The leading provider of on-demand Customer Relationship Management (CRM) software, Salesforce.com Inc. (CRM) announced that it has accused the tech giant Microsoft Corp. (MSFT) for infringing its patents.
The world’s biggest web-based software maker alleged that MSFT has willfully violated five Salesforce patents and used them in some Microsoft products and services.
The legal battle between the two companies started a month back, since MSFT filed a lawsuit citing patent infringement by Salesforce’s CRM products.
The lawsuits filed with the U.S. courts will attract jury trials and could run into huge cash damages, which we think would be a pressure for both companies.
Salesforce has been dealing with these kinds of legal proceedings over the past years. However, despite Salesforce’s strong cash position (roughly $1.0 billion); we believe that any adverse outcome will likely impact earnings going forward. Moreover, we are concerned that if found guilty in a court of law, the demand for Salesforce’s web-based software programs could be challenged.
In recent days, it is very common for big players in the technology space, particularly software companies, to get involved in patent infringement lawsuits. The rapid growth of technology-based services and the increasing competition for additional market share are the primary reasons for such legal battles.
Notably, last month Nokia Corp. (NOK) and HTC sued iPad maker Apple Inc. (AAPL) for infringing their patents.
However, the company’s results continue to reflect its strong position as a software vendor. Salesforce delivered solid first quarter revenues of $376.8 million, an increase of 24% from the year-ago quarter, due to a pick-up in demand and solid contribution from the company’s commercial customers. Salesforce provided an encouraging guidance for the second quarter and full year 2011. This apart, the company recently extended the reach of its Force.com site through value-added resellers, which is expected to generate additional revenue.
IT spending is showing signs of recovery and Salesforce has slowly started reaping the benefits. We, however, caution investors about strong competitors in the CRM application and cloud computing areas.
We have a short term Hold recommendation for Salesforce Inc.
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