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BEA Q1 weakened by too much choice

WebLogic v AquaLogic

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BEA Systems is paying the price for playing hardball on service oriented srchitecture (SOA), announcing a "surprising" drop in first-quarter sales.

Chief executive Alfred Chuang today told Wall Street that BEA's older WebLogic business had enjoyed a "good quarter" outside the Americas, where the new SOA-focused AquaLogic products' sales story has not been pushed so hard.

WebLogic suffered in the Americas, where BEA claims it is a SOA leader and where the sales teams was permitted to pitch both AquaLogic and WebLogic. This caused confusion and lost business. Business suffered most during the final month of BEA's first quarter.

This was offered to analysts by way of explanation, as Chuang announced first-quarter results in line with recently lowered expectations, with business from sales of new copies of software falling 13 per cent to $114.6m. AquaLogic accounted for 24 per cent of BEA's software business, down one per cent from the previous quarter, with WebLogic Server and Tuxedo contributing the rest of the revenues.

Q1 revenues grew 6.9 per cent to $345.8m - earlier this month BEA warned it would land somewhere between $342m and $347m, down from the earlier guidance $350m-$364m. Analysts pegged BEA at hitting $344.5m. There's no word yet on income as BEA tries to correct for its misallocation of stock options. BEA told Wall Street to expect revenues of $353m-$367m for the current quarter.

The last quarter's performance meant revenue from middleware sales accounted for 33 per cent of BEA's total business, with services - including a healthy $183m dose of maintenance - accounting for the rest of BEA's revenue for the quarter.

Asked if the WebLogic stumble was recoverable, Chuang blamed a new management structured rather than competitive pressures from Oracle or IBM,. He said BEA's salesforce "took their eye off the ball" as a result of management changes. "By hoping to sell more product they'd never had access to until last quarter - that distracted them, and this caused a drop off in WebLogic-based sales in the Americas."

Internal failure seemed preferable to admitting lost business to the competition or price pressure, as at least BEA can give the impression of trying to control the situation. Chuang made veiled references to the "competition", claiming AquaLogic is opening doors into competitors' markets and customers. He denied BEA was suffering commoditization or pricing pressure in the middleware market.

BEA announced its earnings in the shadow of some timely propaganda from Oracle on its website, which repeats claims that it is growing 10 times faster than BEA.

BEA is "pursuing improved execution with a vengeance" and some outstanding deals, especially in telecoms, had already been signed, Chuang said. He added: "The people in Americas feel terrible and are committed to getting everything back on track."®

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