Tuesday, 4 August 2009

SDL points to a brighter future

(By Philip Carnelley, 4 Aug 2009, 18:30) As we described earlier (see Currency translates into growth for SDL), SDL had a fairly difficult first-half, which was made to look a whole lot better due to currency movements. In the follow up briefing, Chairman/CEO Mark Lancaster made no bones about this, explaining that many of SDL’s key customers, such as Renault and Canon, had themselves had a very difficult last 9 months which directly led to lower spending with SDL. Procurement departments of large companies were working hard to drive down prices. He also predicted that conditions would stay much the same through the rest of the year.

He was still his upbeat self, however, and keen to point out the bright spots in the performance which bode well for the future. For us, the most significant is that the company is starting to see cross-sell in key clients, like HP, particularly into sales of the content management platform, Tridion. Cross- and up-sell is a key pillar of the SDL strategy, and as we commented our recent AnalystViews note, SDL - Lost in Translation?, the linkage between Tridion and the other component parts is key, but rather loose.

The other key point is that SDL is managing to retain its important customers, albeit at lower revenue levels in many cases (though some are higher, including Cisco, Philips and RIM). Thus “when the upturn comes” existing customers will start to create new content – manuals, online marketing and the like – which will increase demand for SDL products and services. However that could be some way off – we’d suggest probably 12 months out – so in the meantime SDL (and others) will need to keep the hatches battened down. SDL is doing a good job of this, increasing margins and cash while maintaining R&D spending. Lancaster’s optimism looks justified to us.

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