BEA sees a turnaround ahead
Published: 20 May 2004 11:10 BST
Scrambling to boost sales, BEA Systems next week will announce new products along with a plan for gaining an edge over competitors.
The company, which sells a suite of server software for running corporate transaction systems, will outline product plans at its eWorld customer conference in San Francisco. The initiatives are aimed at making BEA's Java-based software and development tools more widely used. The company intends to stave off increasing competitive pressure from IBM, Oracle and Microsoft.
BEA, which last week announced lower-than-expected sales, is hoping to revive customer interest with several new products. The company plans to fill in the picture on Project Sierra, a set of educational programs and technical resources for designing a modern computing system called a services-oriented architecture. Also expected are details about an initiative to broaden the use of its WebLogic Workshop Java development tool, in part by submitting some of the code to open-source projects, according to people familiar with the company's plans.
And, BEA says, it will discuss products under development, including better management tools; a standards-based messaging product called an enterprise service bus; and the next version of its flagship WebLogic product line.
Analysts generally agree that BEA's technical vision has long been on target. But the company is finding that even cutting-edge technology does not guarantee growth in the highly competitive market for infrastructure software. Larger and better-heeled competitors, such as IBM and Microsoft, have broader product lines, which gives them more inroads to large corporate accounts, analysts say.
"[BEA's] product is great. Great. But it is not enough," says John Rymer, an analyst at Forrester Research. To compete head-on with larger rivals, the company needs more relationships and products to sell corporate customers, he says. Oracle, Microsoft and IBM can undercut the price of BEA's Java server software by bundling their own application server suites with other products and services.
The disappointing financial results revived some long-standing questions about BEA's ability to thrive, but analysts say the company's advantages include impressive technology, a large installed base and strong industry partnerships.
Although BEA met its overall revenue and income targets, financial results for its fiscal first quarter indicated that licence revenue -- a closely watched indicator of new business -- slipped by 2 percent to $120m, a number that fell below expectations. The company's stock was hammered by the news, falling more than 20 percent, and a number of financial analysts downgraded the stock. The company blamed the "disappointing" performance on poor sales execution in the Americas during a reorganisation of its sales force.
The poor financial results "should be a wake-up call" to BEA's management, Rymer says. "I've felt for some time that BEA needed to use its $1bn in cash to make big acquisitions…They can't count on organic growth anymore."
Market share reports from technology research companies, revealed last week, indicated that BEA's rivals are outpacing the company in revenue growth. IBM, which displaced BEA for the top spot in Java application servers in 2002, saw its revenue in Java server software climb faster than BEA's in 2003, and Oracle's revenues grew rapidly as well. BEA also faces competition from Microsoft's server software and development tools division.
Open-source Java server software and tools are gaining momentum, which appears to be cutting into BEA's core application server business, according to analysts. JBoss, which sells services around a freely available application server, has taken on outside investment to fund its push to acquire corporate customers. Also in the works are other open-source application servers called Jonas and Geronimo, based on the Java 2 Enterprise Edition (J2EE) standards.
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