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.