From Software Futures, a sister publication Barely a year back on its financial feet and Borland is out buying a shoe horn for its low-end development tool Delphi, in the shape of DCE bastion and intelligent middleware advocate Open Enviroment Corporation. By Clare Haney The last time we looked at Borland’s Delphi, we questioned just […]
From Software Futures, a sister publication
Barely a year back on its financial feet and Borland is out buying a shoe horn for its low-end development tool Delphi, in the shape of DCE bastion and intelligent middleware advocate Open Enviroment Corporation.
By Clare Haney
The last time we looked at Borland’s Delphi, we questioned just how scalable the much-lauded applications development tool would prove to be, bearing in mind that this issue has proved to be a serious stumbling block to some of its more long-in-the-tooth competitors. Well, the company’s acted fast to cancel out any queries in that direction by snagging itself a handy acquisition in the shape of Boston, Massachusetts-based Open Environment Corporation. In a share swap deal, subject to OEC shareholders’ approval, Borland hopes to complete the merger, which gives OEC a lowish valuation, by today’s standards, of only $64m, in August. The company expects to take a charge of around $3m for the transaction against its second quarter, with perhaps some other special, as yet unspecified charges, to come. In the light of this acquisitory activity, it’s strange to recall that only a year ago Borland was the one liable to be gobbled up, by the likes of Novell. Today, we still hear the odd whispered suggestion that Sun might be in the frame for buying the Scotts Valley, Californian company. The thinking behind that seems to be that such a union would be heavily Java-tinged. Whatever, Borland is certainly back in the red, with more than $150m in cash. Its year-end results were none too shabby. Net profits for the year ending March 31, 1996, were $14.3m, against losses of $12.2m for the previous year, but turnover was down 15.3% to $215.2m. Fourth quarter net profits were $8m, against losses for the corresponding period the year before of $51m, while turnover rose 13.3% to $62.9m.
So, why worry? Well, just as we were going to press, Borland had to do a bit of climbdown, proving it has indeed been a little too ambitious when it claimed the bad times were over and it had found a permanent home in turnaround heaven. The company admitted that it expects to have to declare an operating loss for its first quarter which will close on June 30, 1996, unless sales perk up pretty damn smartish. It blamed this shortfall on slower sales than expected of the low-end incarnation of its wonder tool, Delphi. Borland suggests this was due to pricing Delphi Desktop too high rather than punters not being wild for it. While Borland claims it has shifted over 450,000 units of Delphi, we’re mostly talking about the other two more departmentally minded siblings – Delphi Developer and Delphi Client/Server. Speaking of matters financial, isn’t it amazing what one bad quarter can do to a company – namely, the subject of Borland’s affections, OEC. When we met with the Boston-based vendor only four months ago, everything seemed peachy-keen, apart from some confusion of what exactly the company was about – a strong supporter of the Open Software Foundation’s Distributed Computing Environment standard and/or a high-end tools vendor in its own right with its Entera tools family? OEC admitted as much to us, explaining that out of its 300 users, an eyewatering 90% of them were not yet using DCE. To be sure net income of $1.3m for the year ending December 31, 1995 wasn’t too inspiring; but that had been impacted by its $7.2m August 1995 acquisition of Australian software house Jarrah Technologies, and year-end revenues looked pretty healthy at $31m. But then the company’s issuing of a profits warning this April sounded an early death knell to a continued independent existence. This was then signed, sealed and delivered by a first quarter loss of $4.05m against a profit of $174,000 for the same period in the previous year. In the same month OEC’s then-president and chief executive Nathan Morton up and quit. The company blamed its poor quarter on failure to close some vital large orders on time and an unfocused sales strategy.
So, what does its new owner think OEC’s problems were? They had challenges in marketing their product, says Steve Grady, director of corporate communications at Borland. Which is basically plumbing. They used to use Delphi to help demonstrate their technology. Combining their efforts with ours gives them a face. They had problems with focus. Adam Honig, president and founder of OEC, agrees. We were pursuing a strategy with many different aspects to it. There was a lack of clarity, whether we were fully in DCE, or not in DCE. But he goes on to firmly state, In no way was OEC at an end. I still believe that we could have prospered as a standalone entity. The merger both accelerates our turnaround plan, and capitalizes on the multi-tier client/server market expected to grow by 300% over the next two years. We asked Borland’s Grady what had prompted the company’s acquisition of OEC. Delphi scales from the desktop to departmental/divisional applications. It’s clearly not targeted at enterprise developers and connecting to disparate data sources. The OEC acquisition allows us to take the next step. We’re not only gaining technology, but important infrastructure. We had a choice: build the infrastructure and technology internally or find an organization with those things and leverage them. He revealed that Borland first begun its search for a likely acquisition in the middleware space late last year. Grady singled out OEC’s direct sales force and its ability to offer 24×7 technical support as key infrastructure pluses for the company. The acquisition is very consistent with everything we’ve been doing – our focus on software developers and our growth in Net and client/server spaces. We’re building for the future. We’re not just content with profitability. We want to put Borland into growth mode. With the OEC acquisition we’re doubling our worldwide sales force for client/server products. We’re geared towards the long term.Alright, but where does the acquisition leave OEC’s previously established plethora of relationships with other leading development tools vendors? Doesn’t the fact that Entera’s now rebadged Borland change things? Honig doesn’t think so. We’re firmly committed to continuing supporting Visual Basic, PowerBuilder and Centura desktops. If you look at it from the business perspective, over 60% of our revenues come from our installed base and 90% of them use Visual Basic or PowerBuilder. It makes no financial sense to walk away from that. We have seen the market share of Delphi growing very rapidly and we imagine that will grow some more. We’ll have options within Entera to do very tight coupling with Delphi, but without affecting our other relationships. So what do users think? Dave Pecenka, consultant at Premier Solutions, based in Indianapolis, Indiana, summed up the views of many we spoke to. The 12-person organization he works for provides consultancy for major Midwest US companies such as Caterpillar and Cummins Engine to assist them in building distributed applications using OEC software. It’s a very positive move for both companies. It gives Borland the capability of offering tools from the desktop to completely distributed applications. Borland has definitely made a smart move in swallowing up OEC. We still have our doubts about whether the combined company is really up to coping with vast numbers of users, if the initial waves of enthusiasm for Delphi are to be continued. Also, has Borland, perhaps, misjudged how far it is back to financial health? Certainly it has a salutary lesson on hand in the shape of its latest acquisition. As we’ve seen with OEC, it only takes one really bad fiscal quarter to get those acquisition vultures circling and ready to pounce. BorlSun or Sunland, anyone?