BEA: Stalked by Giants

For most of 2001, BEA Systems Inc. (BEAS ) of San Jose, Calif., seemed impervious to the tech wreck. Customers such as Charles Schwab & Co. (SCH ) were buying millions of dollars' worth of the company's software--essential programs for building and supporting Internet infrastructure. In this niche, eight-year-old BEA was both the biggest and the best.

Now, competition and a lousy economy have finally caught up with BEA. On Oct. 31, the company disappointed Wall Street for the first time since it went public four years ago. Revenues for the third fiscal quarter ending Oct. 31 were $219.6 million, down $4 million from the year before. Its pro forma income was $24.2 million, down $7 million from the same quarter in 2000.

Compared with Net software wrecks like Ariba Inc. (ARBA ) and Commerce One Inc. (CMRC ), BEA still looks pretty good. But what comes next? There are fears that big companies like IBM (IBM ) and Sun Microsystems (SUNW ) could end up crushing BEA in the coming year. IBM, for example, boosted its share of the Web-application server market to 34% in 2001, up from 31% in 2000. In that same period, estimates Giga Information Group, BEA managed to hold steady at 36%. But now, Oracle Corp. (ORCL ) is discounting its software and has BEA square in its sights.

To get out of this pickle, CEO Alfred Chuang says BEA will have to expand beyond its core "Web-application server" business. Today, its programs act like building blocks for big e-business projects. But the future lies in so-called Web services, meaning disparate Net-based programs that work together without any human intervention. On July 10, BEA acquired tiny Crossgain Corp. to help it get a grip on Web services. Chuang has also added Web portal capabilities, so BEA's licensees can create Internet portals that are shared by their staff, customers, and business partners. "We are going to force our competition to continue to play catch-up," says Chuang. But as the CEO will be the first to admit, if the pack ever does catch up, BEA could be mangled.

By Jim Kerstetter

    Before it's here, it's on the Bloomberg Terminal.