BMC Software, Inc. (BMC), Compuware Corporation (CPWR): Are These Software Makers Ripe for the Picking?

Looking ahead, Compuware Corporation (NASDAQ:CPWR) is looking to build on its early success in the collaboration software space, where its Covisint unit has built a strong customer base in the healthcare and automotive sectors. However, the company is planning an initial public offering of the unit, in a bid to avoid losing its corporate independence. Unfortunately, the move seems to be a short-term attempt by management to keep their jobs, rather than a strategic move to improve the overall company’s investment profile.

Any competitor in the mainframe space has to contend with the 800-pound gorilla that is International Business Machines Corp. (NYSE:IBM). Despite refocusing its business on the software and services areas, International Business Machines Corp. (NYSE:IBM) continues to invest in the mainframe segment as a key component of its systems and technology unit. Indeed, the company’s latest mainframe product, the system Z server, has been gaining increased customer adoption and usage rates, despite overall declines for the industry.

In FY2012, IBM reported solid profitability, although its overall sales slipped slightly due to economic pressures in various markets around the world. For the period, the company reported a 2.3% decline in revenues, while its adjusted operating income rose 4.0%. IBM’s operating profitability benefited from its ongoing efficiency initiatives, as well as double-digit growth in its targeted areas of data analytic and cloud computing software. Looking ahead, the company expects to use its technology services and financing cost advantages to continue driving sales of high-margin software, an area that management expects will account for 50% of sales by 2015.

Investment funds are attracted to the mainframe software makers’ historical profit streams and large base of installed users. In the future, though, BMC and Compuware are at a cost disadvantage to IBM, as both companies spend much more of their revenue on marketing activities and overhead. Despite recent business diversification moves, their days as independent companies are likely over. As such, investors looking for long-term investment ideas should keep looking.

The article Are These Software Makers Ripe for the Picking? originally appeared on Fool.com and is written by Robert Hanley.

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