Magic Software CEO Counts on Cloud to Boost Sales Through 2012

Magic Software Enterprises Ltd. (MGIC) expects demand from a migration to mobile and cloud computing to help boost sales by 29 percent this year and allow it to meet a 2009 goal of tripling revenue by the end of 2012.

“We’re going to grow from mobile and cloud because the buzz they create will generate us more business in the traditional world,” Chief Executive Officer Guy Bernstein said in a July 7 interview at Magic’s office outside Tel Aviv. “Growth will come to some extent from cloud, but in the short term it will mostly come from traditional and because people are planning for the future of cloud.”

Magic makes software that allows vendors to build products for customers to upgrade to multiple platforms. Spending on cloud, which allows companies to rent applications on the web rather than put software on their own computers, is projected to grow four times faster than on overall information technologies, reaching $89 billion in 2011 and $177 billion by 2015, according to a June report from researcher Gartner Inc.

The company forecasts revenue of $115 million this year, up from last year’s $89 million and $55 million in 2009. Bernstein said he expects sales to reach $165 million in 2012 and he’d be “happy” if the company could reach $300 million revenue, declining to give a time frame.

Net income at the Or Yehuda, Israel-based company rose 68 percent in the first quarter to $3.1 million. The company said sales rose 29 percent to $25.5 million in the period.

Magic this year won integration software contracts worldwide, including from Sonova AG, the world’s biggest hearing-aid maker, and Agnico-Eagle Mines Ltd. (AEM), a North American gold producer.

‘Gaining Traction’

Ashok Kumar, an analyst at Rodman & Renshaw LLC, with a “market outperform” rating and a 12-month price target of $8, expects sustained double-digit growth for Magic. “We believe that customer base expansion will be driving future revenue growth,” he said in a report on May 9. “In addition, the company is gaining traction in new markets through distributors.”

The company’s shares have soared 143 percent in the past 12 months, compared with a 14 percent gain for the benchmark Israeli TA-25 index. Salesforce.com, whose unit force.com is Magic’s main competitor in cloud computing, has risen 71 percent in the same time period.

In April, Magic increased its holding in South Africa’s Magix Integration (Pty) Ltd., to 75 percent, after buying 51 percent of the distributor in December. Magix won a contract with New Reclamation Group Ltd. in June.

Bernstein said acquisitions will continue to be part of the strategy, adding that Magic is currently talking to different companies. He declined to be specific.

Two Kinds

“We are looking at two kinds of companies, one is pure technology that is complementary,” he said, mentioning mobile technology as one area. “The other companies are service companies that have a nice install base of customers.”

Half of Magic’s revenue comes from the U.S., 30 percent from Europe, and about 12 percent from Japan, Bernstein said.

“The U.S. is an interesting market because it isn’t stable and you can find reasonable opportunities pricewise,” he said.

The company said on July 7 that it intends to announce that Microsoft Corp. (MSFT) partners will soon be able to use its system to integrate the SharePoint business, which makes about $1.3 billion a year, with the JD Edwards & Co. software from Oracle Corp.

To contact the reporter on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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