Oracle, BEA under scrutiny as market slumps

The hotly contested business intelligence and virtualization markets came under scrutiny this week as Oracle’s rejected bid for BEA came back into the spotlight, BEA issued a long-awaited and surprising financial report, IBM snapped up Cognos, and product announcements from IT bellwethers raised questions about high-flying VMware.

Speaking about Oracle’s recent bid for BI vendor BEA, Oracle CEO Larry Ellison said at the company’s OpenWorld analyst and user event Wednesday, “If we made another offer, the price would be lower. … The $17 price seems too high now.” After Oracle’s Oct. 12 surprise bid, BEA shares rose on the news, only to decline again when BEA said it would not consider any offer under $21.

But Ellison left room for speculation Wednesday even as he denigrated BEA, saying Oracle was not interested in the company’s technology but wanted to buy the vendor to “scale up.”

The comments caused BEA’s share price to decline Thursday, right before the company’s quarterly report. The report, however, looked better than many had expected. Revenue for the quarter, ended Oct. 31, was $384 million, up 11 percent from a year earlier. It beat the $349 million forecast by analysts polled by Thomson Financial. Net income for the quarter was $64.3 million, up 70 percent from a year earlier. Earnings per share were $0.13, matching analyst forecasts.

The good news for investors concerned about corporate buying patterns, however, is that BEA’s revenue forecast for the current quarter is $420 million to $434 million. That compares with the analyst forecast of $390 million.

BEA also released financial statements for the past year. They had been delayed due to a stock-option backdating review. “With today’s SEC filings and earnings report,” CEO Alfred Chuang said, “you are now able to see very significant profitability improvements.”

BEA shares ticked up by $0.10 to trade at $16.70 immediately after the report was released.

BI was in the headlines from the beginning of the week, when IBM announced it will buy Cognos for about $5 billion in cash in an effort to beef up its offerings and expand its user base in the face of industry consolidation. The consolidation of the BI market this year has included Oracle’s acquisition of Hyperion and SAP’s purchase of Business Objects.

IBM previously said it would not get into the applications market and compete with business partners. Executives this week said the Cognos acquisition is not, in fact, a move into applications because BI software can be seen as analytics infrastructure. This was not an entirely convincing argument for many observers, but immediate reaction seemed positive anyway.

In a broadly slumping market Monday, IBM shares managed to climb by $0.80, closing at $101.45, while Cognos jumped $4.17 to $57.15. Whether or not IBM is breaking its policy of getting into applications, the move is widely seen as a competitive necessity.

Virtualization, a technology that helps companies cut costs by making efficient use of servers, is another technology generating intense competition as the major vendors bolster their offerings. EMC spinoff VMware’s stock has dramatically declined in the past two weeks after reaching a peak of $125 at the end of October. This week at its Open World event, Oracle announced Oracle VM, a virtualization platform based on XenSource’s open-source Xen hypervisor. Sun, also at Open World, unveiled the company’s virtualization product line, xVM.

But many analysts nevertheless are still backing VMware. In a research note Wednesday, Citi Investment Research said Oracle VM is not likely to damage VMware.

“We expect VMware’s momentum to continue well into 2009 before significant competition from Microsoft, Oracle and/or Citrix/Xen arrives,” Citigroup’s Brent Thill said in the note. VMware was up Wednesday by $10.32, closing at $90.68.

More broadly, however, shares of technology bellwethers have been under pressure even though the last batch of financial reports for the sector, which covered the third quarter, showed surprisingly strong sales across a swath of technology sectors. Worries about the soft U.S. housing market, mortgage defaults, and related turmoil in credit markets and the financial services sector have depressed corporate share prices across many types of businesses.

As a result, companies as diverse as Google, Apple and Research in Motion have seen share price declines, and this week the Nasdaq Composite Index — home to many tech vendors — was down compared with recent highs.