On April 25, Tech Check’s Jim Goldman blogged on Microsoft’s Yahoo bid. How did he describe Microsoft CEO Steve Ballmer’s “rule” ?

Goldman speaks of Steve Ballmer’s decade-long, iron-fisted rule of the world’s largest software maker

The latest Fortune Magazine has an article titled: Can this man save the grid?

According to the Edison Electric Institute, utilities over the next 20 years will spend hundreds of billions of dollars on infrastructure improvements, including computers, sensors, and networking systems….

One of the players best positioned to capitalize on the rollout of the smart grid is a Silicon Valley entrepreneur named Ray Bell. Bell, 52, a veteran of Oracle (ORCL - Annual Report), Cisco (CSCO), and a network services company he started called SmartPipes, has focused on what may be the most profitable component in the new system: the electric meter that sits in your basement and ticks off the watts as you consume them.

I have been an owner of the market leader in smart meters, Itron (ITRI), for some time. I found the article interesting because it uncovers a potential competitor I hadn’t previously worried about.

It costs roughly $300 apiece to replace them with one of Bell’s so-called smart meters. Southern California Edison will spend $1.7 billion over the next four years to equip 5.3 million homes with smart meters made largely by competitor Itron, based in Liberty Lake, Wash. Bell thinks he has made a better one.

That doesn’t bother me much. Of course Bell thinks his is better, otherwise he wouldn’t have bothered to make it. History is littered with products that are technologically better but fail in the marketplace. More worthy of concern, to me, is his sales force.

He has some important backers. His main partner is the biggest, most dependable name in the business: General Electric (GE - Annual Report).

GE gives instant credibility, clout and power to the product, as well as making it possibly less likely that GE would want to acquire Itron.

There’s probably enough room in the market for both players, but it is worth keeping an eye on the potential competitive effects.

Disclosure: At time of publication, William Trent owns shares of Itron (ITRI).

I began expressing concerns about Cognizant Technology Solutions (CTSH) a year ago.  Even when earnings were stronger than expected in February, I stuck to my guns, saying “Cognizant executed so well on so many different metrics this quarter that anything less than perfection in the future is likely to disappoint.”

It didn’t take long. The company’s expectations for the coming quarter are below street estimates, which is very unusual for a company whose typical guidance is for “at least (insert consensus estimate here).” Chief Executive Francisco D’Souza said the company has adopted a more cautious view for the remainder of the year “to reflect the heightened economic challenges over the past two months.”

Since my November RealMoney piece, the stock has lost 6.8%, compared to a 4.0% loss on the S&P 500. I’d call that a push, given that the fundamental thesis appears to be working. Long term, however, I expect the stock price to reflect the fundamentals. While there is still room to grow, I don’t expect returns to be anywhere near the past levels. In fact, the stock is basically at the same price it was two years ago and I expect single-digit returns for the next several years.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

Originally published May 1, rebuilt here due to site issues.

Engineering simulation software provider Ansys (ANSS) reported revenue of $109.5 million in the first quarter of 2008 and non-GAAP earnings per share of $0.40. This compared with a consensus estimate of $105 million and $0.33.

Ansys also issued new guidance for the full year. It now expects:

* GAAP revenue in the range of $448 - $452 million
* GAAP diluted earnings per share of $1.19 - $1.25
* Non-GAAP diluted earnings per share of $1. 54 - $1.57

The prior consensus estimate called for $453 million in revenue and $1.42 in earnings per share.

One of the reasons I own Ansys is that beating and raising is something of a habit for the company.

Disclosure: At time of publication, William Trent owns shares of Ansys (ANSS).

Business software maker MicroStrategy Inc. (MSTR) said Thursday its first-quarter profit declined, as increasing operating expenses overshadowed growth in product license revenue and support. Investors appeared to be surprised by the news, taking the shares down more than 16%.

They shouldn’t have been. I warned three months ago that MicroStrategy looked cheap for a reason:

A look at recent customer wins shows a concentration of retail, financial and healthcare markets. Not exactly the clients one wants during a consumer and financial crunch.

Indeed, it looks as though the toll was already being felt when MicroStrategy reported third-quarter results. Although gross accounts receivable were basically flat during the first nine months of 2007, the allowance for doubtful accounts was increased by nearly 50% to $2.8 million. This suggests that the company may be having trouble collecting from some customers.

Both net income and cash flow from operating activities declined during the first nine months of 2007. Though service and maintenance revenue grew, product licenses declined more than 3%. Since customers must license a product before they can service or maintain it, the falling product licenses suggest that profits may continue to fall, especially if customers indeed prefer the convenience of one-stop shopping offered by IBM, Oracle and SAP.

In fact, profits would have been lower still had MicroStrategy expensed all of its software development costs, as it did in early 2006. In the first nine months of 2007 $2.7 million of such costs were capitalized, and the capitalized software balance increased by $1 million. Had the development costs been expensed as incurred, cash from operations would have been $2.7 million (4%) lower and net income would have been $641,000 ($0.05 per share) lower.

The allowance for doubtful accounts continued to rise, despite continued declines in the gross receivables. And the capitalized software costs are coming back to bite, as the expenses are now being recognized and no additional costs were capitalized.

To be fair, though, the latest miss came following a run-up in the stock price. Today’s severe decline in the shares merely leaves me looking like a bit less of an idiot than I did yesterday. Since I wrote the article, MSTR shares are up 4.9%, compared to a 1.4% rise in the S&P 500.

Disclosure: At time of publication, William Trent holds no financial position in the companies mentioned in this article.

This morning Ansys (ANSS) announced it would buy Ansoft (ANST - Annual Report) for $16.25 per share in cash and 0.431882 shares of Ansys. A conference call discussing the deal will be webcast at 11:30 EST.

Ansoft is a leading developer of high-performance EDA software. The software is based on more than 25 years of research and development by world-renowned experts in electromagnetics, circuit and system simulation. Engineers use Ansoft products to simulate high-performance electronics designs found in mobile communication and Internet devices, broadband networking components and systems, integrated circuits, printed circuit boards and electromechanical systems. The company’s products are used by blue chip companies as well as small- and medium-sized enterprises around the world.

The acquisition of Ansoft is ANSYS’ first foray into the broader EDA software industry and will enhance the breadth, functionality, usability and interoperability of the combined ANSYS portfolio of engineering simulation solutions.

The “first foray” signals that Ansys won’t be getting much, if any, synergies from the deal. Nor did the press release predict any. The fact that both companies are headquartered in Pittsburgh will minimize costs related to the combination, but that is about it.

Investors signaled their distaste for the deal by sending Ansys shares down more than 7%. In fact, the two companies now have a combined market cap that is $100 million lower than it was before the deal was announced. This could represent investor’s view of the value being destroyed by the deal, or the costs associated with combining the two companies. This is a big contrast to the positive reaction given to the acquisition of Fluent in 2006.

As an Ansys shareholder, I am disappointed that the shares are lower. However, I still think Ansys works in an attractive market segment and am willing to give some benefit of doubt to a management team that has quadrupled shareholder wealth over the last four years.

Disclosure: William Trent owns shares of Ansys (ANSS)

My latest column is up at RealMoney. In it, I explain why I think the negative reaction to BMC Software’s (BMC) purchase of BladeLogic (BLOG) was overdone. In summary:

BladeLogic is growing nearly 40% annually, compared to just 5% expected growth in BMC next year. By my calculations, it increases BMC’s revenue growth rate by 180 basis points, which should have a significant impact on valuation models.

What’s more, I think there were signs that BMC’s growth was due to accelerate on its own. Deferred revenues had declined slightly over the past nine months, which can act as a drag on revenue growth in future periods. But license sales are up 13.5% so far this year, compared to total growth of less than 9%. Today’s license sales should increase future maintenance and service revenues.

Although the BladeLogic deal is expected to reduce BMC’s 2009 per share earnings by 10 or 11 cents, BMC’s estimates for 2009 had already risen by a similar amount. Effectively, the dilution from BladeLogic offsets BMC’s organic improvements for a year.

Meanwhile, BMC has generated more than $540 million in free cash flow over the last 12 months. Some of that is unsustainable, as it comes from collecting on financed receivables. However, I think the sustainable free cash flow is more than $400 million. That still amounts to a 6.5% free cash flow yield at a time when five-year Treasuries return a paltry 2.2%.

Alternatively, I think the stock can generate double-digit returns over the next few years by virtue of its growth, despite a potential reduction in valuation multiples.

Disclosure: William Trent has no financial position in the companies mentioned.

My latest column is up at RealMoney. You can read the full article there, but here is a summary:

Adobe has also generated nearly $1.5 billion in free cash flow over the last 12 months, which gives it a free-cash-flow-to-enterprise-value-yield of more than 9%. That is nearly a 400% premium to the five-year Treasury yield.

Of course, the last six months have shown that attractive valuations can get you nowhere (or even put you in the hole). That is why the catalyst provided by the likely release of Creative Suite 4 becomes so important.

If Creative Suite 4 pans out like any of the last three product cycles, investors should start getting excited about it sometime between now and July. With consensus 2009 earnings estimates already at $2.07, a P/E expansion to 30 times gives a potential target of $62, up from a current $35.

If the thesis continues to play out, I’ll be able to stop kicking myself for jumping the gun.

Disclosure: William Trent owns shares of Adobe (ADBE)

My latest column is up at RealMoney. It is about Websense (WBSN), which provides companies with Internet security tools. In brief, I like the company, but I’d like it more at a different price.

The $48 million in free cash flow Websense generated last year equates to a 5.1% free-cash-flow yield, about double the yield on five-year Treasuries. Analysts are projecting a 13% growth rate over the next five years, but 28.4% for this year. Given the growth in deferred revenue, I think this year’s growth number will be easily met. That means that the 13% five-year rate only requires 9.5% growth in the remaining four years.

With estimates rising, the growth estimates appearing conservative, and a solid free-cash-flow yield, I like the prospects for Websense over the longer term. However, I’ll be approaching an investment cautiously. On the fundamental side, I’d like to see the earnings quality and cash-flow improvements start to show up. Absent that, the chart could look a bit stronger — especially given the whipsaw market we’ve been in lately.

I’d normally look at writing put options here, but the price is too far from any strike price to make the premium sufficiently attractive to me. Whether higher or lower, I’d prefer a different entry point. A pullback to recent lows would boost the free-cash-flow yield above 6%. Alternatively, better price action would give me more confidence that the bottom is really in place.

The full article is available at RealMoney.

I should probably learn to take the money and run more quickly. Back in December I wrote about Diebold (DBD) at about $33 per share and said investors should probably look elsewhere due to earnings quality concerns and what I considered to be unsustainable cash flows. That looked good until this morning, when the takeover offer from United Technologies (UTX) sent the shares up from $25 to $39.

In the interest of full disclosure, this is the third time in as many months that a takeover bid has made one of my bearish calls look stupid (at least temporarily.) In September I wrote bearish pieces on both Yahoo (YHOO) and Delta Airlines (DAL) at prices of $23.30 and $17.65, respectively. I no longer look stupid on Delta since their deal appears to have run aground.

Interestingly, of the three Delta was the only one whose management actually wanted the deal. We’ll have to see whether the Yahoo and Diebold hostile bids suffer the same fate.

Position: No financial positions in the stocks mentioned