Borland, Microsoft Sign .Net Deal

Borland, whose sales rose in Q4, will license the Microsoft .Net Framework SDK for inclusion in its tools.

Borland Software Corp. posted higher sales but a drop in net income based on acquisition-related costs in its fiscal 2002 fourth quarter and year ended Dec. 31, 2002.

The Scotts Valley, Calif., software development tools maker posted revenues of $67.1 million for the quarter, up from $59 million for the fourth quarter of 2001. However, the company posted a drop in net income to $3.1 million from $6.2 million on costs related to completing the acquisitions of Starbase Corp. and TogetherSoft Corp.

Borland announced its fourth-quarter earnings Tuesday. The company also Tuesday announced a significant deal with Microsoft Corp. to license the Microsoft .Net Framework Software Development Kit (SDK) for inclusion in Borland tools.

Dale Fuller, Borlands CEO, said time-to-market pressures are driving companies to develop software faster and Borland is moving to provide the software to enable them. The acquisitions of Starbase and TogetherSoft give Borland a complete solution to address the software development lifecycle, he said.

Borlands chief financial officer, Kenneth Hahn, said the companys Java business increased 4 percent over the fourth quarter of 2001 and 19 percent over the third quarter of 2002. The companys enterprise business grew 12 percent over the fourth quarter of 2001 and accounted for 19 percent of overall 2002 revenues. Borlands rapid application development business represented 24 percent of overall 2002 revenues. And Borlands fourth-quarter services revenue grew 19 percent over the same period the year before.

Hahn said the company expects revenues for the first quarter of 2003 to fall in the range of $77 million to $83 million.

Meanwhile, Borlands deal with Microsoft will serve to strengthen the companys position as the last major independent development tools company, Fuller said.

By licensing Microsofts .Net Framework SDK, Borland will be able to deliver tools based on the .Net Framework and yet not get locked into the Microsoft proprietary platform.

In an interview, Ted Shelton, Borlands senior vice president of business development, said Borland will deliver a suite of tools to support the entire .Net application development lifecycle; the company will deliver the suite in increments throughout this year. Borland will also deliver a similar suite for Java developers.

Drew Engstrom, Sun Microsystems Inc.s senior Web services strategist, said: "No surprises here. Borland has always positioned itself as the Switzerland of software development [neutral, independent, agnostic], and they already offer some .Net migration technology. Borland gets the majority of its revenue from JBuilder, which is built for enterprise Java development. This move enables them to bridge the market from established Java developers to .Net developers, who tend to be building services for smaller companies. The object model is weaker in .Net, and this will help developers with that issue."

Also, Engstrom said, "development tools are becoming a commoditized [low-cost] market, so Borland has been reaching higher and higher into the value chain of the development lifecycle. Their recent acquisition of TogetherSoft, for example, allows them to compete in the application modeling market, which today is much more lucrative than basic compile/edit/debug tools."

During a call with media and analysts, Fuller said, "Customers have been very receptive to what were doing, and a lot of Rational [Software Corp.] customers are switching over to us because they dont want to be locked into the IBM platform."

Rational is the target of acquisition by IBM in a deal worth $2.1 billion.

In an interview, Fred Ball, Borlands executive vice president of corporate development and mergers and acquisitions, said, "One of the things were seeing is previously customers that would choose Rational are now looking around and are coming to us."

Shelton added: "Look at IBMs history. They will over time move those product lines to become more integrated with the IBM stack."

IBMs impending acquisition of Rational spurred speculation that Microsoft might counter the move with an acquisition of Borland.

Ball, who is tasked with assessing mergers for Borland, said the company does not operate on the assumption that it could be acquired, but Borland would entertain any deal that could benefit its customers and shareholders.

Ball said all the rumors and talk of acquisitions "are things that can be very dangerous for a business thats trying to help its customers and grow."

"Thats not what this management team thinks about everyday," Shelton said. "Our fundamental core belief is that our customers want to have an independent vendor in this space."