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BMC Software Shifts Gears And Bets On The Cloud

SAN FRANCISCO (Dow Jones)-BMC Software Inc. (BMC) made its name doing the unglamorous work of streamlining corporate data centers. Now it is riding one of the technology industry’s biggest waves: cloud computing.

Over the past 18 months, BMC has begun helping clients build and manage more than 150 cloud-based data centers. The company’s customers include Concur Technologies Inc. (CNQR) and Rackspace Hosting Inc. (RAX).

BMC also has introduced new cloud products. In May, it rolled out BMC Cloud Lifecycle Management, software for building and operating cloud-based data centers. The Houston-based company also plans to introduce more cloud-related IT products.

“The cloud has been remarkable for us,” BMC Chief Executive Bob Beauchamp told Dow Jones Newswires in an interview. “In the last nine months or so it has really taken off.”

While BMC’s revenue from cloud computing is still small–roughly 3.5% of revenue since the company entered the field–it holds the potential for significant growth. Global cloud-services revenue is expected to grow 16.6 % to $68.3 billion this year and more than double to $148.8 billion by 2014, according to market watcher Gartner Inc.

“Success in cloud computing will mean the difference between existing or not existing within a few years,” said Glenn O’Donnell, a Forrester Research Inc. analyst. “The new battleground is around the cloud.”

While its cloud products have yet to affect BMC’s financial performance dramatically, the company’s shares have outperformed the broad software sector, which has swooned. Since the beginning of the year, BMC has dropped about 13%, much less than competitor CA Technologies Inc. (CA), which is down roughly 20%. The broad S&P Software Index has fallen 18%.

Over the past five years, BMC shares have risen about 90%, while CA shares have dropped about 34%. On Friday, BMC shares closed at $34.76, down 0.7%.

Behind BMC’s performance is steadily growing profits. Over the last three quarters, BMC has seen profit rise an average of 36.6%. By comparison CA’s profits grew 29% over the same period.

A CA spokeswoman said Islandia, N.Y.-based CA had a broader product portfolio than BMC and is “moving fast to accelerate our growth.”

BMC’s growth should continue when it reports first-quarter fiscal 2011 earnings next month. The company will get a special boost at that time: A $15 million deal that was expected to close in the fourth quarter wasn’t completed until a few minutes after the quarter’s close and will now accrue to the first quarter.

Of course, BMC faces plenty of competition. Rival CA has more than double BMC’s revenue. BMC also competes with International Business Machines Corp. (IBM) and Hewlett-Packard Co. (HPQ), although they’re more diversified. Oracle Corp. (ORCL) and Microsoft Corp. (MSFT) also have launched competitive products.

BMC’s jump into cloud computing isn’t the first time the company has switched gears. BMC was founded 30 years ago as a maker of software for mainframe computers. As the market shifted away from mainframes, BMC moved into server automation and management in the mid-1990s.

Currently, about two-thirds of BMC’s revenue comes from server-based tools–such as BladeLogic Server Automation Suite and Atrium Orchestrator–that let IT departments and data centers work more quickly and efficiently.

Philip Potloff, the chief information officer at auto information company Edmunds Inc., has been a BMC customer since 2008. He says BMC’s software dramatically reduces the amount of time his team spends on projects.

For example, it used to take Edmonds’s staff about four hours to deploy one server. With BMC products, he says, they can deploy 100 servers in less than an hour

“It’s all about the capacity to move faster,” he said.

-By Jeanette Borzo, Dow Jones Newswires; 415-765-8230

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