BEA mauled by grumpy Bear
Analysts down on independence
BEA Systems last week begged Wall Street to believe in its future, but at least one financial analyst firm wasn't impressed with the sales pitch.
Bear Stearns on Monday downgraded BEA to "underperform" from "peer form" in an unflattering research note titled "If it walks like a duck . . . " Most notably, the analyst firm didn't buy into BEA's recent assertion that a new product line will make it more competitive and able to tap high growth markets. Shares of BEA dropped close to 3 per cent during the day's trading to $8.43 - a poor result in a largely up technology market.
Did you hear a quack?
"In recent quarters, we have grown increasingly concerned for BEA's competitive position in the J2EE application server market - highlighted by five sequential quarters of year-over-year revenue declines," Bear Stearns wrote. "In our estimation, competitors such as IBM, Oracle and JBoss have continued to increase their relevancy to the market and have accomplished meaningful market share inroads against BEA."
This can't be the reaction BEA was hoping for after launching its new AquaLogic line of software at an event last week in New York. Part of BEA's latest pitch is that it can unite business types and software developers by making easy to use code. This software will in turn serve as the basis for a whole new type of web services platform full of application serving, VoIP, identity management and databases.
The hope is that the product line will breath new life into BEA - a company best known for going head-to-head against IBM in the web and application serving markets. The software maker has watched a number of high-level staffers depart in recent months and heard all the buzz about possible takeovers, slow growth and worried customers.
In a recent interview, BEA's chief marketing officer Marge Breya admitted that the AquaLogic branding campaign and Wall Street push were designed to reinvigorate faith in the company. BEA believes it has a solid reputation as a customer-friendly software firm and can transfer that success into new product areas.
"I actually think there are big reasons for shareholders and customers to see there should be an independent BEA or at least an independent infrastructure software player," Breya told us. "It's better for the industry."
Bear Stearns, however, doubts that independence equals success.
"We believe that there are several overarching themes as well as company specific competitive developments which has disadvantaged BEA Systems over recent periods and, in our opinion, many of these issues are likely to only grow worse with time," the analyst firm wrote in its research note. "Foremost, we believe that IT purchasing behavior continues to evolve to favor vendor consolidation - advantaging vendors such as IBM and Oracle."
Add to this the increased attention being paid to open source software (JBoss), the constant threat of an acquisition by Oracle and all the management shakeups and customers should have serious worries about BEA, according to Bear Stearns.
The firm now believes that BEA's revenue in fiscal 2006 will come in at $1.14bn instead of the $1.16bn previously forecast and that near-term revenue will fall 1 per cent instead of growing 1 per cent. The loss last week of SVP of EMEA Sales Andrew Dutton will not help matters either, Bear Stearns said.
While this is just one firm's view, BEA must sense that its new attack might have come off as more show than substance.
BEA announced the broad AquaLogic product line but only had a few of the actual products ready. Its messaging is also rather vague due more to the nature of the products being sold than lack of effort. Web services are tough enough to deal with now. Selling the future of web services is almost impossible. After all, even BEA admits that hardly any of the customers it has surveyed are actually ready to comprehend the Service Oriented Architecture (SOA) being hawked.
But, while sales of its core products may be slowing, BEA is still in a pretty decent position. Its a market leader in its businesses and bringing in revenue. This should buy some time to see if the AquaLogic thing really will play out. ®
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