Business Objects trims forecast as revenue disappoints

Business Objects preliminary results for the second quarter are "disappointing and below our expectations," CEO John Schwartz said Thursday.

Business Objects's preliminary results for the second quarter are "disappointing and below our expectations," CEO John Schwartz said on Thursday. The business intelligence software vendor failed to reach license revenue targets because it is taking longer than anticipated to close some large deals, he said.

Back in April, the company said it expected second-quarter revenue in the range $US295 million to $US300 million, but now revenue for the quarter is likely to total between $US287 million and $US291 million, he said in a conference with analysts.

Despite the disappointment, the expected revenue for the quarter still represents a 10 percent rise compared to a year earlier, he said. Within that total, Schwartz expects license revenue to have declined 6 percent year on year, to between $US116 million and $US118 million, and services and maintenance revenue to have risen 25 percent to between $US171 million and $US173 million.

The company's execution on large deals was inadequate, he said. "Large deals are naturally more complex, involving more users, more products and requiring more services and integration work," Schwartz said. "As a result, those kinds of deals typically take longer to close." Sales cycles for large deals have lengthened over the last 18 months as customers are taking more care with purchasing decisions, he said.

"On a more positive note, the majority of the deals remain in our pipeline," Schwartz said.

Other problems include slowness on the part of Business Objects' European business units to exploit the increase in scope of the company's product range, Schwartz said. European units have also been slow to manage their relationships with their largest customers, a recent focus of company strategy, he said. The company has dual headquarters in San Jose, California, and in Paris, France.

"Services today account for just over 15 percent of our business," Schwartz said. Although the number of staff working on services remains flat or is declining, the company is improving profitability by focusing on "higher value-add offerings, moving from implementations to a consulting or advisory role," he said. The company appointed a vice president of professional services, former Ernst & Young partner Mark Doll, in January.

The company's emphasis on service growth is causing "some issues" with partners, Schwartz said. However, the role of partners is still important to the company, he said: "We depend on our partners to be the primary delivery vehicle for implementations."

Business Objects has made three acquisitions over the last year. In April, it completed its $US69 million purchase of data quality specialist Firstlogic. In November, it closed a $US40 million deal to buy interactive visual analytics developer Infommersion, and last August it bought financial planning and performance management software vendor SRC Software for $US100 million.

Schwartz deferred repeated questions from analysts about the performance of those acquisitions until the release of final figures for the second quarter on July 26, saying only that the integration of FirstLogic has gone smoothly.

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