Databases aren't commodities yet, but they are heading that way. The one thing all players have in common is the need for new growth, and Sybase felt the winds of change sooner than the rest, tumbling from number two position to ignominy and near-bankruptcy. Is it still an ailing database company looking for purpose or a longterm player reinvigorated and honed by adversity?
That it has weathered deep financial, technical and business crises, is due in no small part to chief executive Michael Kertzman and a far-reaching rationalisation of technology and costs. Kertzman, behind the palace coup that saw off Sybase founder Mark Hoffman in 1995, has assumed the twin roles of CEO and chairman.
He's fond of remarking that that timing is all, and it's true to say that even if Sybase is on the up, it shines all the brighter for some fortuitous timing. Informix, which ascended to number two position at the expense of Sybase, is now in a tailspin. Oracle looks increasingly slow and careless, at least in its core database business.
With the acquisition of Powersoft, the ousting of Hoffman and a baptism of financial fire that lasted throughout 1995 and 1996, Sybase 1997-style is not the openly aggressive database supplier of the early 1990s.
If CEO Kertzman is to be believed, Sybase is not a database supplier anyway. Nor is it just a tools, middleware or services supplier. Like the other players, Sybase is trying to become a supplier of packaged software and database solutions. Kertzman argues that the individual components fit together to make an attractive whole. On middleware and the role of Jaguar, for instance, he says: "It's plumbing... but we're not going to go around trying to sell pipes. Like, I mean, would you get excited buying some plumbing?"
"Jaguar piping is the hub of our entire architecture, but we're selling the IT equivalent of great kitchens," he said.
The kitchen comprises all sorts of knobs and gadgets, including Adaptive Server, Enterprise, SQL Anywhere, and Replication Servers along with database and interoperability products like Enterprise Connect and Powersoft Jaguar CTS products. Application development tools include the new Powerbuilder, Powersoft PowerJ, PowerDesigner and Power++.
Kertzman hosted the Sybase and Powersoft European Users Conference in Vienna last week, the theme of which was 'Harmonising Business and Technology'. When asked if it wasn't time to drop the distinction between PowerSoft and Sybase, after all, both are selling the same kitchens, Kertzman admitted that it was the first time both sets of users have been confined in the same conference hall at the same time. But whatever that says about internal politicking and the need for more corporate harmony, Kertzman was bullish as ever, extolling his vision of an new and invigorated company.
He says that Sybase is now in its fifth quarter of operating or net profit with $100 million in cash, and for the first time since late 1994, it is financially healthy. The new Adaptive Component Architecture is almost complete, and due to ship early 1998. Datamarts represent fresh opportunities, and are the pet projects of President Michael Chan, ex-Pyramid Technology and newly arrived from Pyramid's German parent, Siemens Nixdorf Information Systems. Sybase offers Java with just about everything and the new tools, middleware and databases appear to be working well, unlike a couple of years ago, and many IT analysts are praising Sybase technology.
So why the doubting Thomases? Why do most financial analysts still fight shy of Sybase? The company's third quarter results (unaudited) show continued profitability, up to $5.2 million from the $52.6 million loss last year. $13.1 million profit for the nine months against an $84.1 million loss last time. It was in the third quarter last year that Sybase took a $49.2 million restructuring charge, making it an extraordinary quarter, and even if Sybase has been in single figure profit since then, revenues still languish. In fact, they came in at only $244.2 million, up about $6.4 million on the second quarter, reflecting the effect of new product shipments which weren't available in early 1997. More concerning, they are down from $250.2 million this time last year.
Kertzman interprets the figures positively, but he acknowledges that revenues must grow before the outside world can share his confidence.
"People are waiting for revenue growth and they want to see signs of growth," he said. "Currency fluctuations in Europe are having a negative impact, 11 per cent on revenues in the third quarter."
Equally worrying, if not more so, for the third quarter and nine months, licence fees were $131.6 million and $395.6 million respectively, down significantly on the $147.2 million and $445.6 million reported last time. For a company that relies on software licences, the situation looks unhealthy. So is Sybase planning to evolve into yet another services company, a ubiquitous consultancy cum educator and systems integrator? If not, licence fees are core to future prosperity, yet in the third quarter, services contributed $112.6 million and $328 million against $102.9 million and $298.1 million last time. Service revenues are growing but licence revenues continue to slide. The new architecture must make serious revenue contributions if Sybase is recover and grow afresh. If all goes to plan, Sybase says we'll see them feeding through strongly during this quarter.
Cost cutting was one of prerequisites to marketing, said Kertzman when he assumed control of Sybase, but despite a radical rationalisation programme, he insists that R&D has not been shortchanged. He explained: "R&D technologies are now shared between different groups because the Java enabled Adaptive Component Architecture enables much more cost-effective reuse."
R&D expenditure fell when Sybase bailed out of several multimedia and interactive TV projects, said Kertzman, but it still constitutes around 16%, he says, higher than the industry average. The new figures show that product development and engineering came in at $33.9m versus $39.2 million last year, and $102.9 million compared to $128.4 million for the nine months of 1996.
(In its second quarter filing with the Securities & Exchange Commission, Sybase said of R&D: "Product development and engineering declined to 14 per cent in the first quarter and for the first six months of 1997, compared to 18 per cent last year... in absolute dollars, product development and engineering expenses in the second quarter decreased by 27 per cent... much of that is due to discontinued products like interactive television, wireless messaging and multimedia authoring tools."
Overall, total costs and expenses fell significantly, down to $237.2 million in the quarter from $298.8 million ($707.1 million and $827.7 million in the nine months) although the costs of services rose, up from $62.9 million to $63.4 million and $186.9 million from $181.9 million in the nine months.
So what are we to make of the much vaunted turnaround? Technically, Sybase offers a new, well received architecture that was essential given the collection of parts that the company has become, as Kertzman acknowledged, saying: "It was important to update the technology with a consistent architecture."
Kertzman expounded further on one of his favourite themes. Namely, that the tools and database markets are in a mess because vendors overload users with confusing choices. They are not responsive to the customer requirements, he claimed, unlike Sybase: "We can't force customers to use X or whatever else, we need to integrate better... and it is integration, flexibility, scaleability and management that are guiding the Sybase' R&D focus."
Harmonisation was the key theme of the User Conference, and Kertzman says that Sybase is doing it's level best to harmonise and clarify user confusion since the new tools work in any environment and Sybase claims that the Adaptive Server has key advantages over Oracle and Informix since it supports many different types of multimedia data via separate data stores.
Kertzman is confident that the new technologies will generate new revenues, that the financial analysts will come onside eventually. The Sybase of the early 90s is dead. What has emerged from the ashes isn't a database company, despite the apparent strength of the new database technologies. What Sybase has recognised with this wider portfolio of new products is that even if it increases the number of site licences, ramping up the revenues will take much more than a multimedia database.
Arguably, what Sybase lacks and now needs, is the industry-wide backing of strategic partners. It would provide more credence to its claims and help build confidence in a company that has shown its will to fight the odds.
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