BEA CEO Chuang Speaks Out

Alfred Chuang discusses rival IBM, the application server space and where BEA is headed.

BEA Systems Inc. next week will hold its annual developer conference in Orlando, Fla., where the company will pay homage to a supportive developer community and announce beta versions of upcoming versions of its next-generation application server platform and other products. BEA last week announced increased revenues and a tripling in profit for its fourth quarter. CEO Alfred Chuang talked with eWEEK Senior Writer Darryl Taft on two occasions over the last month on IBM, the application server space and where BEA is headed.

eWEEK: You are bitter competitors with IBM.

Chuang: Yes. Well, I dont know if its bitter, but its highly competitive.

eWEEK: How do we know who is ahead? At one point you say youre ahead; at another point they say theyre ahead. If I talk to you guys you say theyre losing share, and if I talk to them they say you havent had a positive quarter in more than a year.

Chuang: I think the software industry fundamentally is somewhat flawed with counting these numbers. We are relying on industry research firms. They go out and they do a bit of research and they ask companies: How much are you selling for? So for people like us, under all the new laws and under the old law, we have to report very clearly what we have sold, how much is license revenue, how much is new revenue, how much is maintenance, is the maintenance growing?

I think that competing with IBM this is one of the challenges because they are a very large conglomerate. Something I admire that they do is they sell services, they sell storage, they sell PCs, they sell servers, they sell mainframes, they sell software. And they put out one number and they dont really have to say this is the same number that we put out for the street.

So if you look at what theyre saying and what were saying, if you look at their financial report just on a total software revenue itself, I think through the year its been extraordinarily inconsistent. And those are the kinds of things that frustrate us.

Theres a very interesting article in this weeks Barrons that talks about these market share numbers, and it pointed out the inconsistencies in how they research these numbers.

The way I look at it is I think the most important thing is the customer success. Can you produce enough customer success and put it out and let people know what they can achieve with our software? I think thats the thing we have done better than our competition has.

I think youre right about its been a tough year for us. Our revenue has been flat, but its better than almost everybody. Staying flat is better than people going down the tubes. I think we had terrific performance for two quarters in a row. Were starting to see a recovery. Our license revenue has grown over the past two quarters. Our maintenance revenue has grown drastically. Our profits grown more than 30 percent from a quarter ago. Our cash generation is terrific. The company is extraordinarily profitable. This will be a year where we end up generating close to $200 million net cash for the company. We have lots of cash in the bank. Those are the kinds of things were proud of and that we know were scoring on whats out there. And we have made a difference in the way people do Internet.

eWEEK: Now you have to compete with IBM and their new acquisition of Rational. How will you compete with them?

Chuang: Actually, I think Rational is somewhat irrelevant. I think Rational is very much focused on this UML [Unified Modeling Language] space, which to us is a very niche and very specific space on its own.

The other thing I think is very fascinating about IBMs business also is I dont think they have run a truly exclusive business where they have DB2 not working with WebLogic, or Rational with WebLogic, because that wont do them any good. Rational has been an open company for years. Even if they wanted to shut it down, they will not cut off their own legs and forgo half the revenue. I dont think that makes any sense. So the way we looked at it is that we have the responsibility to evolve and change and groom our developer community. Thats what we did.

eWEEK: You guys have been criticized about who exactly is your friend. For instance, in the WS-I formation and the exclusion of Sun, who thought they were your friend. Now youre involved with both WSCI as well as BPEL. And now WS-Reliability against other competing strategies. How can you simultaneously entertain all these positions?

Chuang: Theres always been a difficult balance. The problem that we run into is the following. We have a very open mind. Some of the people that create these consortia have double-sided agendas. One side wants to be open, and the other side says selectively they choose who they want to be open to. We have, and I think Sun will tell you this, BEA has been instrumental in getting Sun into the WS-I. I think theres no doubt that people would love to exclude them if they could. I think our relationship with Sun is better than it has been for a long time. And Sun is not the easiest company to partner with. We will not be the first one saying that, but if you look at what we have done with them we are first-class partners with Sun, and Sun is first-class partners with us. But its a fascinating industry, and people love to beat on people when theyre down. We happen to not think that way. I think Sun is an enormously great company. I worked for them for nine and a half years. So in every sense I would love to see their success.

But we do have lots of partners; thats the game that we play in. Were very close to Hewlett-Packard. HP exited the business in the middleware field. We have taken over their installed base, and it worked out very well. We have lots of activity with them both in the field and on the technology side. We also work well with NEC, Toshiba and Sony. Well work with anybody. Customers want to have choice, they want to have bargaining power. There is an ecosystem out there that were growing, despite this economy.