Updated from 4:53 p.m. EST

BEA Systems

(BEAS)

reported fiscal third-quarter results Thursday thatwere slightly ahead of Wall Street estimates, withrevenue rising nearly 7% year over year and earningscoming in apenny better than expectations.

The San Jose, Calif.-based application serversoftwarecompany offered revenue guidance for the fourthquarter that was slightly ahead of Wall Streetestimates.

BEA reported income of $24.7 million, calculatedaccording to generally accepted accounting principles, or 6 cents ashare, in the third quarter, which ended Oct. 31, compared to a net lossof $90.9 million, or23 cents a share, in the same period a year earlier.Last year's results were hurt by a drop in businessafter Sept. 11 and also included a $73.1 millioncharge for impairment of goodwill.

Excluding charges, BEA said it earned pro formanet income of $29.6 million, or 7 cents a share, inthe third quarter, compared to pro forma net income of$24.2 million, or 6 cents a share, a year earlier.Revenue rose 6.6% to $234 million from $219.6million a year earlier and 3.6% from $225.9 million inthe previous quarter.

The Wall Street consensus estimate gathered byThomson Financial/First Call projected BEA would postthird-quarter pro forma earnings of 6 cents a share on$225.4 million in revenue. The company had predictedthird-quarter revenue would be flat to slightly upsequentially.

"These were pretty solid results especially inthis environment," said Sanford C. Bernstein analystCharlie Di Bona, who has an outperform rating on BEA."We're looking at a situation here where the weak ITenvironment isn't allowing anyone to show spectacularresults." His firm doesn't do investment bankingbusiness.

In a post-close conference call, BEA executivessaid they anticipate fourth-quarter revenue to rangefrom $238 million to $241 million -- slightly higherthan the $236.8 million projected by Wall Streetanalysts.

The company did not give specific earningsguidance but said it expects operating expenses to beflat to up slightly in the fourth quarter, leading toan operating profit margin in the range of 18% to 20%.That compares to an operating margin of 17.3% in thethird quarter. Wall Street estimates peggedfourth-quarter earnings at 7 cents a share.

Competition from such behemoths as

IBM

(IBM) - Get Report

and

Oracle

(ORCL) - Get Report

inBEA's core application server market has heated up.BEA has countered that competition by developing aplatform of products that combines its applicationserver with a portal and integration features and bylaunching a new data-integration product called LiquidData.

BEA reported winning 325 deals in which itcompeted head-to-head against IBM, including 223 dealsin which IBM was the incumbent. In addition, BEA saidit replaced IBM in 56 accounts, up 75% from 32replacements last quarter. While Oracle recentlyreported the number of its application servercustomers has surpassed those of BEA, BEA Chairman andCEO Alfred Chuang said Thursday that his company has not encounteredOracle in the field. Meanwhile, BEA reported closing18 $1-million-or-greater deals in the quarter.

"The mega-bear case on BEA is that these guys aregoing to get run over by IBM, and they will be driveninto the ground as a result," Di Bona said. "Well,that's clearly not happening right now." Di Bona saidthe large number of $1 million deals is evidence ofBEA making progress in building out its new platformproduct.

Shares of BEA rose 41 cents, or 4.8%, to close at$9.04. In after-hours trading, shares climbed to$9.32.