No IT supplier has escaped the economic downdraft that has swept through the industry during the past two years. But there are a few areas where conditions have been considerably less chilly than others.

After a brief shaky period a year to 18 months ago, the business intelligence (BI) software segment has shown mostly robust growth. Indeed, this sector owes much of its strength to the negative factors that have ravaged most others.

The economic downturn has made businesses keen to manage risk by knowing exactly what is going on in their operations. They also want to measure performance at every level. And, importantly, they must be able to provide a transparency of business activities that shows trustworthiness and sound corporate governance. All these factors play into the hands of the major BI vendors.

The clearest example of this is Cognos, which sells data query, analysis and reporting tools and applications. As it has re-centred its marketing on ‘corporate performance management’, sales have stayed at late 1990s levels. In the opening quarter of its fiscal year, Cognos reported revenues up an impressive 25% to $150.6 million.

Unlike some companies, Cognos did not grow by substituting services activities for licence sales. For the quarter, the company’s business intelligence licence revenue rose 18% to $56.7 million; services revenues, at half that, rose by almost 30% to $28.6 million. Separately, revenue from product support surpassed that of licence sales – up a steep 33% to $64.1 million – because of the recent introduction of a new version of the Cognos suite, Series 7. The one area of concern is that only 38% of revenues came from software sales in the quarter.

Perhaps most surprisingly, though, the company’s growth was helped by sales in Europe, which rose 40% to $47 million, while North American revenues were up a relatively modest 14%.

Another factor that boosted the company’s performance was its $160 million cash acquisition in January of Adaytum, a vendor of financial performance management software with trailing 12 month revenues of about $57 million.

Cognos also reported a rise in the number of large corporate sign-ups. The company clinched nine contracts worth more than $1 million, an all-time high, and 58 contracts greater than $200,000. That included customer wins at BASF, British Gas, Electrolux, Fujitsu, JP Morgan Chase and Visa.

The bottom line measure of how the company has improved its performance in the past year is that it has turned a net loss of $11.1 million in the fiscal first quarter of 2002 into a $10.1 million gain in this latest three months.

Crystal clarity

But Cognos is not the only success story in the BI sector. One of its chief rivals, privately-held Crystal Decisions, has recently filed for an initial public offering on Wall Street and in doing so has opened its books to scrutiny.

For the past quarter available, ending 28 March, the company – like Cognos, Canadian in origin – posted revenues up 30% to $73.0 million and doubled its net income over the same period a year ago to $8.1 million. There is one slight blemish in the IPO filing: although software licence revenue still represents 63% of Crystal Decisions’ business, licence sales fell in its latest reported quarter – the first time in the company’s recent history that licence sales have fallen from one sequential quarter to the next.

Crystal Decisions’ strong figures are helped by outside sales channels that bring in a third of its revenues. One of the largest sources of outside revenue is a decade-long agreement with Microsoft under which Crystal Reports was originally bundled with Visual Basic and is now part of its developer’s suite, .Net Studio, and the Microsoft Business Solutions applications products. Also, SAP “incorporates” the company’s high-end Crystal Enterprise suite, as well as its Reports product, with SAP Business Warehouse 3.0.

As its growth and profitability indicate, Crystal is not listing because it needs money. It has $91.7 million in available cash on its balance sheet and says it will use the money it hopes to raise (more than $100 million) on growth and acquisitions.

Given its growth curve, Crystal should report $270 million to $280 million for its full fiscal year to the end of June, confirming its place in the super league of BI software companies alongside Cognos, Business Objects and SAS Institute. The question now in many industry-watcher’s minds is: Is it serious about floating in a dead IPO market, or is its prospectus a signal that the company is a tasty acquisition prospect?