Information Age: News, analysis & insight for IT & business leaders

In its last financial quarter, systems and security management specialist NetIQ posted a profit. Nothing unusual in that, you might think - except that this was the company's first net profit since 2002, and NetIQ looks on track to make its first annual profit in the 10 years of its existence.

It is unlikely, however, that executives or investors have been carried away with the excitement. For just as Chuck Bosenberg, NetIQ's CEO, has finally begun to reap the rewards of pulling together its diverse product set, which allows users in the IT department to monitor the performance and behaviour of applications and hardware, he faces a fresh set of challenges.

It might now be profitable, but NetIQ is already in a precarious position - for two main reasons: its relationship with Microsoft and its size.

Back in 2000, NetIQ sold Microsoft a licence to resell NetIQ's Windows and Microsoft application management tool for $175 million. Some saw this move as an error, giving the rapacious giant the opportunity to steal away NetIQ's market. And although NetIQ used some of the money to help it diversify into Unix and Linux management tools, the Microsoft platform remains a key focus - in its tools for managing non-Microsoft applications running on the Windows operating system.

But the threat to NetIQ has not gone away. Now, there is the danger that Microsoft's next-generation operating system, Longhorn, will absorb more management capabilities. Bosenberg gives the classic response: Longhorn, he says, is more likely to expand his potential market, adding that plenty of companies coexist with Microsoft in the same segment.

Even if Microsoft doesn't crush NetIQ, others may take its oxygen. In the systems management market, it is dwarfed by four big competitors - Computer Associates, IBM, Hewlett-Packard (HP) and BMC. Although its latest move into service level management takes it up the management stack, with the accompanying higher profile and margins, this is a capability its rivals already have. And a smaller company usually needs a unique focus to survive among giants.

Its security management capabilities, which allow different security policies to be enforced by altering the behaviour of firewalls, spam filters and other security measures, may yet give it that edge.

HP and BMC lack security management completely and the others, NetIQ claims, have not blended it with systems management as successfully. Bosenberg accepts that his own company did not integrate its 2002 acquisitions, Pentasafe and Marshall, as smoothly as it might have done, and this has been widely blamed for NetIQ's flat revenues for the last two years.

But now, as NetIQ's finances begin to turn the corner, its security management division faces a new threat: the merger of security giant Symantec and storage management vendor Veritas. Bosenberg says that Symantec's vision of ensuring "information integrity" - protecting data by security and backup - differs from NetIQ's tools, which manage that process. He argues the impact of the merger will, in any case, be delayed as the companies bring together their product sets.

"We put a whole bunch of pieces together, and I'm sure glad that's behind us," says Bosenberg. "I look at my counterparts at Veritas and Symantec and say they'll have some challenges."

The first half of fiscal 2005 brought revenues of $135.2 million and net profits of $1.1 million, with 75% of current revenues coming from existing customers. For Bosenberg NetIQ has finally reached the "point of sustainability". But his window of opportunity may not last long.