales execution. In a Q&A with investment analysts, Karmanos said that the extent of the drop didn't become apparent until the last few days of the quarter, when expected sales never materialized. "It absolutely blew us away on how bad the quarter ended up."
As a result, heads are about to roll, especially in sales and marketing which Karmanos said was too top heavy.
"We're going to get most of our non-performing sales people out of here," he said.
First to go is president and COO Hank Jallos, who turned in his resignation this week. And Karmanos expected that a leaner sales force, whose members would cover larger territories and client lists, put in longer hours, and have more of their pay base on commission.
In fact, the company was already in the process of reducing its sales force, having eliminated nearly 70 positions at the beginning of the calendar year, which was roughly a 15% reduction. Evidently that cut will only be the beginning.
Karmanos said that for the foreseeable future, he would personally take charge of sales and marketing, but would be open to recruiting an outsider in the future.
"If I could find a top notch sales guy who wants to become CEO, I would be very happy to bring him in with my board's approval."
Going forward, Compuware aims to cut expenses by $80m to $100m, mostly in sales, although some may also come from R&D. "We do not have a technology problem," Karmanos said.
Although he repeatedly praised the mainframe products, where the company feels it has little competition, he also provided a vote of confidence in the newer distributed Vantage products. Those cover software development and deployment and the more recent Changepoint offerings, which have slowly brought the company into product portfolio management.
Bright spots continued to be the company's sales to Covisint, which it breaks out separately in financial reports, and Vantage sales in the UK, where at least one account representative made his entire year's quota in a quarter.
Our View
Compuware's mainframe tools, which have long been its lifeblood, have proven an annuity market for the company for some time. Growth there will continue to be organic, as there are few greenfield mainframes going in these days.
It's clear that Compuware's sales problem is on the distributed side, where the newer products are concentrated. In part, it's been due to the fact that in areas like ALM (application lifecycle management), Compuware has been more follower than leader. For instance, it entered the PPM market after Mercury, although before IBM.
But the company hasn't been short of ideas. It debuted its QA equivalent of PPM, the CARS (Compuware Application Reliability Solution) back in 2004, which was truly unique in the market, Although still clearly in the product catalog, CARS has gained only limited market traction, with a few dozen customers.
More recently, Compuware has begun differentiating its ALM strategy with something it calls IT Delivery Management, where project management, development and design, and quality assurance tasks will be sparked based on a change or the entry of a new requirement. That strategy is obviously not yet complete, as it does yet tie in Compuware's project portfolio management or application performance management offerings.
But the bottom line, literally, is that Compuware's sales force has had a difficult time getting it. The first step is reducing staff down to what revenues can sustain. The challenge for Compuware, like any software provider, is getting account reps who understand what it is they are selling. Although hard for even the most successful software vendors, for Compuware it's been even harder.
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