Aliso Viejo business software maker Quest Software Inc. could see rougher waters ahead.
Its shares were hammered by investors a few weeks ago after the company reported second-quarter results that missed expectations.
Some got even more riled up after Chief Executive Vinny Smith said in a conference call that he was weighing a stock buyback versus spending his company’s cash on a big acquisition that also would require it to take on more debt.
“To say that this comment was poorly received is a severe understatement,” Richard Sherman, analyst at Greenwich, Conn.-based MKM Partners LLC, said in a research note.
But Sherman said he sides with Smith.
“Quest has considerable pressure to stay ahead of Oracle Corp. and Microsoft Corp., who are its main competitors for its two largest and most critical business segments,” Sherman said.
“Management has the fiduciary responsibility to evaluate all strategies even if it causes shareholders’ hearts to stop temporarily.”
The company’s second-quarter results revealed other issues the company needs to contend with.
Quest reported sales of $173 million, up 22% from the same period a year earlier and in line with expectations.
Including one-time charges, the company pos-ted profits of $8 million, flat from a year earlier.
Without the charges, Quest saw $18 million in profits, short of the $22 million analysts were looking for.
Quest saw lower-than-expected revenue from licensing its software, prompting one analyst to rethink the company’s growth track.
“Quest’s margins deteriorated in the second quarter, leaving us doubtful it can achieve its 2008 operating margin targets,” Sherman said.
Licensing revenue was $75 million, $6 million less than Sherman had expected.
Profits were hurt by higher costs.
The company reported nearly $146 million in operating costs during the quarter,about
$13 million more than Sherman said he had
anticipated.
Roughly $3 million was severance pay for some 150 workers who saw their positions cut.
The company is facing a tough second half of the year, according to Sherman.
“Quest’s buoyant European business is subject to a seasonal slowdown in the third quarter and uncertainty is prevailing in the U.S. market,” he said. “Moreover, license revenue in December looks like it will be considerably lower than in the fourth quarter.”
Sherman said he was surprised Quest didn’t lower its outlook for the year.
“Despite these headwinds, management re-mains confident and reiterated guidance,” he said.
Quest is looking for 2008 sales of $705 million to $720 million. It didn’t give a profit outlook.
Analysts are expecting profits of $101 million on sales of $721 million for the year.
The company had a recent market value of about $1.5 billion.
Broadcom Cracks Top 20
Irvine’s Broadcom Corp. and rival Qualcomm Inc. posted the biggest gains on a list of the top 20 chipmakers, according to a recent report by Scottsdale-based market tracker IC Insights Inc.
The report ranks chipmakers by revenue for the first half of this year. It includes makers of memory chips and chips that go into cell phones, among other products.
The top 20 include eight U.S. companies, six Japanese, three European, two South Korean and one Taiwanese company.
Three of the top 20 are fabless chipmakers,they design chips and contract their production out, including Broadcom and Qualcomm.
The top four on the list stayed put from a year earlier,No. 1 Intel Corp., No. 2 Samsung Corp., No. 3 Texas Instruments Inc. and No. 4 Toshiba Corp.
The biggest movers on the list were No. 10 San Diego-based Qualcomm, which posted a 29% increase in revenue from a year earlier and jumped up four spots.
Broadcom broke into the top 20 for the first time. It ranked No. 20 and saw a 20% rise in sales from the first half of 2007.
Memory chip makers slid in the ranking. They’ve suffered as memory chip prices have fallen steeply for the past few years.
Pay-Per-View BlizzConn
If you can’t make it to BlizzConn,Irvine-based Blizzard Entertainment Inc.’s third annual fan convention in Anaheim,fun still can be had in your living room.
Live coverage of the event, where thousands of fans are expected to converge at the Anaheim Convention Center for a few days in October, is set to be shown as a pay-per-view event by DirecTV Inc.
The event features discussion panels, the chance to play upcoming games, tournaments and even a costume contest.
The pay-per-view show is set to have eight hours of high-definition coverage from the show floor each day of the convention.
Getac President
Lake Forest’s Getac Inc., a maker of durable laptop and tablet PCs for the military, said it promoted Jim Rimay to president.
Rimay, 41, is set to run the company’s North America operations. Getac is a subsidiary of Taiwan’s Mitac Technology Corp.
He previously was vice president of marketing and sales.
Getac, which has some 50 workers here, got its start in 1988 as a venture with GE Aerospace, the jet engine unit of General Electric Co. that’s now called GE Aviation.
Getac doesn’t disclose sales.
It makes what are called rugged computers that can be jostled around, take extremes in temperature and meet high-level security requirements.
They are used by the military, police departments, emergency workers, manufacturers and field workers in the oil, gas and telecommunications industries.
