The value of Micro Focus has dropped by more than 55% triggered by the announcement that revenues were forecast to fall between 6% and 9%. The perceived wisdom is that this was due to the difficulties in integrating the $6.6bn purchase of HP’s software business and the fact that Micro Focus is poorly positioned to take advantage of emerging trends such as AI. However, there are other factors in play.
Micro Focus has grown based on acquisitions with a common theme. Target companies offering key legacy technology that reflects Micro Focus’s own COBOL roots, reduce costs, and this increase the margin in the maintenance revenue stream. In that respect, the acquisition of HP made good sense but perhaps on reflection, some of the key components of the HP products such as ALM/Quality Centre were not so welded into companies as Micro Focus thought.
Our own survey indicates that almost 40% of the HP ALM installed base is looking to move onto a more modern cost-efficient platform. It might not be the fault of Micro Focus but years of under-investment have left the HP user base feeling under-valued and over-charged. Seeing the product ownership shift to a company whose strategy is to lower costs further was never going to help while their product strategy was already a mystery following their acquisition of similar products from Compuware and Borland.
AI is an exciting technology which in time will have wide applicability but that isn’t why the value of Micro Focus has dived. AI is for the future. Right now their revenues are falling because customers no longer want what they are offering.
Colin Armitage is the CEO of Original Software.