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Brit software giant Micro Focus takes a bath after share price crashes 30%, sales tank

Slowing economy blamed for customers delaying software buys as storm clouds gather

The share price of Micro Focus is taking a battering on the London Stock Exchange, plunging 30 per cent this morning after the home of ageing software brands lowered revenue guidance.

The firm - a retirement home for ageing software businesses - revised its outlook for the year ended 31 October from a previously estimated top line constant currency year-on-year decline of 4 to 6 per cent to a steeper drop of 6 to 8 per cent.

“Weak sales execution has been compounded by a deteriorating macro environment resulting in a conservatism and longer decision making cycles within our customer base,” Micro Focus told the City.

The number of sales leads in the bag was described as “significant” but to meet its previous revenue forecast “a highly challenging percentage of this pipeline would need to close prior to year end”. That is highly unlikely to happen, hence the reduction of expectations.

Micro Focus added:

Against this backdrop the board has decided to accelerate a strategic review of the group’s operations. This review will focus on what in addition to execution improvements are required to optimise the value of our broad portfolio of products and it will consider a range of strategic, operational and financial alternatives available to the company.

At the half-way stage of the current financial year, Micro Focus reported a 5.3 per cent fall in group revenue to $1.657bn. It blamed attrition in the sales force as the cause of the pain, felt acutely in licensing. Software maintenance fared better.

Over the past five years, Micro Focus has collated a bunch of dusty software outfits including Attachmate in 2014 for $1.2bn (whose brands included NetIQ, Novell and SUSE), Serena Software in 2016 for $540m, and most recently HPE Software in 2016 for $9bn. The latter buy has led to all sorts of digestive concerns, and saw CEO Chris Hsu, who had moved across with the HP deal, quit after just months in charge.

Angela Eager, analyst at TechMarketView, said Micro Focus had weathered storms in the past, indicating a “durability of its model”, and saw “the value of heritage products for organisations undertaking digital journeys”.

She added: “Nevertheless, Micro Focus is in the middle of a significant storm.”

The share price was down 28.26 per cent at the time of writing. ®

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