发帖
雷达卡
Software Decoded
INITIATION
Initiating Coverage with an Overweight Rating
SOFTWARE DECODED
Initiating at Overweight. The software market’s recovery, which started in
2004 after an abrupt decline earlier this decade, has transitioned to a pivotal
period for the software industry, with the maturation of legacy segments, the
emergence of new and disruptive technologies, and the potential effects of a
slowing macroeconomic environment. Despite near-term economic uncertainty,
we maintain a positive long-term outlook for the software industry and initiate
coverage of the software sector at Overweight.
Secular thesis. Current macro-level business requirements are driving a
fundamental re-addressing of IT strategy, with a focus on cost and efficiency.
Software plays a critical role in reducing costs and improving efficiency and
productivity through the automation or elimination of manual processes—factors
that we expect to drive above-average growth for the sector relative to the other
technology segments. Specifically, software spending is forecast to grow at a
compounded annual rate of 7.8% from 2007 through 2012 compared with the
expected CAGR of worldwide IT spending of 6.0%.
Cyclical thesis. Software is one of the later-cycle segments of IT spending, as
our analysis suggests that software gains relative share of enterprise IT budgets
during challenging economic periods as corporations look to software to sustain
margins and drive productivity. Software also represents one of the leastcyclical
technology sectors, and we expect a software spending downturn to be
shallower and the recovery to materialize more quickly compared with other
technology sectors.
Valuation. The software sector currently trades at a NTM P/E multiple of 16.4, a
significant discount to the industry’s 15- and 5-year average multiples of 27.2
and 23.0. Additionally, software, in aggregate, trades more than one standard
deviation below the sector’s 15- and 5-year NTM P/E averages. Despite trading
near its lowest relative earnings premium to the S&P 500 over the past 15 years,
software’s NTM earnings growth rate is forecasted to increase 8.3 percentage
points more than the S&P 500, compared with the five-year average of 6.3
percentage points.
Stock ideas. Given the uncertain macroeconomic outlook, we recommend that
investors focus on software stocks exposed to security and virtualization (e.g.,
Symantec and Citrix Systems), as well as companies with highly recurring
revenue streams (e.g., Microsoft) and with exposure to meaningful product
cycles (e.g., Adobe, CA, and BMC Software).
Table of Contents
Table of Contents 2
Executive Summary 4
Sector Thesis Analysis 9
Secular Thesis 9
Software Continues to Gain Share of the IT Budget 9
Share Gaining Subsegments of Software 12
Stable Margin Profile and Value Creation 14
Cyclical Thesis 16
Software Is a Late-cycle Technology Segment with Less Cyclical Variability than Other
Technology Sectors 16
Software Is Less Exposed to Consumer Downturns 18
Software’s Performance in Past Economic Cycles 18
Revenue Growth 18
Stock Price Performance 20
What’s Different about This Cycle? 21
International/Globalization 23
Maintenance Revenue Grows—Dampening Revenue Volatility 24
Consolidation = Fewer Vendors = Fewer Viability Concerns = Less Competition 26
Growing Importance of IT in Business Processes and Productivity 27
What Segments of Software Are the Most Cyclical? 28
What Segments of Software Could Be Sheltered? 29
Security 30
Virtualization 31
What to Own Coming out of the Cycle? 32
Seasonal Thesis 32
Software Spending Patterns 32
Seasonal Trading Patterns 34
Product Cycles 39
CS4 Product Cycle around the Corner 39
IBM z10 Mainframe 42
Valuation 46
Historical Valuation Analysis 46
Software Themes/Trends 56
On Demand 56
What Is On Demand? 56
Evolution of Software Architecture Paradigms 56
Why Is On Demand Important? 58
Does Software Matter? 58
Agility from Mass Customization 59
Bringing Consumer Concepts to the Enterprise 60
What Is the Market Opportunity? 60
What Is the Competitive Landscape? 64
How Do I Invest in On Demand? 65
NetSuite 65
Digital River 66
Virtualization 67
What Is Virtualization? 67
Why Is Virtualization Important? 68
Server Virtualization Reduces TCO 68
Virtualization Enables Desktop Utility Computing 69
What Is the Market Opportunity? 71
What Is the Competitive Landscape? 76
VMware 76
Citrix Systems 79
Microsoft 79
How Do I Invest In Virtualization? 80
VMWare 80
Citrix Systems 81
Service-Oriented Architecture (SOA) 84
What Is SOA? 84
Why Is SOA Important? 85
The Emergence of Business Process Centric Computing 85
SOA Enables Reuse of Software Code 86
SOA Increases Productivity 86
What Is the Market Opportunity? 87
What Is the Competitive Landscape? 88
Security 89
What Is Security? 89
Internet Was Never Meant to Be Secure 90
Growing Risk Profile 91
Why Is Security Important? 91
What Is a Company’s Most Valuable Asset? 91
Growth in Connectivity 92
Changes to Corporate Business Processes Create Security Risks 93
Regulatory-Driven Spending 94
What Is the Market Opportunity? 94
What Is the Competitive Landscape? 95
How Do I Invest in Security? 96
Symantec 96
Check Point Software Technologies 96
Mainframe Management Software 99
What Is Mainframe Management Software? 99
Why Is Mainframe Management Software Important? 100
What Is the Competitive Landscape? 101
How Do I Invest In Mainframe Management Software? 103
Cyclically: Mainframe Software Stocks Outperform during Mainframe Cycles 103
Secularly: Mainframe Software Really Back?—Yes, as MIPS Growth Is Offsetting
Slowing Price Declines 105
Sources and References 107
Executive Summary
The software industry comprises businesses involved in the development, maintenance,
and publication of computer software. The software industry started in the mid-1970s at
the time of the personal computer revolution,1 and since this time, the evolution of the
industry has been characterized by rapid innovation and seemingly constant change.
In our opinion, the software market’s recovery, which started in 2004 after an abrupt
decline earlier this decade, has transitioned into a pivotal period for the software industry,
with the maturation of legacy segments, the emergence of new and disruptive
technologies, and the potential effects from a slowing macroeconomic environment.2
Despite near-term economic uncertainty, we maintain a positive long-term outlook for the
industry, and, as such, we are initiating on the software sector with an Overweight
recommendation, based on a five-pillared analysis of the industry. (See Exhibit 1.)
Exhibit 1: Sector Thesis Summary Analysis
Secular Thesis: Software Continues to Gain Share of the IT Budget
■ Current macro level business requirements are driving management to readdress their companies’ fundamental IT
strategies, with the focus on cost and efficiency. Software plays a critical role in both reducing costs and improving
efficiency and productivity through the automation or elimination of manual processes—factors that we believe will
drive above-average growth for the sector relative to the other technology segments.
■ Software spending is forecast to grow at a compounded annual growth rate of 7.8% from 2007 through 2012,
compared with the expected CAGR of worldwide IT spending of 6.0% over the next five years.
■ We believe that four strong secular growth themes will continue to dominate the software landscape for the next
several years and will drive above-average growth rates to the broader software market: service-oriented
architecture (SOA), virtualization, On Demand, and IT security.
Cyclical Thesis: Software Is a Late-Cycle Technology Segment with Less Cyclical Variability
■ We view software as one of the later-cycle segments of IT spending, given that our analysis suggests that
software gains relative share of enterprise IT budgets during challenging economic periods, as corporations look
to software as a means to sustain margins and to drive productivity and revenue growth.
■ Based on our analysis, which suggests software represents one of the least-cyclical technology sectors, we
expect a potential software spending downturn to be shallower and the recovery to materialize more quickly as
compared with other technology sectors.
■ Given the uncertain macroeconomic outlook, we recommend that investors focus on software stocks exposed to
security and virtualization (e.g., Symantec and Citrix Systems), which remains among the most sheltered
subsegments of IT budgets, as well as companies with highly recurring revenue streams (e.g., Microsoft) and with
exposure to meaningful product cycles (e.g., Adobe, CA, and BMC Software). Conversely, we view large-scale,
“big-ticket” application software as the most negatively leveraged subsegment to slower IT spending.
Seasonal Thesis: Revenue Growth and Stock Price Performance Weighted to Second Half
■ Software’s 15.6% average fourth quarter sequential revenue growth over the past five years is the second-highest
growth rate by technology sector, exceeding technology’s five-year average of 11.4%.
■ The best time to own software stocks has been September through January. Over the past ten years, software
has outperformed the S&P 500 80% of the time by an average of approximately 894 basis points.
Product Cycle: Creative Suite and Mainframe Dominate Product Cycle Outlook for 2008
■ With the anticipated release of the next version of Creative Suite, specifically CS4, expected toward the end of
this year or early 2009, we expect Adobe’s stock to trend higher over the next six months. Adobe’s stock
outperformed the Credit Suisse Technology Index (Software) six months prior to all of the last six major
Photoshop or Creative Suite releases—outperforming the index by 46.5% on average.
■ With the release of the next generation of mainframe hardware from IBM on February 26, 2008, combined with
our secular thesis of the mainframe’s “renaissance,” we expect both CA and BMC’s stocks to narrow the historical
valuation discounts to the broader software industry and to trend higher over the next 12 months.
Valuation: Attractive Valuation Relative to Growth Outlook
■ The software sector currently trades at a NTM P/E multiple of 16.4, a significant discount to the sector’s 15- and 5-
year average multiples of 27.2 and 23.0, respectively. Additionally, software in aggregate trades more than one
standard deviation below the industry’s 15- and 5-year next-12-months (NTM) P/E averages.
■ Software currently trades at a 31.5% premium to the S&P 500 on a NTM P/E multiple basis—more than one
standard deviation below the sector’s 15- and 5-year averages.
■ Despite trading near the lowest relative earnings premium to the S&P 500 over the past 15 years, software’s next-
12-months earnings growth rate is forecast to increase 8.3 percentage points more than the S&P 500, as
compared with the five-year average of 6.3 percentage points.
Although near-term demand for software remains exposed to currently uncertain
macroeconomic conditions, we believe that the software industry is positioned in the early
stages of another wave of innovation, as major secular trends begin to merge: (1)
broadening adoption of new technologies (e.g., virtualization, unified communications,
service-oriented architectures, On Demand, etc.); (2) users’ needs for higher levels of
collaboration and personalization; (3) a combination of economic and business forces
driving demand for increased flexibility and automation of business processes to drive
greater efficiency and productivity; and (4) the emerging class of line-of-business IT
buyers. In fact, the software industry represents the only technology sector for which the
forward five-year revenue growth forecast is not anticipated to decline meaningfully below
its historical five-year average.
In our opinion, the convergence of these trends will drive continued innovation and result
in above-average growth for the software industry for at least the next five years relative to
overall technology spending and the broader stock market, in addition to greater stability in
software spending as compared with the post-1990s application spending hangover.2 In
fact, CIOs believe that innovation, which has also been a key growth driver for the sector,
continues to rise in the software industry. Specifically, a new study of technology buyers
from McKinsey & Co. and the SandHill Group suggests that 62% of CIOs believe that
innovation in the software industry remains on the upswing—with an expectation for
upcoming technology innovations to surpass those of the past two to three years.3 (See
Exhibit 2.)
227915.pdf
(3.4 MB, 需要: 20 个论坛币)
提升卡
置顶卡
沉默卡
变色卡
抢沙发
千斤顶
显身卡
京公网安备 11010802022788号
