Updated from June 19

Cognos

(COGN)

dropped Friday, after it reported a strong quarter but issued weaker-than expected outlook.The developer of business-intelligence software, was dropping $2.44, or 8.2%, to $27.46. Rival business intelligence maker

Business Objects

(BOBJ)

also fell, and was down $1.79, or 7.6%, to $21.86 in recent trading.

On Thursday, Cognos said that revenue in its first fiscal quarter of 2004 rose 25% over last year.

Net income for the quarter was $12.4 million, or 14 cents per diluted share, an increase of 25%, the company said. Revenue, as reported, was a record $150.6 million, up 25% over last year.

The company's earnings were equal to the consensus of analysts polled by Thomson First Call, while revenue was nearly $3 million higher.

Business-intelligence license revenue increased 18% year over year to $56.7 million.

Looking forward to results for the current quarter, the company expects revenue in the range of $155 million to $159 million, roughly in line with Wall Street's expectations. But diluted earnings will be on the light side of expectations, projected by management to range from 15 cents to 18 cents, compared to analyst estimates of 18 cents per share.

Business-intelligence software is used to sift through corporate databases for information and reports needed to support operational decisions. The software needs to work well with the underlying database, provided by

Oracle

(ORCL) - Get Report

,

IBM

(IBM) - Get Report

,

Microsoft

(MSFT) - Get Report

or other companies.

As businesses continue to amass increasing amounts of data, the need to use it well has become a significant competitive issue. In fact, numerous surveys of IT spending indicate that companies plan to spend more on business intelligence when budgets permit.

That's good news for the major players, including

Business Objects

(BOBJ)

and

Hyperion

(HYSL)

, as well as Cognos. "The major BI players don't need to be acquired," said analyst Mark Murphy of First Albany. "They have solid business models."

That's not to say that they won't become acquisition targets of larger players seeking to add BI capability to their repertoires. Microsoft and

SAP

(SAP) - Get Report

, for example, have added rudimentary business intelligence to some of their products, but so far, their offerings are rather limited. "It's like a Cessna compared to a 747. Both have their uses," said Murphy, whose company does not have a banking relationship with Cognos.

Ottawa-based Cognos is not immune to the falling dollar. Because the company has so many U.S. customers, the relative weakness of the U.S. dollar vs. the Canadian dollar earns the company much less extra revenue than it costs in added expenses, notes Murphy.

Shortly before the close on Wednesday, Cognos was off $1.22, or 3.9%, to $29.90. After hours, the company was sinking an additional 7.6%.