dusseldorf Investors in the software maker Suzanne You need strong nerves: the capital markets have undervalued the stock for months, in September the share price fell to a record low. On Thursday, the SDax group then presented the figures for the fourth quarter and a new outlook for the medium term: in the afternoon there was a minus of more than five percent on the course board. The action cost almost 17 euros.

The company, on the stock market since May 2021, reported positive news. Suse achieved the sales target, once again reported profits in the operating business, and the prospect of greater profitability in the medium term appeared. But shareholders were upset that cash flow was not as high as expected.

However, Suse boss Melissa Di Donato is convinced she has a good case against stock market skepticism. “The technology industry is under a lot of pressure, but Suse is one of the companies that has a strong business model,” the American told Handelsblatt.

Although clients took more time to make decisions, they did not stop their projects. “Because we are concentrating on mission-critical tasks, we were able to handle the situation quite well.”

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Unlike tech companies like Microsoft, Amazon either Sales force therefore, there are no cutbacks in labor. “Currently we are not planning any layoffs,” Di Donato explains. After the realignment of sales, productivity is increasing. The company is still hiring in some areas, especially software development.

Free software as a business

Suse, founded in Nuremberg in 1992 as a “software and systems development company,” has built a business model around open source software like the Linux operating system. The code is developed by a community of programmers, it is available under a free license – everyone can use it for their own purposes for free.

The IT specialist adapts the solutions for use in companies and offers additional services. This includes maintenance and customer support, advice or training. This is a lucrative business: More than 60 percent of the 500 largest corporations are among its clients, many of whom sign multi-year contracts.

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The most widely used product is an operating system for servers, in which, for example, SAPsystems or other business-critical applications are running. With this core business, SUSE generated adjusted sales of $506 million in the last fiscal year through the end of October, an increase of eight percent.

>> Read here: SAP aroused the ire of many banks

In addition, Suse is building a business with new technologies. This includes a program that facilitates data processing in the cloud; experts call this discipline container management. To do so, the German software maker took over US provider Rancher Labs in 2020. In the last fiscal year, sales rose 60 percent to $59 million.

Sales chaos in future business

After the IPO, Suse was able to convince with this mix, the share price rose to 40 euros at the end of 2021. However, since then, the mood has changed: in the last year, things have continued going down: After the forecast was downgraded, the price even fell more than 30 percent in one day.

Michael Schäfer, fund manager at Union Investment, attributes the weak performance to two main causes. For one thing, Suse suffers from investors shying away from most tech companies.

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On the other hand, the software manufacturer shows weakness in future business, notes Schäfer: The acquisition of Rancher Labs, which offers solutions for data processing in the cloud, is developing weaker than expected on the capital market . “Suse didn’t deliver there,” says the fund manager.

Di Donato attributes the problems to sales. After the acquisition, management integrated the Rancher Labs sales teams into the group; as a result, there was a lack of experts for the technology that required explanation.

In the meantime, there is again a separate unit for the future business, which should win new customers. The manager sees the latest quarterly figures as proof that the restructuring is working.

Investments in “megatrends”

And Suse is expanding the business with new technologies. “When the market situation deteriorates, the financial world questions all investments,” explains Di Donato. Therefore, the group focused its strategy on a number of long-term “megatrends” last year.

IT’s move to the cloud is and remains a hot topic: the group offers both the infrastructure and the software to manage applications in the cloud. In addition, there is decentralized data processing, for example in cars or machines, which experts call edge computing. That’s why the company introduced Suse Edge 2.0 in October, a platform for managing these kinds of networked devices.

Although the new segment is significantly smaller, it makes an above-average contribution to growth, and therefore to the development of the stock market. “It makes a big difference in valuation whether a company achieves growth of around ten percent or develops in the direction of 20 percent,” explains fund manager Schäfer.

“If Suse can’t do Rancher Labs’ business well, the company is more likely to be in the former category.” That should be decisive for shareholder nerves.

More: Microsoft announces 10,000 job cuts this year

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