Peregrine's new CEO talks about the future

FRAMINGHAM (10/20/2003) - John Mutch, who has been CEO (chief executive officer) at Peregrine Systems Inc. for just two months, is quickly finding out what it's like to head up a company that has recently emerged from bankruptcy. He talked last week with Computerworld's Matt Hamblen about why he took the job, the ongoing need to reassure customers of Peregrine's stability, planned changes to its licensing, and how he plans to lead the San Diego-based company to better times.

Why did you decide to become CEO at Peregrine after such tumultuous times there? I joined Peregrine as CEO Aug. 18, although involvement with the company began in March 2003. I was part of the transition board that served from March until the emergence from bankruptcy on Aug. 7. I was very, very interested in being involved with Peregrine for a couple [of] reasons, and one is the deep rich domain experience on the part of people in the company building products for 20 years who understand customer needs and understand the needs of the market and have a product leadership and thought leadership position in the market.

The other thing that was very clear to me was customers were embracing Peregrine and wanted Peregrine to succeed. Everybody I talked to, and we have 3,500 customers, whether Amgen, Edward Jones, Fidelity, Aetna or whomever, really wanted to use Peregrine products and wanted the company to continue to deliver value to them. Finally, there is a very robust market opportunity. The core segments for consolidated asset and service management are growing in the 4 percent to 5 percent range, and there are a lot of trends around consolidation on one set of products ... that can benefit the company. There are a lot of good, strong core assets for Peregrine to spring off of.

We're really excited about having emerged from bankruptcy and having the opportunity to focus on thought and product leadership and getting back to serving the needs of customers. ... We are on track with the product road map. The company is now focused on delivering on its vision of managing IT for the business. That's an idea that embraces greater visibility by IT organizations into their assets, where they are and what they are costing, what their usage levels are, and whether they are extracting return on investment and greater flexibility in aligning those assets with business initiatives. We are on the road right now articulating our product road map that shows a converged platform to a common underlying architecture between our Asset Center and Service Center products, with first delivery being Service Center in late spring of 2004. The benefit of this is common underlying technology and common configuration management, database architecture, common workflow engine and common access from a visibility p

erspective into the product. There will be a zero-footprint Web client. The goal is to make it easier for customers to use our technology.

How many still work at Peregrine and how many do research? You had 3,600 employees in mid-2002. We have 650 people worldwide and 200 in research and product development.

How do you feel about your company's performance? We feel very good and are on track to meet the plan we filed in bankruptcy to meet the top line with US$167 million in revenue by the end of March 31, '04. Over the past six quarters, Peregrine has 177 new customers and 1,600 transactions with existing customers, where they either bought a new Peregrine module or extended the value delivery. ... Over the course of the past four quarters, we have seen maintenance renewal rates by customers go from 85 percent to close to 90 percent. We take about [10,000] server calls every month and get every customer to fill out a survey. We rank ourselves on 1-6, with 600 respondents per month, and they are ranking Peregrine 5.1 out of 6.0. Customers are happy with what we're doing. ... Customer support has been super.

What are areas needing improvement? There are several things we need to look at. We are articulating a very solid product road map that extends the value of existing solutions and makes them more open and extensible, so there's a whole area of delivering on the product leadership and thought leadership. Another element is pricing. Our company needs to be more flexible in they way we license our products to customers. Over the course of the next 90 to 120 days, you can look for changes we will make to the way we license products that will make it easier for customers to do business. Finally, what we hear from customers is, 'Help me use my Peregrine products more effectively.' As a result, we are 'productizing' some offerings that will address those issues. It's a professional services offering where we'll come in and analyze your usage of asset technology, specifically ours, and concretely make recommendations on how to optimize usage of product in these categories. For example, if you are not scheduling in ma

intenance contracts, if you are not linking the financial results of your assets to your general ledger, if you are not tracking assets from the introductory life-cycle state, we'd recommend you do all those things and show you how to do those things.

How do you distinguish Peregrine from its competitors? We still have a core product advantage. We have best-of-breed solutions in both asset and service center management categories. My sense is our products offer more depth of functionality and are easier to integrate [and] still offer things our competitors do not. Our partnerships with IBM Corp. and Electronic Data Systems Corp. and professional services experience provide strong value.

Are you an acquisition candidate? There's a possibility we can be acquired, but we're not positioning the company for sale or have any program to sell or position the company for sale. We're focused on building out the value with our product line.

Will there be more layoffs in the next year? No I don't think so. I think we're appropriately sized.

Who are your competitors today? Our competitors are BMC Software Inc. with its Remedy line [acquired from Peregrine in 2002], and we see Computer Associates International Inc. (CA) with its help desk line. But we have strengths and weaknesses against both. Remedy is more of a tool set. CA has very strong breadth across the entire stack of products, but individual components are weak. In an enterprise sale, we typically partner with IBM, and in stand-alone product sales, we use our professional services to differentiate ourselves.

Would you rather have Remedy back? I'm not sure we do want it back. Peregrine is now refocused around a couple of categories where we have asset and service, and I think that when you consolidate back to your core value, you have the opportunity to do things quickly and well. The complexity that Remedy brought to that process was not helpful.

What do you say to customers worried about your recent bankruptcy? IDC just came out with a share-analysis report showing a $968 million market in calendar year 2002 for problem management products and said we were No. 1 with Remember and No. 2 in the market without Remedy. We also have $50 million to $60 million in unencumbered cash and are operating in a cash flow-neutral to cash flow-positive basis.We have new license growth. We're not hearing that noise level around survivability anymore.

Is the economy holding you back? Our customer set is in a flat environment, and that's just the reality. But we are seeing companies say we've invested in products, and there is offshore outsourcing and increased corporate-compliance initiatives with HIPAA (Health Insurance Portability and Accountability Act) and the European Data Protection Act, so there's a lot going on and customers need help. At Peregrine, I'm excited to focus on product and thought leadership, and I'm optimistic about it.

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