Melissa Di Donato needs to go into crisis mode

Dusseldorf There is only a year between great euphoria and bitter disappointment. As the software provider Susan in September 2021 went publicCEO Melissa Di Donato spoke of a "historic day" for the company - and promised that it was the best time to buy the shares.

When Suse published the quarterly figures on Thursday, Di Donato sounded much more subdued. The company delivered strong sales and earnings amid macroeconomic and geopolitical uncertainties. And she assured: We are working "on overcoming the challenges our company is facing".

The reasons for the serious tone could be found in the announcement. The group, which is listed on the TecDax, missed the expectations of the financial analysts in the third business quarter up to the end of July and also lowered the annual target for incoming orders. The share price then fell by up to 31 percent to a new record low. The paper recovered somewhat during the course of the day, but was still 19 percent down in the afternoon.

At least now it's clear: Di Donato, after the billion dollar IPO as a role model for women in technology professions celebrated must switch to crisis mode. The next few months will be rough. The poor order situation will be reflected in sales in the coming periods, warned Mohammed Moawalla, analyst at Goldman Sachs.

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Suse, founded in Nuremberg in 1992 as a company for software and system development, has built a business model on open source programs. In the scene, the company is known, for example, for developing its own version of the open and free operating system Linux, called OpenSuse, with a community of programmers.

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Suse makes money by adapting the freely available solutions for use in companies and by offering additional services such as maintenance, customer service, consulting and training. So there is an operating system for servers on which, for example SAPsystems or other business-critical applications are running. The products from Franconia are even used in cars and mammography devices.

In addition, Suse wants to open up a new market with so-called container management. These are programs that make data processing in the cloud easier. In order to expand the business, the German software manufacturer took over the American provider Rancher Labs in 2020.

Not a one-off slip for Suse

A supplier for the digital transformation: That was a convincing argument for the Swedish financial investor EQT. In 2018 he took over the company for $2.5 billion - and took it public in 2021, in the midst of the boom, with a valuation that was twice as high. The Swedish group still owns a large part of the shares.

However, the situation has changed significantly since then. In the third financial quarter Suse was able to increase sales by 13 percent to 171 million dollars, adjusted by a number of factors profit (Ebitda) by 18 percent to 65 million dollars. However, the company closed significantly fewer orders. Orders for the next 12 months, a key metric, fell four percent to $114 million. The strong dollar also became a burden.

This isn't a one-off slip-up. For the current financial year, Suse boss Di Donato expects incoming orders in the core business with Linux solutions to increase by only ten percent after currency adjustments instead of a mid-teen amount, and in the growth business with container services by 20 percent instead of the previous 50 percent. In other words, the open source specialist cannot keep its promise of growth.

The container solutions business was hit particularly hard. The economic situation puts a particular strain on this division, "since the purchase decisions for new contracts are made more slowly and some customer projects are delayed," as Suse explained on Thursday.

97 customers in 100 days

Suse boss Di Donato, who visited 97 customers in the first hundred days of office, now wants to focus more on the needs of users. Additional safety certifications and features should encourage them to adopt Rancher Labs products. In addition, the marketing specialist has set up her own sales team.

There is a “robust plan”, the manager emphasized to investors on Thursday. In the next few months, they will take a close look at how well that works - and what that means for the Suse shares in their portfolios.

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