Financial Results

The battle for the number two slot in the IT industry is hotting up as a buoyant Dell takes aim at Hewlett-Packard’s weak spots.

Announcing DELL‘s fourth-quarter results, CEO Kevin Rollins said the PC, storage and server company was now on “a trajectory towards an $80 billion goal”. The fact that his statement came just days after Carly Fiorina was ousted as CEO of Hewlett-Packard (2004 revenues: $79.9 billion) was hardly missed by analysts.

Dell’s revenues for the year ending 28 January rose 19% to $49.2 billion and analysts say that the company is on track to hit $60 billion by the end of its current fiscal year – much of it at the expense of HP, which remains the largest hardware manufacturer worldwide by a nose.

Sales in Dell’s fourth quarter rose 17% to $13.5 billion, with revenues from its server and storage systems segment increasing 20%. Desktop PCs still account for over half of Dell’s revenues, and in claiming that Dell receives “more than 100%” of the industry’s profits, Rollins highlights the fact that Dell, unlike its rivals, makes money from PCs. However, one of its newer forays, into printers, showed the strongest growth – printer shipments increased 111% to 5.2 million units.

Meanwhile, Dell’s net income was hit by a one-off tax charge, pushing it down 11% on 2004’s fourth quarter to $667 million. Excluding that, it would have increased 26% to $947 million.

One key aspect of Dell’s success lies in its ability to keep shaving costs: even analysts who were hard on Dell’s performance this quarter noted that it spent less than expected on components.

Looking forward, analysts were concerned that Dell’s growth might be dented by delays in the release of Microsoft’s next version of Windows, codenamed ‘Longhorn’, and by a cyclical decline in purchasing resulting from strong corporate investment during the last two years. Combating such issues, Dell is looking to keep overall growth high by increasing overseas sales. At present 38% of revenue comes from outside the US.

Middleware movements

While Dell is famed for the stability of its senior management, applications infrastructure software vendor BEA is trying to show that high management turnover has not derailed the company. In August 2004, the resignation of CTO Scott Dietzen capped a year of organisational flux.

Founder and board member Bill Coleman, chief architect Adam Bosworth and head of marketing Rick Jackson all resigned, while other managers played musical chairs. At the time, analyst group Gartner said events “call into question the company’s corporate strategy and stability”, and it highlighted the worst software sales since 2000.

Although such concerns have not disappeared in the last six months, BEA’s latest financial results do show some consistency. For its fourth quarter to 31 January, revenues grew 5% to $290.8 million, boosting revenue growth by 7% to $1.1 billion for the year. But a further 8% licence revenue drop during the quarter to $131.7 million capped a year of steady decline in software sales, although BEA still managed to increase its profits – by 6% to $41.6 million.

Analysts are warning of intensified competition for BEA. Although Gartner currently regards it as having the most complete vision for its application platform and the best ability to execute, software giants IBM and Oracle are chasing hard. Others in the middleware market also have BEA in their sites, notably WEBMETHODS – although it too is dealing with internal turmoil.

A recent investigation discovered “improper activities by certain employees”, resulting in it overstating its revenues for 2004 by 3% and the first quarter of fiscal 2005 by 1%. The company’s most recent (third) quarter brought better news. Revenues were up 10% to $55 million, with new licence sales inching up 4% to $25 million. An $11.1 million loss in the third quarter of fiscal 2004 was turned into net income of $48,000.

Having overcome execution difficulties and pinned down expenses, the company is profitable again after six loss-making quarters. Analyst house Forrester places WebMethods in second place by revenue in the ‘pure-play’ integration software market, behind Tibco. All the vendors identified by Forrester in that sector have seen growth slow since the initial boom of 2000-2001, but one, VITRIA, has suffered more than most. Its latest figures do little to show any end to that. Revenues of $17.6 million for the fourth quarter of fiscal 2004 represented a 17% drop over the same period a year earlier, with software licence revenue falling even faster – down 21% to $6.6 million. Net losses increased 24% to $533,000, in spite of cuts in operating costs.

Competition and commoditisation have driven down prices but such drops, especially compared to WebMethods, indicate a more serious problem. Forrester notes that with platform vendors like IBM, Microsoft and SAP offering “good enough” integration capabilities, the pure-play vendors need to re-innovate. Yet Vitria’s annual R&D budget has more than halved since 2001 to $17.5 million; and by a fiscal quirk, rival Tibco’s annual R&D investment exactly matches Vitria’s entire 2004 revenues of $61.9 million.

In the face of such issues, Vitria’s best hope may therefore be in acquisition: it has been cashing in short-term investments over the year to give it a $32.1 million pot that could be used to graft on a hot, new specialist technology to set it apart from its larger competitors. But in contrast to Tibco and WebMethods, Vitria itself currently makes an unappealing takeover target.


Key supplier financial results – February 2005
Company   Main activity   Period   Period end   Revenue ($m)   Rev change   Net inc ($m)   Prev net Inc ($M)  
Actuate Corp Enterprise reporting s/w 4Q04 31-Dec 27.4 0% 1.2 -1.2
Advanced Digital Info Corp Storage systems 1Q05 31-Jan 110.8 -6% -0.3 4.8
Agile Software Corp Product lifecycle mgmt s/w 3Q05 31-Jan 30.3 16% 0.3 -4
Altiris Inc IT management s/w 4Q04 31-Dec 48.4 60% 6.5 4.4
Ariba Inc E-procurement s/w 1Q05 31-Dec 86.9 65% -9.8 6.1
Art Technology Group Inc Marketing, sales, services s/w 4Q04 31-Dec 20.6 30% -3.6 4.1
AutoDesk Inc Computer-automated design s/w 4Q04 31-Jan 356.2 21% 65.8 57.6
BEA Systems Inc Appln server/integration s/w 4Q04 31-Jan 290.8 5% 41.6 39.3
BMC Software Inc Data &systems mgmt s/w 3Q05 31-Dec 386.8 3% 36.4 -44.4
Borland Software Corp Application development s/w 4Q04 31-Dec 82.5 11% 8 -5.7
Business Objects SA Business intelligence s/w 4Q04 31-Dec 266.7 45% 21.3 -8.6
Cadence Design Systems Design automation s/w 4Q04 01-Jan 343.1 10% 59.8 15.2
Ciber Inc Systems integration 4Q04 31-Dec 235.2 41% 7.5 4.2
Cisco Systems Inc Networking products 2Q05 29-Jan 6,062.00 12% 1,400.00 724
Cognizant Tech Solutions Corp Offshore outsourcing services 4Q04 31-Dec 172.8 60% 30.6 17.7
Computer Horizons Corp IT services 4Q04 31-Dec 67.6 10% -24.3 -2.2
Computer Sciences Corp IT services 3Q05 31-Dec 3,516.80 6% 157.5 128.4
Computer Task Group Inc IT consulting services 4Q04 01-Jan 58.8 -4% 0.9 1.8
Dassault Systemes SA* Engineering design s/w 4Q04 31-Dec 287.9 5% 72.1 69.4
Dell Inc PCs, servers &storage prods 4Q04 28-Jan 13,457.00 17% 667 749
Dendrite Int Inc Pharmaceutical CRM s/w 4Q04 31-Dec 104.8 6% 8.8 5.8
E.piphany Inc Customer interaction s/w 4Q04 31-Dec 20.7 -24% -2 0.4
Electronic Data Systems Corp IT services 4Q04 31-Dec 5,249.00 -5% 53 -337
Hewlett-Packard Co Systems, s/w &IT services 1Q05 31-Jan 21,454.00 10% 943 936
Internet Security Systems Inc Internet security s/w 4Q04 31-Dec 80.6 20% 9.2 4.4
Keane Inc IT services 4Q04 31-Dec 229.2 17% 8.5 6.5
Mapics Inc Manufacturing s/w 1Q05 31-Dec 48.3 12% 5.1 2.3
McData Corp Storage switches 4Q04 31-Jan 105.8 -7% -0.1 -7.5
Mercury Interactive Corp Appln perf mgmt s/w 4Q04 31-Dec 204.3 34% 35 13.1
MTI Technology Group Storage/data mgmt products 3Q05 01-Jan 39.5 86% -2.6 1.5
NetManage Inc Host access s/w 4Q04 31-Dec 13.2 -1% 0.7 2.1
Network Appliance Corp Storage servers 3Q05 28-Jan 412.7 39% 60.1 40.2
Novell Inc Networking s/w 1Q05 31-Jan 290.1 9% 395.2 10.1
Open Text Corp Document management s/w 2Q05 31-Dec 114.7 86% 11 7.7
Pegasystems Inc Customer relations mgmt s/w 4Q04 31-Dec 26.2 13% 2.9 3.5
Perot Systems Corp IT services 4Q04 31-Dec 465.6 18% 27.1 9.9
Quest Software Inc Application management s/w 4Q04 31-Dec 118.1 33% 13.3 11.5
SafeNet Inc Network security prods 4Q04 31-Dec 63.8 241% 1.3 4.3 Inc Online CRM s/w services 4Q04 31-Jan 54.6 82% 3.6 -0.8
Sapient Corp Process/performance applns s/w 4Q04 31-Dec 69.6 28% 8 2.6
Serena Software Inc Change mgmt s/w 4Q04 31-Jan 65.8 122% 9.2 6
Software AG* Database and integration s/w 4Q04 31-Dec 135.3 -2% 18.4 5
SPSS Inc Business intelligence s/w 4Q04 31-Dec 60.5 5% 3.6 6.2
SunGard Data Systems Inc Computer services 4Q04 31-Dec 917.2 14% 111.9 112
Synopsys Inc Electronic design s/w 1Q05 31-Jan 241.3 -15% -14.6 32.2
Vitria Technology Inc Application integration s/w 4Q04 31-Dec 17.6 -17% -0.5 -0.4
WebEx Communications Inc Web conferencing svcs 4Q04 31-Dec 67.7 26% 15.8 34.5
WebMethods Inc Application integration s/w 3Q05 31-Dec 55 10% 0 -11.2
Witness System Inc Performance s/w &services 4Q04 31-Dec 38.7 15% 4.5 -2
WM-data Group AB* IT services 4Q04 31-Dec 296.4 31% 11.1 8.2
* figures converted to $US at exchange rates averaged over the reporting period

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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