With its core application-server market maturing,
is staking a make-or-break bet on the convergence of software applications integration and development.
The bet comes in the form of the latest version of its WebLogic software, called WebLogic Platform 8.1. On Monday, BEA paraded a string of partners and supporters of the product before the press, although it officially launched last month.
BEA Systems CEO Alfred Chuang called the new platform "breakthrough software never seen in the industry before" and BEA officials noted that market-research firm Gartner has said it is two years ahead of the competition. However, Gartner and other analysts also warned Monday that success is not assured because BEA faces stiff competition from such behemoths as
product is a strategic milestone release from them," said Yefim Natis, a vice president and analyst who covers enterprise software infrastructure for Gartner. "I think they are coming to the point where they have to make progress with this new version they are announcing ... or I think they are going to become more interested in being acquired."
CEO Larry Ellison, in addition to peddling a competing application-server product, also has expressed interest in acquiring BEA if the price were right. And BEA has sat out the latest tech rally, its shares up only 13.3% since the beginning of the year, compared to a 28.3% rise in the
. Shares of BEA declined 6 cents, or 0.5%, to close Monday at $13.01. Shares inched to $13.10 in after-hours trading.
The problem is that BEA's core application-server market is largely mature, though still fiercely competitive. In May, Gartner Dataquest found that BEA's
market position slipped to second place as IBM edged up to hold the largest share of revenue in the Java-based application-server market. After seven consecutive quarters of declining license revenue, BEA needs growth to justify a multiple that is now at 41 times estimated 2004 earnings.
With its WebLogic platform, BEA is trying to expand its base of software developers from highly skilled Java programmers to less technically skilled developers, whose numbers are far greater and who work on far more applications projects within enterprises, Gartner's Natis said.
"The main problem is they are turning from the high-end enterprise market, which they understand through and through, to the mass market, where they don't have a market at all." Natis added. "I think that they have an uphill battle in front of them."
And that battle comes from several fronts. On one side, BEA is butting heads against Microsoft and its base of developers for the Windows platform, as well as IBM and its army of consultants. On the other side, because application development also usually involves application integration, BEA competes against pure-play integration vendors such as
, a group that has suffered in recent quarters because of the weak economy and overly complex solutions.
In addition, German applications vendor SAP recently jumped into the integration game with its NetWeaver technology. The threat to BEA is that both SAP and IBM are big enough that they can use such integration products and services as "loss leaders" to win other sales, noted Josh Greenbaum, a technology consultant and principal with Enterprise Applications Consulting in Daly City, Calif.
But other analysts are more bullish about BEA's ability to compete against behemoths like Microsoft, IBM and SAP, as well as the pure-plays. They say BEA offers several advantages, including ease of use, reliability and being application-agnostic. And there's a consensus that BEA got the technology right; the true test will be the company's ability to sell.
"I think the biggest thing for them will be to build that reference base," said U.S. Bancorp Piper Jaffray senior analyst David Rudow, who has an outperform rating on BEA. To that end, investors may want to watch for customer wins to gauge the company's success.
Rudow was encouraged Monday by the testimonial of one customer, Virgin Mobile, which reported it will upgrade to WebLogic 8.1 after the holiday season and expects all of its 25 programmers to take advantage of the technology. (His firm has done investment banking business with BEA.)
"BEA has bet the farm on the WebLogic product line, and it is crucial for this product to be a success," Rudow wrote in a 22-page note on the launch in July. On Monday, he added, "Just to get people in this spending environment -- to get companies up and running on the full platform -- I think that will be the biggest challenge they will have."