"Enterprise Computing, System Software, and Vertical Market Software are Key Areas of Growth" According to Industry Expert

• On 12:51 pm EDT, Monday August 31, 2009

67 WALL STREET, New York - August 31, 2009 - The Wall Street Transcript has just published its Application Software Report offering a timely review of the sector to serious investors and industry executives. This 123 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Upgrade Cycle for Application Software -- Software as a Service -- Cloud Computing -- Virtualization Software -- Government Software Sales Cycle -- Demise of Unix -- Installed Base of Microsoft Software -- Installed Base of Oracle Software

Companies include: Microsoft (MSFT); VMware (VMW); Oracle (ORCL); RedHat (RHAT); Sybase (SY); Google (GOOG); Symantec (SYMC); Avocent (AVCT); Novell (NOVL); SolarWinds (SWI);CommVault (CVLT); Data Domain (DDUP); IBM (IBM); SPSS Inc. (SPSS); Steel Vault (SVUL); StrikeForce Technologies (SFOR); Jagged Peak (JGPK); Lyris, Inc. (LYRI); Saba Software, Inc. (SABA); TTI Team Telecom International (TTIL); AMICAS, Inc. (AMCS); Sonic Solutions (SNIC); BluePhoenix Solutions Ltd (BPHX); ArcSight, Inc. (ARST); Etelo, Inc. (ETLO); Pansoft Company Limited (PSOF); Exobox Technologies Corp. (EXBX); PROS Holdings, Inc. (PRO); Proginet Corporation (PFGF); Versant (VSNT); Wyndstorm Corp. (WYND); China Digital TV Holding Co. (STV); QAD Inc. (QADI); Magic Software Enterprises, Inc. (MGIC); Wizzard Software Corp. (WZE); SXC Health Solutions Corp. (SXCI); Telvent (TLVT).

In the following brief excerpt from the 123 page report, David Bayer, Senior Research Analyst at Cantor Fitzgerald, discusses the outlook for the sector and for investors.

TWST: Where are you focusing your attention these days?

Mr. Bayer: I focus on three areas. One is the field of enterprise computing, including enterprise resource planning, human capital management, manufacturing-oriented software, supply chain management, project and product management, and customer relationship management. There are clearly a number of substations within enterprise computing. Currently, we cover Lawson Software (LWSN) and Deltek (PROJ) within enterprise resource planning. The second area that we cover can loosely be thought of as system software, which also includes the cloud computing space. These are companies that support the infrastructure for the enterprise and access to the cloud. We cover two companies in that area: Red Hat (RHT) and CommVault (CVLT). And then there is vertical market software - companies that take some of the concepts we just described and apply them to any individual industry segments. We cover athenahealth (ATHN), which is a combination of specialized software for the medical industry that takes advantage of enterprise and cloud-based computing industries. We also cover DemandTec (DMAN). DemandTec is a very interesting company that has specialized software and services for helping retailers optimize their product mix, helping the producers of products for retailers, which are basically consumer product companies, optimize their pricing and product offerings for the retailers, since the retailers have thousands and thousands of products on the shelves, supermarkets, after superstores of that nature. It's a very interesting company. This space is a lot of fun actually because there's some interesting companies doing some very unique things.

TWST: Has the maintenance made them recession-resistant to a point?

Mr. Bayer: Correct. In general, the majority of the companies that I cover have renewal rates for the maintenance anywhere from 85% to over 100%. The latter happens when companies add additional maintenance for new products they bought in the previous year. For some companies, maintenance revenues are actually growing even when license revenues slow.

TWST: That's an awfully high renewal rate, right?

Mr. Bayer: Certainly I think they can give you comfort that the business models are intact even in a tougher environment.

TWST: What's your feeling on Red Hat at the moment?

Mr. Bayer: We have the stock rated "Hold", more on an evaluation basis as opposed to any concerns about their business model. It's a maintenance-stream and service business model, and as we just talked about, maintenance is a highly predictable way of doing business. So Red Hat has a unique business model, and the demand for what they are doing continues to grow, which is the shift towards open-source computing. I think you're probably aware that Linux powers a meaningful portion of the so-called enterprise cloud, and Red Hat Enterprise Linux is one of the key operating environments for cloud-based computing.

TWST: Tell me more about cloud-based computing.

Mr. Bayer: The manifestations of it, I think, that are probably most relevant to institutional investors? First, there is the concept of software-as-a-service as a cloud-based computing component. In that environment, the idea is that rather than installing software on your enterprise servers or your workgroup servers, the software instead resides on computers managed by the outside vendor. For example, athenahealth and DemandTec host the analytical software and the service-providing software on their computers. So the customer can log in through that network using their own PCs or a thin-client device, such as an iPhone. You can log in to this powerful computing system maintained by your vendors and have access to the power of that system. And so you don't need to maintain your servers for that piece of software. You may have your servers for other uses, for example, for your mail service. But you wouldn't use your servers for that application. In the case of athena, that would be billing or electronic records for patients. In the case of DemandTec, the system helps the retailers analyze trends going on within the businesses with huge datasets. So the idea is that the customer doesn't have to maintain the application server computers and, importantly, isn't responsible for updating the software.

TWST: And that's the one people don't know much about, right?

Mr. Bayer: Yes. For example, Red Hat helps some of these companies power this next thing we are going to talk about: turning on computing power on demand. Perhaps an analogy is that I don't need to maintain a generator outside of my house when I want to turn on the lights because the utility plant supplies power to me when I demand it. Similarly, the idea of cloud-based computing in its pure form is that you don't need to maintain a series of computers for ad hoc computing needs. Instead, a vendor, be it Microsoft or perhaps Amazon (AMZN) with its E2C capability, can turn on the services for analysis or data storage as I need them, and I pay for it on a pay-as-you-go basis. So that service can be storage, that could be computing, that could be perhaps delivery of video stream to somebody on demand. There's a number of different ways that this services can be delivered, but the idea is that it's done on an as-needed basis.

TWST: Thank you. (MJW)

DAVID BAYER Senior Research Analyst Cantor Fitzgerald 8400 Normandale Lake Blvd. Suite 985 Minneapolis, MN 55437 (952) 841-6328 www.cantor.com

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