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The new barbarians?

CEO Dale Fuller leads the resurgence at Borland, a one-time software power that escaped a near-death experience. Now he says the hordes are ready to make their move.

 

  
   
The new barbarians?
By Charles Cooper
Special to CNET News.com
July 23, 2001, 12:00 p.m. PT

When Dale Fuller makes the rounds at Borland's annual BorCon conference this week, the company's chief executive will have ample reason for celebration.

With Borland posting its fifth consecutive profitable quarter--second-quarter pro forma earnings soared 60 percent to $6.4 million on a 20 percent increase in sales to $56 million--Fuller oversees operations at one of the few feel-good stories in the computer industry's prolonged winter of discontent.

It wasn't always so.

Borland, a former highflier founded at the dawn of the PC era by Phillipe Kahn, had fallen on hard times. After getting involved in a disastrous competition with Microsoft in the early 1990s, the company bore little resemblance to the self-styled "barbarian" image popular during the company's heyday, when it controlled 50 percent of the then-$600 million database-management software market, and its stock traded at nearly $90 per share.

After Kahn's departure in 1994, five chief executives tried but were unable to stem customer defections or the departures of key staffers, such as Brad Silverberg, Paul Gross and Anders Hejlsberg (all, coincidentally, plucked by Microsoft).

Against the backdrop of mounting red ink, investors and industry watchers wrote off Borland as yet another spectacular flameout. But since coming onboard in spring 1999, Fuller has focused the company on Java development in the enterprise, embedded-relational databases and RAD toolsets for client-server and distributed computing.

The formula has helped pull Borland back from the brink. And Wall Street has noticed: Shares in Borland are trading around $15, up sharply from their 52-week low of $4.15.

Fuller discussed the company's direction in a recent interview before the start of the BorCon developer conference.

Q: I can actually remember back when Borland was considered to be a hot software company. Are you guys hot again?
(Laughing.) There are multiple degrees of hot. I look at the trend indicators, and all of them are up and pointing to the right. If the Internet had not come along, we'd have been gone. One of the major indicators is the number of cool programmers who want to work here--and we're now getting people back from Microsoft, from universities, from all over the world. When I started with this company three years ago, it was hard to get people to even consider Borland as still being around.

When you say Microsoft, you're alluding to the defections of people like Brad Silverberg, Paul Gross And Anders Hejlsberg?
The defections of all of those guys who were leaders--they possessed some of the founding core attributes this company had. But we've been able to kick off the rust and build the company. We're driven to provide software to enable the world. It's all about enabling the Internet as a platform.

What was the impact of the Internet on Borland?
If the Internet had not come along, we'd have been gone. But the Internet reset the dial.

Has Microsoft they left you alone?
(Editor's note: Borland received a needed $125 million cash infusion from Microsoft a couple of years ago as part of a technology and marketing agreement that settled a long-standing patent dispute.)

No one leaves us alone. I think the key is to build an environment where people make a difference and their products make a difference. And then they won't leave.

You were able to hit your target numbers in what was a very tough environment. What was particular about your segment of the market that made for good news rather than disappointing news?
The key for us goes back to the company's mission of helping customers move into the future without abandoning the past. Instead of throwing away what they have, we help (enterprise customers) move into that future by leveraging investments they already have and build them faster. Every CEO is asking how they can take advantage of all this technology they've already spent money on.

Is there anything of note about demand for products like yours having to do enterprise software projects that's different from, say, demand for optical fiber or e-commerce or PCs and servers?
What you're seeing with companies trying to get optimized, they're trying to get scalability and operational efficiencies. The issue is they can't spend $30 million or $40 million on a new project, but I can help put a Java application around (existing systems) so their customers can check orders online.

A lot of companies are reluctant to project future sales and earnings, but Borland announced it expects a 20 to 25 percent sales jump in the third quarter from a year ago--and 83 to 85 percent gross margins. Considering how dicey things still are in the industry, aren't you sticking your necks out a bit?
The old New Economy taught a lot of bad disciplines. For five years that was what everybody was preaching. We went into this year with that same exact quote. In November 2000, I said we would grow 20 percent a year and be profitable, and that margins would be between 83 percent and 85 percent. I got asked at the end of Q4, Q1 and Q2--and I said there is no reason to change my guidance to the Street. I want to make sure that what I say we'll do, we'll do.

Is that because you expect to see the Fed's rate cuts kick in, or is it particular to your niche in the industry?
It's the measure of a management team. A good management team can mange the business and continue to grow in any economic conditions. The old New Economy taught a lot of bad disciplines. For five years that was what everybody was preaching. When I took over the company, we had no money in the bank, and now we have $275 million. I think we're getting people to start recognizing that we have a strong management team, financially grounded and with the revolutionary technology that companies need to have.

OK, but Borland's had operating losses in three of the past four fiscal years. Do you feel confident about the company's ability to remain consistently in the black from here on in?
Absolutely. I have a five-year goal; it's mapped on my wall to 2006 what we're doing. We have a laser-beam focus on what we're doing. We know what we'll do tomorrow and next week. We are ruthlessly following through on execution. We have to, because it's a tough world.

What's the biggest threat to upset that focus, then, and to derail the company's progress?
Our ability to execute. It's not the economy, the conditions of the world or our competitors.

What sorts of products or technologies does Borland want to fill out its line?
There are continuing needs for our customers in aspects of developing applications on the Internet. It's all about speed. If I can shorten your time to build an application by 50 percent, you win big.

We talk to people like Bank America. They're talking about hundreds of millions of dollars each month if they can get products out sooner. There's a whole host of things that we're looking at in wireless, mobile, the Java application space--those types of things that are absolutely revolutionary for the market.

Was the scuttling of the proposed merger with Corel the best thing that never happened to the company?
It didn't change our course. It really deflected Corel's course. We continue to execute on the most important thing, which is the delivery of applications to the Internet. But in spite of that, we've been executing very well. Everybody in the company has been reinvigorated.

When you arrived, did you believe back then that Borland--or Inprise, as it was then called--would be able to survive as an independent entity?
When I looked at the company and did my little assessment of what it had, Borland had a really great technology and a very loyal customer base. And those things were absolutely critical to success. We had to change the organization so that it got focused on winning, not surviving. I brought back the original vision of the founder--that it was all about applications for the future. It wasn't about hardware or the OS. And that's what we're doing today.

Yeah, but lots of people were giving up on Borland ever making it back.
I knew. But I believed in myself and the people I could bring in. It was execution in both senses of the word. I had only one opportunity to make good on that and build a company that would last. When I came in, Borland was voted one of the companies not likely to last into the new millennium.

Looking back, what do you believe marked the turning point in the company's fortunes?
It was a process, but a lot individual people were stepping up to the plate. When you get the momentum of everybody putting their shoulder behind the effort, that was what made it happen. And we got our customers and employees believing again.

I called myself the gas house, because I was constantly filling up people with gas. And that's because the company had been downtrodden for nine years. The company was dying. When I took over, the stock was $2.95. It was incredible. The real defining moment was our first worldwide, all-hands meeting when I set down the charge that we were focusing everything on the Net. And I used term "Nothing but Net." And that's what we've been executing to.

You paint an upbeat picture, but again, as far as watching the horizon, whom do you see as your most dangerous competitor?
Honestly, it comes back to the answer before. Borland is its own worst enemy if we don't execute. We're Switzerland for the development world out there. We really cover everybody's base. As a customer, we give you freedom of choice, and that's ringing so true today.

Let me ask you about a managerial question that's received a lot of ink of late--that of CEO compensation. The criticism is that the pay and option scale between top management and the rank and file is out of whack. You've personally received a couple of million options in the past two years. The stock's up from a 52-week low of around $4 to around $15. Still, that's a lot of shares. Are you worth it?
It doesn't matter what I think, because I think I'm worth a lot more. It's what other people think. No, the scales are well within what I call norms of everyone out there. You have people making decisions and it's a very difficult thing. When I took over, I took a one-dollar-per-year salary and a million options, and people told me I was stupid. And I got the crud beat out of me by shareholders. But I told them, I only make money if I make money for you.

OK, with the exception of questions like that one, I assume you're enjoying yourself? Is there anything about the job that you didn't expect when you took it on after coming from retirement?
The thing that surprised me most was the amount of cost associated with running a public company vs. a private company. I can see why people get so focused on share price and companies go through humongous gyrations to get up share price instead of building companies that will last.