Takeover talk dogs BEA.
Eighteen months on, BEA, one of the great success stories of the past decade, is profitable as ever and its balance sheet is bulging with $1.6 billion in cash. But the same questions are being asked more insistently than ever. During a recent a financial results conference call, Chuang was even forced to utter: "The company is not in jeopardy."
With intense competition in its core application server market, much of it from giants IBM, Microsoft and Oracle, there will always be sceptics. But the company's latest bout of problems really started in May, on the eve of its annual eWorld conference, when it failed to meet its forecast financial targets.
Even though sales were up, licence revenue, the key indicator of future business, was down 2% from a year earlier at $120.2 million, short of forecasts. Wall Street reacted harshly, wiping 20% off the company's stock market value.
Results from its second quarter, ending in July, disappointed again. Revenues rose 7% this time, to $262.3 million, with growth in services to existing customers offsetting a decline in new software sales. It was the 9% decline in software licence sales (to $116.3 million) that really spooked Wall Street.
The net result: BEA is worth $4.27 billion less than a year ago. Analysts are wondering about its future and in particular the impact of intense competition from IBM and others.
In response to the problems in May, Chuang reorganised the sales force, but worries have been exacerbated by a series of recent top-level management departures, most notably chief technology officer Scott Dietzen, chief architect Adam Bosworth, and chief marketing officer, Tod Nielsen.
All three had played key roles in building BEA's network of software developers and defining technology strategies. BEA is attempting to shift focus away from developing innovative products, to concentrate on selling its software to its existing customers.
The threat to BEA and its highly profitable WebLogic application server does not just come from bigger rivals such as Oracle, IBM and SAP, but also from open source application server products such as JBoss. BEA hopes its Liquid Computing strategy, a combination of current and future BEA technologies centring on web services and SOA (service-oriented architecture), will provide a competitive answer to rival IBM's WebSphere.
BEA says that Liquid Computing, announced at eWorld in May, will help companies increase responsiveness, reduce IT complexity and costs. Analysts say this strategy indicates that BEA has shifted its technical approach from a company that puts Java at the centre of all product development to one that gives equal footing to other software development technologies, such as XML (extensible mark-up language), web services and .Net.
BEA also hopes Liquid Computing and individual product offerings such as Quicksilver, an enterprise service bus product designed to improve compatibility between BEA's WebLogic applications and other systems, will spur customer demand. Quicksilver will also be part of the next version of BEA's software, WebLogic, slated for release towards the end of 2005.
The problem: analysts such as Gartner say that the Liquid Computing initiative is not sufficiently different to what its far bigger rivals IBM and Microsoft offer.
To date, BEA has confounded the critics and grown profitably, but many analysts think that the landscape is changing, with more and bigger companies offering increasingly similar capabilities. The success of Liquid Computing will be key.
Some analysts believe that BEA will ultimately be taken over, with Oracle the most likely. Indeed, Oracle CEO Larry Ellison recently revealed that his company has highlighted BEA as a potential acquisition target.
Oracle has made a limited impact into the application server market, and may favour acquisition over a drawn out fight. Hewlett-Packard (HP) might also decide to make a move for its long-standing business partner.
For his part, Chuang is keeping quiet on the subject - perhaps for fear that it might prompt a rash of questions about BEA's long-term viability.
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|Publication:||Information Age (London, UK)|
|Date:||Sep 10, 2004|
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