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Market analysis

In aggregate, the Software companies in our sample reported growth in revenue of 7.6% year on year, but a decline of 4.1% sequentially. The year-on-year growth was driven by Symantec and Adobe, which reported increases of 27.7% and 21.6%, respectively. In terms of net income, the group declined by 9.7% year over year and 7% sequentially. Overall the companies in our sample reported mixed net income numbers, both year on year and sequentially.

Smart machines and robots with artificial intelligence are expected to soon replace highly trained professionals. The economics of AI and machine learning will transform many tasks currently performed by professionals into low-cost utilities. AI's effects on different industries will force the enterprise to adjust its business strategy. Many competitive, high-margin industries will become more like utilities as AI turns complex work into a metered service. The first smart machine that substitutes for a skilled resource will require significant training, but subsequent additions will require little additional cost.

While AI will hit employment numbers in some industries, many others will benefit as AI and automation handle routine and repetitive tasks, leaving more time for the existing workforce to improve service levels, handle more challenging aspects of the role and even ease stress levels in some high-pressure environments.1

Worldwide revenues for cognitive and artificial intelligence (AI) systems are expected to reach US$12.5 billion in 2017, an increase of 59.3% over 2016. Global spending on cognitive and AI solutions will continue to see significant corporate investment over the next several years, achieving a compound annual growth rate (CAGR) of 54.4% through 2020 when revenues are expected to touch US$46 billion. Intelligent applications based on cognitive computing, artificial intelligence, and deep learning are the next wave of technology transforming how consumers and enterprises work. These applications are being developed and implemented on cognitive/AI software platforms that offer the tools and capabilities to provide predictions, recommendations and intelligent assistance through the use of cognitive systems, machine learning and artificial intelligence.2

In company  news, Microsoft's latest version of Windows is faring better than its predecessor, but the software's growth is still stunted by a shift away from personal computers. Windows 10 is now running on a half-billion devices nearly two years after its release. That figure is up from 400 million eight months ago, but far short of Microsoft's goal of putting Windows 10 on one billion devices by 2018. People are increasingly connecting to digital services, checking email and performing other computing tasks on devices powered by Apple's iOS and Google's Android instead of Microsoft's Windows.3

Intuit reported double-digit revenue growth, a healthy dividend track record and a positive earnings outlook. Intuit reported revenue of US$2.54 billion, up 10% year over year. Operating income was reported at US$1.4 billion, and an EPS of US$0.56. The growth was led by Intuit's small business solutions including QuickBooks Online and QuickBooks Self-Employed. Both segments saw double-digit subscription growth. QuickBooks Online subscribers grew 59% during this quarter, and now boasts some 2.2 million total subscribers. The second bright spot came from Intuit's offering to the self-employed demographic, which grew by 100% year over year to a total of 360,000 subscribers. Over 10% of total US employees meet the guidelines of being self-employed. This comes to a total of 9.5 million people, of which 6 out of 10 are still unincorporated. Becoming incorporated allows for tax incentives for owners, so this segment is still a largely untapped market for Intuit as the subscriber growth just reached 180,000.

VMware reported first quarter revenue of US$1.74 billion, an increase of 9% from the first quarter of 2016. License revenue for the first quarter was US$610 million, an increase of 7% from last year. Net income for Q1 2017 was US$232 million, or US$0.56 per diluted share, up 48% per diluted share compared to US$161 million, or US$0.38 per diluted share, for Q1 2016. Operating income for the first quarter was US$238 million, an increase of 24% from the first quarter of 2016. Total revenue plus sequential change in total unearned revenue grew 10% year over year. License revenue plus sequential change in unearned license revenue grew 7% year over year. Future potential growth could come from increased customer interest for SDDC and cloud portfolio as well as digital workspace offerings. 

Symantec’s Q1 revenue was US$1.1 billion, up 28% year over year. Full-year 2017 revenue was US$4.0 billion, up 12% year over year. In terms of segments, Q1 Enterprise Security segment revenue wasup 40%; FY17 Enterprise Security segment revenue was up 22%. Q1 Consumer Digital Safety segment revenue was up 13%; and FY17 Consumer Digital Safety segment revenue was flat compared to FY16. The LifeLock revenue contribution was ahead of expectations as was the debt repayment plan and the company is on track to complete its existing US$500 million accelerated share repurchase in Q1 2018., May 2017, April 2017