How Suse boss Melissa Di Donato wants to achieve the turnaround

Dusseldorf Investors in the software manufacturer Suse need strong nerves: the capital markets have devalued the share for months, and in September the share price fell to an all-time low. On Thursday, the SDax group then presented figures for the fourth quarter and a new medium-term outlook – in the afternoon there was a minus of more than five percent on the course board. The share cost almost 17 euros.

The company, which has been listed on the stock exchange since May 2021, reported positive news. Suse achieved the sales target, posted a profit again in the operative business and held out the prospect of higher profitability in the medium term. But the shareholders were bothered that the cash flow was not as high as hoped.

However, Suse boss Melissa Di Donato is convinced that she has good arguments against stock market skepticism. “The technology industry is under a lot of pressure, but Suse is one of the companies that have a robust business model,” the American told the Handelsblatt.

Although customers took more time to make decisions, they did not stop their projects. “Because we are concentrating on mission-critical tasks, we were able to handle the situation quite well.”

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Unlike in technology companies such as Microsoft, Amazon or Salesforce, there are therefore no cuts in the workforce. “We are currently not planning any layoffs,” explains Di Donato. After the realignment of sales, productivity is increasing. The company is still hiring in some areas, especially in software development.

Free software as a business

Suse, founded in Nuremberg in 1992 as a “company for software and system development”, has built a business model around open source software such as the Linux operating system. The code is developed by a community of programmers, it is available under a free license – everyone can use it for their own purposes free of charge.

The IT specialist adapts the solutions for use in companies and offers additional services. This includes maintenance and customer service, advice or training. This is a lucrative business: More than 60 percent of the 500 largest corporations are among its customers, many of whom conclude multi-year contracts.

The most used product is an operating system for servers on which, for example, SAP systems or other business-critical applications run. With this core business, SUSE generated adjusted sales of 506 million dollars in the past fiscal year through the end of October, an increase of eight percent.

>> Read here: SAP aroused the anger of many banks

In addition, Suse is building up a business with new technologies. This includes a program that facilitates data processing in the cloud – experts call this discipline container management. For this purpose, the German software manufacturer took over the US provider Rancher Labs in 2020. In the past fiscal year, sales increased by 60 percent to $59 million.

Sales chaos in future business

After the IPO, Suse knew how to convince with this mix, the share price rose to up to 40 euros at the end of 2021. Since then, however, the mood has changed: In the past year, things have continued to go down – after the forecast was lowered, the price even fell by more than 30 percent in one day.

Michael Schäfer, fund manager at Union Investment, attributes the weak development to two main causes. On the one hand, Suse suffers from the fact that investors shy away from most technology companies.


On the other hand, the software manufacturer shows a weakness in future business, Schäfer observes: The acquisition of Rancher Labs, which offers solutions for data processing in the cloud, is developing weaker than expected on the capital market. “Suse didn’t deliver there,” says the fund manager.

Di Donato attributes the problems to sales. After the takeover, the management integrated the sales teams from Rancher Labs into the group – as a result there was a lack of experts for the technology that required explanation.

In the meantime, there is again an independent unit for the future business, which should win new customers. The manager sees the latest quarterly figures as evidence that the restructuring is working.

Investments in “megatrends”

And Suse is expanding the business with new technologies. “When the situation on the markets deteriorates, the financial world questions all investments,” explains Di Donato. The group therefore focused its strategy on a number of long-term “megatrends” last year.

The shift of IT to the cloud is and remains an important topic – the group offers both the infrastructure and software for managing cloud applications. In addition, there is decentralized data processing, for example in cars or machines, which experts refer to as edge computing. That’s why the company presented Suse Edge 2.0 in October, a platform for managing such networked devices.

Although the new segment is significantly smaller, it makes an above-average contribution to growth – and thus to the development of the stock market. “It makes a huge difference in the valuation whether a company achieves growth of around ten percent or is developing in the direction of 20 percent,” explains fund manager Schäfer.

“If Suse can’t get Rancher Labs’ business right, the company is more likely to be in the first category.” That should be decisive for the nerves of shareholders.

More: Microsoft announces 10,000 job cuts this year

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