Want CNET to notify you of price drops and the latest stories?

Sybase posts profits, misses mark

Sybase's third consecutive profitable quarter misses analysts' expectations by a penny as revenues continue to drop.

3 min read
Relational database maker Sybase (SYBS) posted its third consecutive profitable quarter today, but missed expectations as revenues continued to fall.

The company, which announced its results after the market's close, saw its stock gain over 5 percent today to close at 15, up from yesterday's close of 14-1/4. Volume was heavy with 3.6 million shares trading hands.

Net income for the second quarter ending June 30 was $4.4 million, or 6 cents per share, compared with a loss of $24.6 million, or 33 cents per share, in the second quarter a year earlier. Wall Street was expecting profits of 7 cents a share, according to First Call.

Second-quarter revenue was $237.6 million, compared with $249.9 million recorded in the second quarter of 1996. Licensing fees dropped to $128.9 million for the quarter from $150.5 million a year ago, while service revenue grew to $108.8 million in the period, from $99.4 million.

Even though results weigh in on the positive side, some analysts question whether earnings growth are really an indication of a healthy company when revenues continue to slip. This issue was also addressed in the first quarter of this year, when results also reflected profits as a result of cutting costs as opposed to growing revenue.

But the company says keeping costs under control is a big step in its efforts towards remaining in the black and holding market share as new products hit the shelf.

Mitchell Kertzman, chairman and chief executive said in a statement, "We are on track with our plan, and have remained focused on managing expenses and maintaining profitability while preparing the market for the delivery of our innovative architecture and new products, which we currently anticipate in the second half of the year."

The company said its Adaptive Component Architecture is on schedule. The first phase began in June with the release of PowerDesigner 6.0, tools for analysis, database construction, and model-driven development. Sybase also unveiled the first beta release of PowerBuilder 6.0, the new version of its business application development tool.

Charles Phillips, an analyst with Morgan Stanley said in a statement that keeping costs in check will allow Sybase to take advantage of the new product flow in the second half of the year. Sybase should start to see results from a flurry of products such as PowerJ and Power Designer 6.0, which are now in beta, in third-quarter results.

But getting new products out the door needs to be accompanied by a sound business strategy, said Brian Skiba, an analyst with Lehman Bros, in a research report. He is confident that Sybase will continue to offer good technology, but the challenge will be achieving a strategy that leverages their offerings.

"Critical to the success of Sybase's business is how the company establishes itself in the various vertical markets and uses its sales force as an instrument to bring visibility to the middleware products and PowerSoft tools, as well as to the SQL server products," Skiba said in a recent report.

Management is working hard to reposition the company as a database management system and tools vendor, said Richard Sherlund, of Goldman Sachs, in a research report.

Some of that preparation could be the product of today's announcement that Kertzman was appointed to chairman of the board, and John Chen has been named president, chief operating officer, and board member. Chen was previously chief executive of Siemens Pyramid Information Systems, a subsidiary of Siemens Nixdorf. (Kertzman is a board member of CNET: The Computer Network)

Sherlund noted that market share at the high end appears to be moving in Oracle's (ORCL) favor, while Sybase is likely preserving much of its installed base of customers. However, image problems created by the company's previous earnings difficulties are likely causing greater competitive pressures in new accounts, analysts said.