App Integration Market Experiences Stock Slump

NEW YORK (04/07/2000) - Application integration vendors last month watched helplessly as a kind of March madness hit their once-soaring stocks. On a tear for the past several months, the stocks took a beating as part of a broader correction in the technology sector that hit integration vendors hard, according to analysts.

Shares of application integration tool vendors New Era of Networks Inc. (NEON) in Englewood, Colorado; Wilton, Connecticut.-based Mercator Software Inc.; and Tibco Software Inc. in Palo Alto, California, gained dramatic momentum and then tumbled almost as quickly.

For example, Tibco's stock hit a high of $147 March 9. By April 3, the stock's value had dropped more than 50%, closing at $67.81.

Financial analyst J.C. Simbana at American Fronteer Financial Corp. in Denver said the technology sector was due for a correction and application integration vendors with soaring stock prices were prime for trading.

Fabulous Gains

"At that point, institutional investors were sitting on fabulous gains and had to make the decision to lock into those gains by selling positions," Simbana said. "When you have a 10% correction within Nasdaq composite stocks, you can expect some niches will correct even further."

NEON, one of the hardest-hit vendors, had climbed to an all-time high of $96.25 on February 29. The stock has since retraced its tracks and was in the low $30s late last week. Even a pledge issued to Wall Street on March 31 by NEON CEO George Adam, stating that the company would slightly beat analysts' earnings expectations for the first quarter, failed to stem the slide.

Analysts said speculation about the future of NEON's relationship with IBM contributed to the stock's slump. For the past two years, IBM has licensed a rules engine from NEON for its MQSeries Integrator tool. Version 2.0 of MQSeries Integrator, released last week, contains NEON rules and software developed in-house by IBM, but it's less dependent on NEON than the previous version, IBM said.

NEON also licenses technology to BEA Systems Inc., Microsoft Corp., Oracle Corp., Commerce One Inc. and several other technology firms.

Industry analyst Gary Barnett at research and consulting firm Ovum Ltd. in London said the widespread use of NEON's software by other vendors aids end users by making it easier to support mixed computing environments.

Don't Worry About the Bully

"My clients do not want a huge proliferation of different products in their messaging infrastructure," Barnett said. "It's significant that NEON's technology architecture is capable of supporting different middleware players.

If you have many friends in the playground that are big, it's less likely to have to be wary of the playground bully."

Simbana said he expects the application integration market to rebound, but not to the levels seen earlier this year.

"Some stocks were trading at rich multiples and may not reach that price again," Simbana said.

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