by Frank Sparacino

Bucking the grim trend experienced by major software applications companies such as Siebel Systems in the customer relationship management (CRM) industry and i2 Technologies in the supply chain management (SCM) industry, both of which witnessed revenue in the June quarter decline by 15% and 29% from the March quarter, respectively, our business intelligence universe (consisting of Actuate Corporation, Brio Software, Business Objects, Cognos, Hyperion Solutions, Informatica, and MicroStrategy) fared much better.

With the exception of Actuate, which reported a revenue decline of 5% sequentially in the June quarter, our entire universe reported positive sequential revenue growth, albeit modest, ranging from 1% to 3%. We are excluding Cognos from this comparison because its fiscal 2003 first quarter ended May is always seasonally weak. Its August quarter results, which will be reported in the coming weeks, are a better indicator of its momentum in the market and we are projecting 7% revenue growth over the May quarter.

Within the industry, there have been several notable developments in recent months.

First, financial applications including consolidation/reporting and budgeting/planning are arguably the strongest segment of all business intelligence for a variety of reasons including: 1) an increased focus on financial processes as a result of higher economic uncertainty and the need to respond to external events more quickly, 2) the desire to decrease cycle times associated with accounting consolidation with the goal of the "virtual close," 3) corporate restructurings involving divestitures, mergers and acquisitions, and tax planning, 4) higher public scrutiny with respect to accounting policies requiring more detailed financial reporting, and 5) new SEC disclosure rules governing reporting (e.g. 10-Q reports to be filed in 30 days versus 45 days currently and 10-K reports to be filed in 60 days versus 90 days currently). Demand is evidenced by market leader Hyperion Solutions June quarter performance in which software license revenue grew 8% from the March, the second best performance in the industry.

Second, after years of downplaying the importance of ETL (Extract, Transform, and Load) or data integration, Business Objects acquired California-based Acta Technology in an all cash transaction valued at $65 million, a price we would deem excessive given Acta's position in the market. The acquisition provides an endorsement of Informatica and Cognos and their respective strategies to offer an end-to-end business intelligence offering and establish a position in the analytic applications market.

Third, from a broad industry perspective, executive dashboards, which have been adopted by leading edge companies such as GE, are becoming increasingly popular and a key element of the corporate performance management (CPM) or business performance management (BPM) message depending on the vendor. Dashboards are browser-based and highly visual in nature with graphs, charts, dials, and/or gauges (e.g. green, yellow, and red as broad indictors) with high-level summary data that is typically updated in a near real-time fashion. The ability to drill-down into a metric or KPI (key performance indicator) for further detail is also provided, if desired.

At Cognos, among the company's fastest growing products are its KPI Business Pack (for creation and monitoring of key performance indicators) and Visualizer (for visual reports/dashboards) products. At Brio, the company launched Brio Metrics Builder (BMB) 7.0 in May. BMB is the former Brio.Impact product and is a dashboard application that presents metrics or key performance indicators (KPIs) such as fulfillment rates, pipeline, bookings, or customer satisfaction that are linked with business goals, best practices, and/or industry benchmarks.

Lastly, the down-and-out vendors in 2001, namely MicroStrategy and Brio Software are showing signs of a possible resurgence after posting 4% and 10% sequential software license growth in the June quarter, while market leader Business Objects witnessed software license revenue contract by 4%. One of the keys for MicroStrategy has been three consecutive quarters of increasing margins, profitability, and positive cash flow that has significantly improved the health of its balance sheet. At Brio, the company is benefiting from an improving relationship with IBM, which helped Brio close a $3.5 million deal in the June quarter.

About the Author

Frank Sparacino (fsparacino@firstanalysis.com) specializes in research and investment at First Analysis, an integrated, research-driven investment firm. His area of expertise is infrastructure software, with a focus on business intelligence.