Broadcom Beats, But Rebuilding Confidence Takes Time

Short of repudiating the CA (CA) acquisition and announcing a huge buyback, there’s really not much Broadcom (AVGO) could have done with its fiscal third quarter results that would restore enthusiasm for the shares back to its pre-deal announcement levels. And frankly, I’m not sure that would have done it either, as the shares had been trending down since late November anyway.

There are still a lot of positives to the Broadcom story, including a very strong market position in switch silicon, underrated (still) capabilities in heavy-duty AI ASICs, and cash-generating businesses in areas like networking ASICs and enterprise storage. Add in a possibly improving Wireless business and an undemanding valuation, and I believe Broadcom shares still have a lot of appeal. Set against that appeal are the concerns about Broadcom going too far out of its area of expertise with the CA deal and a wider slowdown in the chip space.

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Broadcom Beats, But Rebuilding Confidence Takes Time

Seeking Alpha: NetScout's Performance Management Managing Good Performance

Competing with a varied mix of hardware, software, and integrated rivals like Danaher (DHR), IBM (IBM), and CA (CA) is no picnic, but NetScout Systems (NTCT) believes it has found a winning combination with a mixed hardware and software approach to network and application performance management. The company still generates the bulk of its revenue from three verticals (finance, telecom services, government), but the relatively new nGeniusONE platform should meaningfully expand its addressable market and could fuel strong growth for multiple years. While backward-looking valuation metrics may not scream "bargain" on these shares, high single-digit free cash flow would support a fair value in the mid-$40s.

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NetScout's Performance Management Managing Good Performance

Investopedia: CA Getting Some Benefit Of The Doubt, But It Must Deliver Growth

I carried the “CA Technologies (NYSE:CA) is too cheap” torch for a while, and though the stock is up about 20% since my last article, better than IBM (NYSE: IBM) and in line with Oracle (Nasdaq:ORCL), the nearly 10% underperformance relative to the S&P 500 precludes any victory dance. On the other hand, the stock is well ahead of the S&P 500 on a year-to-date basis, and it sounds like the Street is increasingly on board with CEO Michael Gregoire's plans to reinvigorate growth at this large enterprise software company.

Read more here:
http://www.investopedia.com/stock-analysis/081413/ca-getting-some-benefit-doubt-it-must-deliver-growth-ca-ibm-orcl-crm.aspx

Investopedia: BMC Software Shows Again That Getting Full Value Is Tough Without Growth

It's hard to call the last few years a nightmare for BMC Software (Nasdaq:BMC) shareholders, but dishwater-gray mediocrity doesn't seem so unfair. Against a nearly 20% return from the Nasdaq, BMC has actually declined about 10% over the past two years (though up almost 30% over five years, and closer to the Nasdaq return), and has trailed peers/comps like CA (NYSE:CA), Compuware (Nasdaq:CPWR), and ServiceNow (NYSE:NOW) by a meaningful margin too.

The problem here is one that I've lamented before in the tech sector. Although BMC converts a sizable percentage of its revenue into free cash flow (FCF) and sports solid margins and returns on capital, the company's growth has been lackluster due to an inability to change with the times and establish competitive positions in new markets.

Now the story seems to be all but over for BMC as a publicly-traded company. A consortium of private equity investors has put together a bid that gives investors only a modest premium over the 200-day moving average and would seem to undervalue the company's long-term cash streams. And yet, this very well may be the best deal that investors can hope for and a warning to investors in other cash-rich/growth-poor stories.

Please read the full article here:
http://www.investopedia.com/stock-analysis/050613/bmc-software-shows-again-getting-full-value-tough-without-growth-bmc-ca-now-ibm-vmw-cpwr-orcl.aspx

Seeking Alpha: Will A Different Model Lead To Sustainably Different Results For SolarWinds?

Over the last decade or so, a host of software companies have tried to build successful businesses with models different than those used by industry giants including IBM (IBM), Oracle (ORCL), and Microsoft (MSFT). While Salesforce.com (CRM) and NetSuite (N) have gone the software-as-a-service (SaaS, or Cloud) route, others like Red Hat (RHT) have looked to maintenance and support instead of the software itself as the source of value.

That brings us to SolarWinds (SWI). There's nothing unusual per se about network management tools - companies like IBM and Hewlett-Packard (HPQ) have been selling them for years. What's different about SolarWinds is both the sales model (a low-touch model that relies on 3rd parties like search engines) and the product positioning (lagging tech, but cheap and easy to use). So far, the results have been impressive as SolarWinds has posted exceptional revenue growth and operating margins. As is so often the case, though, the question is whether the company can maintain this momentum and whether the Street is already ahead of the story.

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Will A Different Model Lead To Sustainably Different Results For SolarWinds?

Investopedia: Is TIBCO's Stumble An Early Christmas Gift?

Back in March, I wrote that investors were only likely to see TIBCO Software (Nasdaq:TIBX) trade at a discount to fair value "if the company significantly disappoints the Street." Well, the company did just that on December 4, announcing a nearly 10% revenue miss and a bigger miss in earnings per share terms. While TIBCO just bought itself a spell in the penalty box, risk-tolerant investors may want to take this opportunity to check out one of the few quality independent middleware companies left on the market.

To read more, follow this link:
http://www.investopedia.com/stock-analysis/2012/Is-TIBCOs-Stumble-An-Early-Christmas-Gift-TIBX-IBM-ORCL-CA1206.aspx

Investopedia: Riverbed Pays Up For Its Next Shot At Growth

The ideal for every business (and investor) is to seamlessly transition from one growth opportunity to another, harvesting cash flow from older businesses and reinvesting it into new opportunities that can continue to expand the business. Not many companies can do this completely on their own, however, and must rely upon acquisitions to improve their growth prospects. That would appear to be the case with Riverbed Technology (Nasdaq:RVBD), as it has agreed to spend approximately $1 billion in cash and stock to expand into the fast-growing application performance management market.

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http://www.investopedia.com/stock-analysis/2012/Riverbed-Pays-Up-For-Its-Next-Shot-At-Growth-RVBD-OPNT-FFIV-CSCO1030.aspx

Investopedia: Do Weak Bookings Prove Anything About VMware?

For investors bearish on VMware (NYSE:VMW), this was an interesting quarter. Plenty of other software companies (such as IBM (NYSE:IBM), Microsoft (Nasdaq:MSFT) and Oracle (Nasdaq:ORCL)) have talked about weak macro conditions, but VMware's stock was weak going into this report and the bookings number did look pretty soft. Although I happen to be more positive about the long-term fundamentals for VMware, the valuation still leaves plenty of risk for this once (and future?) growth darling.

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http://www.investopedia.com/stock-analysis/2012/Do-Weak-Bookings-Prove-Anything-About-VMware-VMW-MSFT-CTXS-CA1025.aspx

Investopedia: Does BMC Software Offer Durable Value?

I've said it plenty of times, but some ideas are worth repeating - value-priced tech stocks seldom outperform in the absence of growing investor confidence regarding growth or significant returns of capital to shareholders. While BMC Software (Nasdaq:BMC) looks undervalued by many different standards, the company's growth is unimpressive and there are growing questions about the competitiveness of its product offerings. As a high-value buyout doesn't seem especially likely, BMC is going to have to figure out a new path to growth if this stock is going to work well.

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http://www.investopedia.com/stock-analysis/2012/Does-BMC-Software-Offer-Durable-Value-BMC-IBM-CA-DELL0917.aspx

Investopedia: Microsoft Looking A Little More Dynamic

A lot of investors seem to be permanently down on Microsoft (Nasdaq:MSFT) and its ability to compete effectively in the coming years, but the numbers tell a different story. True, Microsoft today is not the Microsoft of old and there are signs of bloat, but the cash generated by this business is both formidable and undervalued. With good growth in areas like enterprise software, and three upcoming product launches, investors ought to consider these shares.

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http://stocks.investopedia.com/stock-analysis/2012/Microsoft-Looking-A-Little-More-Dynamic-MSFT-GOOG-ORCL-IBM0420.aspx

Investopedia: Red Hat Back To More Familiar Growth

There's nothing like a great quarter to make investors forget about an allegedly bad quarter. While Red Hat (NYSE:RHT) shares were weak after the fiscal third quarter results, the fourth quarter results showed much of the strength that investors have become accustomed to in this name. Valuation is problematic, but that's hardly unusual with tech stories and it likely won't matter much until the market goes into another "risk-off" phase.

Companies like IBM (NYSE:IBM) and Oracle (Nasdaq:ORCL) set a fairly positive tone for the software market and Red Hat followed in that wake. Revenue rose 25% year over year. The company's self-reported billings proxy number rose 31% - more than 10% ahead of sell-side expectations and showing considerable acceleration from the third quarter.

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http://stocks.investopedia.com/stock-analysis/2012/Red-Hat-Back-To-More-Familiar-Growth-RHT-IBM-ORCL-CA0404.aspx

Seeking Alpha: Approaching The End Of The Quest

When I bought Quest Software (QSFT) in mid-2010, it was with the idea that the company was a solid acquisition play but had enough going on in its business that it would be a worthwhile investment on a stand-alone basis. With Friday's announcement that the company has accepted a buyout offer from Insight Venture Partners, it looks like this story has found its closure.

The Deal
Quest announced that it reached an agreement with Insight Venture Partners whereby this private equity firm will take the company private in a $2 billion deal. That price translates into $23 per share for Quest shareholders, or about a 19% premium to Thursday's (March 8) close.

This deal includes a pretty generous go-shop window (60 days) for Quest, where management can pursue and entertain competing offerings. Should a better deal emerge, Quest would owe only a small $4 million break-up fee.

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Approaching The End Of The Quest

Seeking Alpha: Quest Software - So Far, So-So

Investing in low-growth value-priced software stocks is a little like digging for gold with a Nerf shovel - you can get there eventually, but it's going to take a lot of patience. Clearly Wall Street did not care for the earnings report of Quest Software (QSFT), nor the new of an unexpected change in CEO, but underlying results were not so bad and patience could yet pay off for investors.

Fourth-Quarter Results Mostly Better Than They Seem
Quest reported that revenue rose about 13%, more or less meeting the average analyst guess. License revenue was a little soft, growing 8% on a reported basis, but growing not at all on an organic basis and missing the average estimate. Service revenue was a little better with 18% reported growth and 6% organic growth, but the beat versus expectations was modest.

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Quest Software - So Far, So-So

Investopedia: Is VMware's Road Starting To Turn Uphill?

There's that unpredictable moment in a growth tech stock's life where investors and analysts go from assuming that the trees will grow to the sky to assuming that the lumberjacks are already on site. That may not yet be the case for VMware (NYSE:VMW), but it definitely seems that sell-side analysts are no longer racing to top each others' growth estimates and that there's an increasing concern about the underlying growth of the market.

A Mostly Solid Close to the Year  
VMware reported that total revenue grew 27% this quarter and almost 13% from the September quarter. License revenue rose 22%, but this basically just met the expectations. One of the good news/bad news situations is that VMware is seeing an increasing amount of service and maintenance revenue. This a lucrative stream of revenue for any company, but investors don't tend to prize that much at companies like CA (Nasdaq:CA) or Microsoft (Nasdaq:MSFT).

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http://stocks.investopedia.com/stock-analysis/2012/Is-VMwares-Road-Starting-To-Turn-Uphill-VMW-MSFT-IBM-BMC0125.aspx

Seeking Alpha: Can Quest Find Success In Simplicity?

Right off the bat, it would seem that Quest Software (QSFT) has two red marks against it. First, the company looks to provide simpler solutions in a world where vendors boast increasingly complex alternatives. Second, Quest is mostly a value play, and lower-growth value plays don't often work so well in the tech stock world. Nevertheless, with such an undemanding valuation, Quest may be worth a look as an undervalued play in a software sector where valuations have been quite high in many cases.

Trying To Patch Big Vendor Gaps
Quest has the unenviable task of trying to make its bones (and not get squashed) amidst the likes of Oracle (ORCL), IBM (IBM), VMware (VMW), BMC (BMC), and CA (CA). The idea here is that these companies often offer complex solutions that are actually difficult for IT personnel to implement and maintain – particularly at smaller concerns that can't throw an army of employees at every IT problem.

Quest steps in with simple-to-use solutions and products that help run heterogeneous and cobbled-together IT environments. The company's development tools, for instance, allow IT workers to manage heterogeneous database environments and improve the overall quality and performance. Elsewhere, the company's administration tools can make infrastructures more efficient and can create private clouds.


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Can Quest Find Success In Simplicity?

Investopedia: Big, Blue, And Kinda Cheap

If investors are looking for a one-stop shop in technology, IBM (NYSE:IBM) is a good candidate. The company makes mainframes, servers, develops all kinds of software and is a leading provider of technology services and outsourcing. Of course, there are no free lunches, and investors pay for IBM's ubiquity in lower growth and widespread competition. All of that being said, investors may want to check out this name as a later-cycle undervalued tech play.

The Quarter That Was
By almost all accounts, IBM had a solid end to its fiscal year. Revenue climbed a little less than 7%, with systems (hardware) leading the way at 21% growth, software following at 7% (12% on an adjusted basis), and services lagging at 2% growth. Systems revenue was helped by strong refresh cycle in System Z (up 69%), while System X and storage were also reasonably strong. Although service revenue growth was sluggish this quarter, the company did report very strong bookings.

IBM did well in leveraging this additional growth into profits. Gross margin improved about 70 basis points (to 49%), though weakness in services was a dead weight. Operating income grew 9% in the period, and the company saw an approximate 80 basis point improvement in operating margin. Looking at the segment pretax margin data, it was no surprise to see strong software margins, but it might surprise some to see that IBM's hardware business is actually more profitable than its service business.

Looking Through and Ahead
As IBM's fourth-quarter numbers suggest, services have not rebounded to the same extent as systems and software. Then again, on an industry-wide basis they did not fall as much either during the worst of the recession.


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http://stocks.investopedia.com/stock-analysis/2011/IBM-Big-Blue-And-Kinda-Cheap-IBM-HPQ-MSFT-ORCL-EMC0120.aspx

The Data Storage Gold Rush - Who's Left?

The mad scramble going on today in the data storage market may not be the sort of gold rush that gives us classics like "The Treasure of the Sierra Madre," but it is a gold rush all the same. Shareholders have seen soaring valuations, companies have seen the competitive chess board morph in front of their eyes and outside observers have had plenty to talk about as bids and rumors roil the markets. 

With the recent announcement of a deal between Dell (Nasdaq:DELL) and Compellent (NYSE:CML), it is fair to wonder whether the land grab is close to running its course. There is no doubt that storage is going to be a key component of corporate IT as long as there is IT, but it looks like a combination of scarcity and a need to digest prior deals may eventually calm the market.

The Big Boys
There is no question that there are plenty of options when it comes to corporate-level data storage. EMC (NYSE:EMC) is still a major player in the field, along with competitors like NetApp (Nasdaq:NTAP), IBM (NYSE:IBM), Hewlett-Packard (NYSE:HPQ), Dell  and Hitachi (NYSE:HIT). Within this wide array of vendors is an equally wide array of approaches and technologies, ranging from EMC's efforts to meet almost any conceivable storage need to NetApp's much more focused approach.


The link below leads to the full piece:
http://stocks.investopedia.com/stock-analysis/2010/The-Data-Storage-Gold-Rush---Whos-Left-EMC-NTAP-CVLT-CA-IBM-SYMC-ORCL1215.aspx

Hewlett-Packard Not Done With Hurd Yet

Hewlett-Packard's (NYSE:HPQ) board of directors may or may not have wanted former CEO Mark Hurd to stay, but the company certainly does not want him going to work at Oracle (Nasdaq:ORCL). Hewlett-Packard has filed suit against Hurd in an attempt to block him from accepting Oracle's offer of the role of company co-president, citing the protection of its own trade secrets. While these sorts of suits are not all that uncommon, this one has a bit of a sharper edge than most.

The Background
The story of Mark Hurd's departure from Hewlett-Packard has garnered so much attention, we will only summarize it here. In response to allegations of sexual harassment, Hewlett-Packard conducted an investigation of its then-CEO. Although the investigation did not find an actionable violation of the company's sexual harassment policies, Mr. Hurd's conduct did apparently violate somewhat vaguer provisions about executive conduct.


To read the full piece, please go to:
http://stocks.investopedia.com/stock-analysis/2010/Hewlett-Packard-Not-Done-With-Hurd-Yet-HPQ-ORCL-MSFT-IBM-SAP-CA0909.aspx

4 Stocks For An Uncertain Market

Contrary to popular belief, it is not bad news that Wall Street hates. Professional analysts and investors are reasonably adept at processing bad news, applying whatever bloodletting a stock needs and then moving on to the next idea. It is uncertainty that gums up the works more than anything else, as it produces so many open avenues and so few definitive answers. 

More than anything, it seems that it is the uncertainty about the economy that is weighing on stocks and stirring up volatility. A bad housing report here or a bad payroll number there and screens are flashing red for the entire day, only to rebound to green tomorrow when another piece of data reverses yesterday's bad mood.

With no clear trend to follow, here are a few ideas for investors looking to stay in the market but sidestep a little of the craziness. 

Abbott Labs  
Abbott Labs (NYSE:ABT) is a popular name, and with good reason. The company is diversified across drugs, diagnostics and devices, and management has been adept at delivering solid returns on invested capital. Healthcare has already taken its lumps, but Abbott looks poised to deliver years of high-single digit revenue growth, double-digit cash flow growth and solid returns for patient investors who can also collect a dividend along the way. (For more, see Spot Quality With ROIC)

To access the complete article, please click on the link below:
http://stocks.investopedia.com/stock-analysis/2010/4-Stocks-For-An-Uncertain-Market-ABT-CPB-CA-TEVA0902.aspx

Quest Software (Insert Monty Python Joke Here)

When I decided to push a sizable chunk of my cash into the market a few months ago, I basically walked right into a buzzsaw (thank you, Monsanto (NYSE: MON)!). One of the stocks I picked up then that *has* worked is Quest Software (Nasdaq: QSFT) and last night's earnings report has me feeling a bit happier than usual going into the weekend.

Revenue in the second quarter rose about 13% to $186M. That is not an eye-popping result, but it was almost 10% better than the average guess on the Street. Quest also produced about 350 basis points of operating margin improvement (non-GAAP), and a four-cent beat on EPS.

Digging a bit into the details, license revenue jumped 25% from last year, and I am glad to see this. License revenue growth has been a bit sluggish of late, and it is hard for me to see how the stock goes higher without a revival in this line-item.

Service revenue rose 6% year over year, while maintenance revenue rose 4%. I would like to see a better performance here, but I am not going to worry about it just yet.

The company's Windows business, its largest segment, was also its best grower. Although the database business did show the same magnitude of growth, at least it is growing again. The company's virtualization business did pretty well this period, but at about 10% of the total revenue base it does not really move the needle yet.

Along with earnings, the company announced the acquisition of Surgient - a company that specializes in the deployment and management of secure cloud infrastructure platforms. Given that this is basically "tools for cloud", it makes sense that Quest would be interested. As the IT world moves more and more towards the cloud approach, Quest is going to need to have tools available if it wants to maintain its growth prospects.

All in all, not much changes with this quarter, other than that I feel a little more comfortable with the "return to growth" scenario that motivated my initial purchase of the shares. The risks here are likewise still the same - that large vendors like Microsoft (Nasdaq: MSFT), IBM (NYSE: IBM), and Oracle (Nasdaq: ORCL) will squeeze Quest out of the market by incorporating more free tools into their products, and/or that others like BMC (NYSE: BMC) and CA (NYSE: CA) will basically just out-compete Quest.

Of course, counter-balancing that is the possibility of Quest getting a "if you can't beat them, buy them" bid.

I am still long Quest and I still think the shares are worth upwards of $26 a share. Please note, though, that my history in software stocks is gruesome - I bought Quest mostly as an experiment in a new way of approaching and analyzing the sector, so we will see how that works out.

Disclosure - I own shares of Monsanto and Quest Software