BEA reports mixed quarter, shuffles top execs

Revenue from software licenses was down 2% to $120.2M

BEA Systems Inc. reported slower-than-expected software sales for its first fiscal quarter and said it has moved some of its top executives, including the head of its products group, to new positions.

BEA's total revenue for the quarter, which ended April 30, increased 11% from a year earlier, to $262.6 million. But revenue from software licenses, seen by analysts as an important health indicator, were down 2% to $120.2 million, below BEA's earlier projections, the company said.

"We signed 17 license deals over $1 million in Q1. While this is the most we've ever signed in a Q1, we are disappointed that we did not meet our license revenue plans, especially in the Americas," Alfred Chuang, BEA's chairman and CEO, said in a statement yesterday.

Most of the large deals were signed in Europe, which had a particularly strong quarter, he said. Revenue from the Europe, Middle East and Africa region climbed 41% from a year ago, to $98.9 million. But revenue from the Americas slipped 2%, to $125.4 million, the company said.

In a conference call, Chuang blamed the shortfall on seasonal issues, the transition to a new version of BEA's software and changes to its sales organization made at the start of the quarter. The company formed a new sales group to oversee small and medium-size accounts and to work with a network of value-added resellers it is building in North America.

The changes took longer than expected to put in place and resulted in some "near-term disruption," Chuang said.

He also disclosed that Alan Fudge, senior vice president of sales for the Americas, has left the company. Charlie Ill, BEA's head of worldwide sales, who joined the company from rival IBM about 18 months ago, will oversee the region directly until a replacement is found, Chuang said.

Separately, BEA has quietly made a handful of other changes in its top ranks. Olivier Helleboid, executive vice president in charge of BEA's product group, has been moved into a new role directing BEA's long-term strategy, Chuang said.

"Last quarter we decided to emphasize very heavily our longer-term strategic planning. ... Olivier is now driving long-term strategic planning, looking at what we can do to drastically and rapidly extend our marketplace, whether it's expanding the product offerings or expanding our channel," he said.

Helleboid has been replaced temporarily by Tod Nielsen, BEA's chief marketing officer, who will run the products group until a replacement is found. Nielsen also remains head of marketing, although day-to-day operations for the group will be managed by another executive, Rick Jackson, Chuang said.

The changes to BEA's sales group, which included the addition of 74 sales staff, were the right ones to make to ensure long-term growth, he said. BEA signed its first 12 value-added resellers in North America in recent months, which it hopes will help drive further use of its software, he said.

The company is also developing additional packages of products tailored for vertical markets, including a services delivery platform for telecommunications providers that it is building with Intel Corp., Chuang said. In addition, it is working with Hewlett-Packard Co. to offer product packages for building customer self-service portals and for implementing radio frequency identification technology, he said.

BEA could use the extra business, according to 2003 market share figures released this week by Gartner Inc. BEA's main rival, IBM, increased its share of the application server market to claim 41.3% of worldwide revenue, up from 36.4% in 2002. BEA's share slipped to 27.5% from 28.9%, Gartner said.

The total market for application server software was worth $1.04 billion in 2003, down from $1.14 billion in 2002, Gartner said.

BEA's net income for the first quarter on a pro forma basis was $33.5 million, or earnings per share of 8 cents, a slight rise from a year ago and in line with analysts' expectations, according to Thomson Financial/First Call. The pro forma results exclude acquisition-related costs, gains or losses on investments and other nonrecurring items.

Using generally accepted accounting principles, BEA reported operating income of $39.1 million and earnings per share of 6 cents, level with the same period a year earlier. The company ended the quarter with cash and short-term investments of $1.6 billion.

Looking ahead, BEA estimated second-quarter sales of $255 million to $275 million, at the low end of financial analysts' projections, according to Thomson Financial/First Call. Bill Klein, BEA's chief financial officer, said the environment for selling software remains tough.

BEA is holding its annual eWorld conference later this month in San Francisco, where it will provide an update on its product and technology plans.

Copyright © 2004 IDG Communications, Inc.

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