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Compuware expects revenues to drop by 20%

Software and services vendor Compuware has unveiled disappointing preliminary revenue figures for its fourth quarter, expected to be between $400m (£279m) and $408m (£285m), down more than $100m (370m) on last year.

Compuware said it will take a pretax charge of $45m to $55m for the restructuring plans it spelled out on Monday (1 April). The company is closing some of its 110 professional services offices and paring its workforce of 12,000, though final numbers will not be released until all affected workers have been notified, according to a spokeswoman.

Software licence sales are also expected to drop to between $105m and $107m, compared with $138.2m one year ago, while professional services revenues are estimated to be $193m to $195m, which compares with $265.4m a year ago..

The revenue picture for Compuware has been on a downward spiral since last year. In its fourth quarter for 2001, revenues were more than $100m higher, at $514.5m. Just last quarter, the third quarter of 2002, ended 31 December, revenues were $450.6m.

Compuware's fourth-quarter preliminary revenue figures fall short of the $445m expected by a consensus of analysts at Boston-based First Call/Thomson Financial.

The company's difficulties are not a surprise say analysts.

Pat Cicala, chief executive and president of software consulting firm Cicala & Associates said that Compuware's troubles began several years ago when it charged high prices for software licensing, angering many customers and forcing them to look for alternative, cheaper applications. "Compuware started to fall prey to competitors," she said.

The company has since retreated on its earlier pricing models and is often giving customers deals that would have been unheard of three years ago, she said, including higher discounts and better financing or purchasing terms.

The restructuring announced this week makes sense now, she said. "The loss of licence revenue hurt them and they had to do something," Cicala said.

David Floyer, chief technology officer at value consultancy IT Centrix said the old business model used by companies such as Compuware relied on expanding revenues by buying up smaller software companies, especially in the mainframe area.

The problem, Floyer said, is that potential customers have all been tapped, leaving Compuware searching for new ways to boost revenues. Another problem is that customers are well-established with their products and do not need as many revenue-generating services.

"This is the sensible thing to do," he said of the restructuring. "The way they grew in the past was through acquisitions and there's nothing to acquire anymore."

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