August 12, 2004 2:56 PM PDT

BEA earnings rise amid internal turmoil

BEA Systems on Thursday reported a rise in earnings and revenue, amid the company's efforts to stabilize after a management shakeup and a string of executive departures.

The company, which sells infrastructure software for building and running business applications, said that its revenue for the quarter that ended July 31 was $262 million, a 7 percent increase from the same period last year. Net income for the second quarter, on Generally Accepted Accounting Principles (GAAP), rose 18 percent compared with the second quarter last year to $30.6 million, or 7 cents per share.

The second-quarter numbers fell below the company's original projections but were at the high end of the company's adjusted forecast, which it issued earlier this month. Before BEA gave its earnings warning on Aug. 2, analysts polled by Thomson First Call expected earnings of 8 cents per share and revenue between $260 million and $263 million.

BEA's license revenue, a closely watched indicator of its financial health, slipped during the second quarter to $116 million from $127 million a year ago and from $120 million in the first quarter.

BEA CEO Alfred Chuang said on Thursday that the quarter was "solid" but the company is taking steps, including a recent reorganization, to stimulate sales and drive more revenue growth.

"Although these were solid results, we slightly missed our revenue growth (target). We are very focused on our objectives of returning to license revenue growth," Chuang said. "This is an important time in the evolution of BEA, a time in which you should see BEA mature to be more tightly focused in our innovation and enhance our go-to-market capability."

BEA's drop in new software licenses during the second quarter follows a disappointing first quarter this year and the exodus of at least five high-ranking executives.

Within the past month, Chief Architect Adam Bosworth and Chief Technology Officer Scott Dietzen departed, as did Scott Edgington, the company's vice president in charge of partner relations. Two other executives, marketing vice president Rick Jackson and product marketing vice director Erik Frieberg, have also left.

Chuang on Thursday announced that Wai Wong, who was general manager of Computer Associates' Unicenter management software, will become the head of product development at BEA.

BEA's reorganization put company veteran Tom Ashburn in charge of a newly formed sales, marketing and support group. Mark Carges stepped in as the new chief technology officer, replacing Dietzen.

The internal turmoil has renewed questions about the company's long-term strategy and viability as an independent company.

Earlier this week, research firm Gartner issued a note recommending that customers "delay new large-scale strategic commitments to BEA until the company's long-term strategy becomes clearer." Gartner analysts called on BEA's management to articulate a clear vision for stimulating sales and refining its technical vision.

As part of the reorganization, Chuang in a company-wide memo outlined the company's product priorities, which include fine-tuning its flagship WebLogic 8.1 Java server software suite and developing a telecom-industry version of WebLogic.

Chuang's call to focus on BEA's existing customers, rather than new products, underscores BEA's defensive position, said Thomas Murphy, an analyst at Meta Group. BEA is facing growing competition from IBM and Oracle, as well as from the growing interest in open-source Java application servers, which offer an alternative to BEA's products.

"They have got to get back into their core market and make sure they are strong there," Murphy said. "They need to retrench and focus."

One BEA partner said business with BEA's customers is "healthy," particularly companies looking to upgrade to WebLogic 8.1. The company, though, is carefully watching the changes that might come from the executive shifts, said John Hitchcock, vice president of marketing at systems integrator eForce. He also noted that he is seeing a "huge" increase in interest in open-source Java server software.

 

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