CDC’s License Revenue to Drop

CDC Software Corp (CDCS), a wholly owned subsidiary of CDC Corp. (CHINA - Snapshot Report) said that it expects a decline in its license revenue. The company expects software license revenue to fall in the range of $7.4 – $7.6 million in the third quarter of 2009. The mid-point of the range is a decline of 37% from the year-ago period and 4% from the previous quarter. 

We believe this fall is mainly due to the declining business activity the company felt during this economic downturn, which had a negative impact on the overall enterprise software industry. 

Despite the sequential and year-over-year decline in license revenue, the overall revenue estimates are in line with the First Call Consensus estimates of $7.4 million. The company also said that the license revenue from new logo business increased to 24% in the forecasted quarter, up from 12% reported in the previous quarter. 

CDC Software’s top 10 deals in the quarter included six deals in the food and beverage and financial services/insurance markets. 

CDC Software is a leading provider of enterprise software applications and services. The company generates software revenues from the sale of software licenses and the maintenance and services for such software licenses. CDC has historically achieved 15.0% to 20.0% organic license revenue growth, which may be among the strongest in the industry. 

With a strong organic growth in its software business, we believe CDC is poised to grow. With a continuous focus on vertical industries, cost reduction initiatives in its software segment, new launches and upgrades in its product line as well as integration efforts, CDC should develop a significant competitive advantage in 2009 and beyond. 

Also, an increase in license bookings and a strong pipeline of sales opportunities at CDC Software should drive growth. Moreover, the company remained upbeat on its fourth quarter of 2009 outlook but did not provide any specific guidance.

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