BEA Systems (IBM) - Get Report beat Wall Street's third-quarter earnings estimates by a penny in the third quarter and posted in-line guidance for the fourth, but the business-software vendor provided analysts little solid evidence that its long-term prospects have improved.

BEA's profit rose to $33.5 million, or 8 cents a share, from $29 million, or 7 cents a share a year ago, according to generally accepted accounting principles. Revenue was $264.4 million, compared with $252.1 million in the same period, the company said after the close on Thursday.

Excluding items, the San Jose, Calif.-based company earned 9 cents a share. Analysts polled by Thomson First Call were expecting a profit of 8 cents on sales of $262.9 million. The penny of upside was likely due to currency fluctuations and some cost savings, analysts said.

In midday trading Friday; shares were recently up 25 cents, or 3.1%, to $8.44.

However, license revenue, a critical measure of new business for software companies, slipped to $114.9 million from $128.2 million in the same quarter last year, although it was roughly in line with expectations. And deferred revenue slipped for the second straight quarter.

"Our top priority is to grow license revenue," said founder and CEO Alfred Chuang.

On Friday, A.G. Edwards analyst Yun Kim noted that Wall Street had lowered the bar for the company after two quarterly misses earlier in the year, and said the outlook for the year as a whole is dim. "Our estimates indicate that the company will likely post negative year-over-year growth of 8% for the year, including double-digit negative year-over-year growth rates for the second half of the year."

Kim and other analysts said that sales of BEA's platform suite, introduced with great fanfare in 2003, remain weak. (A.G. Edwards or one of its principals has a short position in BEA.)

Richard Williams of Garban Institutional Equities wrote a scathing note in which he concluded that the stock actually may rise because the company is looking more and more like a takeover target.

"BEA suffered from a brain drain in the second quarter that ended with the loss of 9 top-level executives. We can only assume that these execs left because they were concerned with the direction that BEAS was headed," he wrote in a note to clients.

Indeed, the failure of the platform business (essentially a bundle of key middleware products) to take off will make it even harder for the company to compete with

IBM

(IBM) - Get Report

its major rival and mean that BEA is still a one-product company, several analysts said.

"With a lot of cash on the balance sheet, no sustained growth for over two years and no clear strategy to fix the problem, BEAS is looking increasingly attractive as a takeout target," wrote Williams. (Garban does not have a banking relationship with BEA.)

During the

Oracle

(ORCL) - Get Report

antitrust trial earlier this year, it was revealed that the database giant has considered buying BEA; Williams said that if

PeopleSoft

(PSFT)

remains an independent company it too might be a potential buyer.

Some analysts had speculated that BEA's early session run-up on Thursday was due to news that Oracle had hired a law firm as an adviser on other potential acquisitions.