Software // Information Management
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2/21/2007
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Software AG Expects To Double Revenues From SOA Market By 2011

The German software maker will have to move fast to launch products and acquire technologies to compete with SOA heavies such as IBM, BEA, Hewlett-Packard, Oracle and SAP, Forrester Research says.

Software AG slapped down the gauntlet Wednesday proclaiming it expects to double its annual revenues to $1.3 billion by 2011, a goal that the company said it would achieve in part through acquiring companies that sell tools for building service-oriented architectures.

In making the bold promise to investors, the German software maker also launched a new corporate face that included a different logo, an overhauled Web site, and a marketing campaign emphasizing the company's focus on customers, not just technology. "We definitely wanted to step up the brand, and make it bolder," Matt Durham, global vice president of market development, said.

On the acquisition front, Software AG has set aside $919.5 million for buying up companies that can expand both its customer base and its products. Software AG focuses on SOA governance in its Crossvision product line, and expects to buy companies with technologies related to that niche.

SOA governance applies to software that can enforce business rules and corporate policies during communications between applications. SOA is a form of distributed computing that uses technology based on extensible markup language, or XML, to tie software components together to automate business processes.

Durham declined to give specifics on the kinds of products Software AG would be looking to buy, other than to say that security was "always an interesting area." "(More specifics) might increase the price of some of the companies we are looking at," he said.

But Larry Fulton, analyst for Forrester Research, said he could see Software AG buying companies with products that manage the application interfaces in an SOA, monitor message traffic, or accelerate and improve communications between applications. "Basically, anything that extends the reach of their governance capabilities into the runtime environment," Fulton said.

Software AG also needs integration tools, so its products can play nice with rivals' software, which is sure to be inside an enterprise's IT environment, Fulton said. Larger companies whose SOA products Software AG would confront would include IBM, BEA Systems and Hewlett-Packard. Oracle and SAP plan to have SOA tools in the near future. "They're going to need to play well with others, because that's what customers want to do," Fulton said of Software AG.

In meeting its projections, Software AG plans to increase consulting revenues, but says it will remain primarily a software company, with licensing making up the biggest share of sales, Durham said. It's also looking to boost revenues worldwide. The company last year got 26% of its revenues from the United States and Canada, and 39% from Europe.

Overall, Software AG has the potential of meeting its goals, given its steady growth to date, and the fact that it's in a strong market, Fulton said. Fully 60% of companies surveyed by Forrester in the U.S. and Europe had some plans to deploy SOAs in the next 12 to 24 months, although not all the projects were expected to be strategic.

"I don't see anything here that's unrealistic," Fulton said of Software AG's projections.

The company expects to increase revenues by 10% this year, and achieve a compound annual growth rate of 17% from 2008 to 2011. Based on the current dividend policy, the company expects to increase the cash-out to shareholders by more than 100%.

Software AG said it would release more details about it expansion plans at the CeBIT conference in Hanover, Germany, in March.

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