Sybase says many customers testing, not buying

Software and business systems provider Sybase Inc. announced financial results Thursday for the first quarter of the current fiscal year -- a period highlighted by falling licensing revenues as companies, willing to test the company's products, were hesitant to sign orders.

After warning earlier this month that it would not meet analyst expectations of US$0.28 earnings per share, Sybase hit its revised earnings forecast, posting earnings per share of $0.25 excluding acquisition expenses. Including acquisition expenses, earnings per share were $0.16 on a fully diluted basis.

Pro-forma net income for the first quarter of 2001, ended March 31, was $22.7 million, a 16 percent increase over the year-ago period. Quarterly revenue was up slightly to $229.1 million. The company reduced its full-year outlook, however, citing slower economic growth. Sybase now expects to generate revenue of $1.1 billion in 2001, with pro forma earnings per share of $1.10 to $1.20. Analysts polled by First Call/Thomson Financial had estimated full-year earnings per share of $1.29.

The company's strongest markets this quarter were Taiwan, Japan, Korea, and China, Chairman and Chief Executive Officer (CEO) John Chen said in an interview. He also noted the company's strong growth in Internet banking -- up 34 percent over last year's first quarter -- and wireless business, up 10 percent.

"I would expect wireless to be one of the first areas to slow down with the economic softening, but internationally people are still spending," Chen said.

He said Sybase did experience slowing in Latin America, and in the European telecom sector. Globally, customers are holding off on making purchasing decisions, he said, noting that the company has a profusion of pilot and proof-of-concept tests in progress but is encountering a reluctance to sign deals. Licensing revenue dropped 10.7 percent from last year's first quarter, but services revenue grew 12.2 percent -- a trend Chen attributes to clients' unwillingness to finalize purchases but need for e-business services. Sybase is handling "lots and lots" of integration deals, he said.

Sybase's strongest niche is the financial vertical market. The company reports that 90 percent of the world's securities firms and 60 percent of its banks use Sybase technology. The company has been looking to gain market share in other verticals, including the healthcare and hospitality sectors. Chen said the company is "making good progress toward winning our share of the hospital administration systems" market, while its penetration is still weak in the hospitality and travel niche. "We're newer there," Chen noted.

The company is also targeting the enterprise portal space, where Chen sees "huge potential and lots of interest"--but a reluctance to sign deals. A number of potential enterprise portal clients are in holding patterns right now, he said.

In a conference call with analysts following the earnings release, Sybase fired back at key rival Oracle, which last week announced a "SafeSwitch" initiative designed to lure away Sybase customers. Oracle named Paine Webber Inc., Raytheon Co. and Universal Studios as companies it has already won over from Sybase.

Chen, putting a brave face on the targeting of his company by a rival more than twice its size, told analysts in the call, "It's exciting news for us because they finally take us seriously. We have switched some of their accounts, and I think they're getting a little aggressive with us because of that."

Oracle's all-in-one software bundling strategy is the antithesis of Sybase's approach, Chen said in an interview before the call. "I don't believe in that -- throwing everything in together," Chen said. "Their strategy is to lock the customers in first and milk them later. Ours is more open and distributed."

Sybase (SYBS) ended trading Thursday on the Nasdaq exchange up 4.9 percent, at $17.07. The company reported its earnings after the close of the financial markets.

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