Tuesday, November 07, 2006

Open Text Abandons R&D

Open Text (OTEX) reported what some people will call slightly better results and made much of its continuing integration of Hummingbird. Management claims to be happy. So why no comment from management about its absolute and relative drop in R&D spending? From $15.7 million Q1 05 year down to $14.2 million Q3 06. From 17% of revenues last year to 14% this quarter.

In the latest conference call management and big shot sell side analysts spent all their time talking about the integration. The Hummingbird acquisition is expected to be accretive in 2008, not earlier. Some analysts came close to talking about market share growth and what will it take to grow faster than the market. R&D was not covered.

Open Text is now the largest independent ECM vendor and is positioning itself as the Switzerland of that world. They appear to be bulking up with market share to make themselves look acquisition attractive leaving the costly innovation to whoever will be buying them. The stock is trading near its 52 week high but was down in after hours trading following the conference call. If the take over does not come soon enough they will have a successful integration with obsolete products.