Business Objects Trims Forecast as Revenue Disappoints

Business Objects’ preliminary results for the second quarter are “disappointing and below our expectations,” Chief Executive Officer 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 US$295 million to $300 million, but now revenue for the quarter is likely to total between $287 million and $291 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 $116 million and $118 million, and services and maintenance revenue to have risen 25 percent to between $171 million and $173 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 past 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, Calif., 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 past year. In April, it completed its $69 million purchase of data quality specialist Firstlogic. In November, it closed a $40 million deal to buy interactive visual analytics developer Infommersion, and last August it bought financial planning and performance management software vendor SRC Software for $100 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.

-Peter Sayer, IDG News Service (Paris Bureau)

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