A couple of technology companies released results this week, giving us a view on how the sector is doing.
First up, yesterday, we saw Micro Focus International (LSE: MCRO), which is probably best known amongst computer programmers for its implementation of the venerable Cobol programming language, release a brief first quarter statement for the three months to 31 July.
Although figures were largely lacking, trading was "broadly in line with management expectations". So as far as we can tell, there is probably little deviation at this stage from the expected full year pre-tax profit of £76m.
Nice acquisitions
More importantly, yesterday's statement told us that the acquisition of Borland, announced earlier in the year, has been finalized for $113m. Borland had, for several decades, been a supplier of industrial-strength software development tools, but has since moved to concentrate on software engineering business management software. Also announced was the completion of the acquisition of Compuware, another major supplier in the same field, for $80m. Both of these acquisitions look like smart moves, pulled off at good prices in hard times.
At 383p, the shares are on a forward P/E of 14 for the year ending April 2010, but with good EPS growth expected for the next two years, that represents a PEG of 0.5. In healthy economic times that would seem cheap, but with today's uncertainties, I don't think there is any great bargain here.
Psion
Today, it was the turn of Psion (LSE: PON), the maker of hand held computing devices, releasing results for the six months ending June 30.
I had a quick look at Psion in early July, when I thought the shares were looking a bit pricey, with the company not yet showing a sufficient bounce back in its performance since its pretty bad 2008. I opined that we really needed to see some indication of significant rises in profits to justify the current share price.
Today's results didn't show that, and instead we saw an operating loss for the half-year of £13.9m, up from £3.9m in the first half of 2008. A chunk of that loss was due, as CEO John Conoley told us, to ongoing restructuring costs associated with Symbian PLC, the mobile phone software operation of which Psion is a part owner. But it also reflected the ongoing impact of the recession, with revenues for the period down from £97m to £85m.
A second half upswing?
Against that, Psion has made cost savings of £46m, completing cost reduction plans ahead of schedule, and that is expected to boost the second half performance. Conoley tells us that the mobile computing business is stabilizing worldwide, and that an improvement in revenue is expected by the end of the year.
The most recent forecast suggested full year pre-tax profits of £4.7m and a full year dividend of 3.6p per share. With this half bringing in a 1.2p dividend, Psion looks like it is facing an uphill struggle to meet that, and I still think the current price (70p at the time of writing) is too rich.
How do they compare?
Comparing these two companies, its interesting to see Micro Focus holding up better, as its business is a more defensive one, serving the core needs of companies -- if anything, good engineering management software is especially valuable during tough times when financial efficiency is at the forefront of a company's priorities.
Psion's business, on the other hand, being based on mobile phones and similar gadgets, is much more at the mercy of discretionary consumer spending.
I think these two companies will be worth watching over the course of the next year, as good indicators of the state of their business sectors.
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