Taking Stock: Size Does Matter In Integration Market - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

07:15 AM

Taking Stock: Size Does Matter In Integration Market

Companies rely on the market leaders when choosing EAI software

There are still few signs of IT budgets thawing from their current subzero state. Magically, the useful life of PCs and networking equipment has been extended to save money. Enterprise resource planning projects have been canceled, downsized, or postponed. However, there are a couple of items on CIOs' wish lists that might see the light of day; the most likely are security software and, possibly, integration software. The latter helps to wring more usefulness from already-implemented systems by integrating otherwise disparate applications.

Numerous players entered the market as the enterprise application-integration category flourished. It appeared there was enough room for everyone, but soon it became clear that there were too many players. IBM has its MQ series, which is well-liked by companies where IBM is heavily entrenched but also competes with other companies' offerings. The actual size of IBM's EAI business is almost impossible to ascertain. IBM has shrewdly rolled it into its middleware segment, which generated $11 billion in sales in 2002.

The biggest, strongest independent EAI company is Tibco Software Inc., with revenue of $273.4 million for the last 12 months. However, its momentum appears to have stalled. Tibco now says it expects revenue to decline 10% to 15% quarter over quarter, more than any other EAI vendor. Next in the pecking order is webMethods Inc., which posted sales of $198.1 million for the past 12 months. Behind webMethods is SeeBeyond Technology Corp., which posted $150.8 million in revenue for 2002. Next are various companies struggling with dropping sales or cash-flow problems, including Iona Technologies plc and Vitria Technology Inc.

But this crowded playing field hasn't stopped BEA Systems Inc., and to some extent Microsoft, from entering the fray. BEA made a big splash with its entrance into the integration market, but Tibco and webMethods say they're not yet seeing BEA when they're competing for deals.

SeeBeyond learned the hard way that balance-sheet strength matters. About a year ago, the company's cash reserves were dwindling. Potential customers shied away because of the perceived business risk. SeeBeyond was forced to raise cash through an equity offering at a not particularly opportune time. Now SeeBeyond is sitting on $94.1 million in cash, implying that its market capitalization is about $100 million. Tibco has a hefty $637.8 million in cash and equivalents, and its market cap after subtracting cash is roughly $225 million. That's a tad below webMethods, which is at $278 million after deducting its cash balance of $190.7 million. Iona is worth only the cash on its balance sheet, implying that investors aren't attaching value to its ongoing operations, despite the company's solid technology offering. The forces of a maturing market combined with a severe downturn, tend to favor market leaders, despite the technological advantages of peripheral players.

Potential customers are flocking to what they perceive to be the leaders. IBM's position is enviable with its financial strength and abundant resources. WebMethods seems to be the only company with any momentum behind it. Meeting financial projections this quarter will be challenging given the continued weak economy and geopolitical uncertainty. For the time being, I'd patiently remain on the sidelines.

William Schaff is chief investment officer at Bay Isle Financial LLC, which manages the InformationWeek 100 Stock Index. Reach him at [email protected].

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
State of the Cloud
State of the Cloud
Cloud has drastically changed how IT organizations consume and deploy services in the digital age. This research report will delve into public, private and hybrid cloud adoption trends, with a special focus on infrastructure as a service and its role in the enterprise. Find out the challenges organizations are experiencing, and the technologies and strategies they are using to manage and mitigate those challenges today.
Future IT Teams Will Include More Non-Traditional Members
Lisa Morgan, Freelance Writer,  4/1/2020
COVID-19: Using Data to Map Infections, Hospital Beds, and More
Jessica Davis, Senior Editor, Enterprise Apps,  3/25/2020
Enterprise Guide to Robotic Process Automation
Cathleen Gagne, Managing Editor, InformationWeek,  3/23/2020
Register for InformationWeek Newsletters
Current Issue
IT Careers: Tech Drives Constant Change
Advances in information technology and management concepts mean that IT professionals must update their skill sets, even their career goals on an almost yearly basis. In this IT Trend Report, experts share advice on how IT pros can keep up with this every-changing job market. Read it today!
White Papers
Twitter Feed
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.
Sponsored Video
Flash Poll