Friday, September 15, 2006

WEBM

Motley Fool
webMethods Buys Its Way to Growth
Tuesday September 12, 11:24 am ET
By Tom Taulli

Software company webMethods (Nasdaq: WEBM - News) has been a pioneer in software-oriented architecture (SOA). It has also bulked up its offerings in SOA with a number of acquisitions. The latest purchase, a $38 million deal for privately held Infravio, may help webMethods fill a gap in its product line and boost its sagging license revenues.

Founded in 1996, webMethods develops software that leverages Web-based technologies primarily for the Forbes Global 2000, including EchoStar, Logitech, and Office Depot. The company's software essentially integrates a company's complex information technology assets -- such as enterprise applications and databases -- to improve business processes or even connect electronically with partners.

For example, Wells Fargo uses the software to handle electronic payments -- roughly $2.7 trillion worth -- with corporate customers. And Motorola uses it to track the entry-to-order booking process for its many products.

Now with Infravio, webMethods can help its customers deal with so-called governance issues -- development roadmaps, best practices, tutorials, security enforcement, compliance with existing service agreements, and so on -- that are a part of SOA projects. If governance issues aren't handled properly, an SOA project can turn into an expensive mess.

Infravio may be able to do more than that for webMethods; it might also prove to be an effective revenue driver. Dennis Callaghan, an enterprise software analyst at The 451 Group, a tech research firm, told me that Infravio has doubled its customer count during the past 12 months and that its "pipeline is strong." That's good news for webMethods, which desperately needs help in boosting revenues. In its most recently completed quarter, the company's revenues fell from $47.7 million to $46 million, and license revenues plunged from $18.5 million to $12.6 million.

The company also believes it can leverage Infravio's product through its global direct sales force, as well as its channel of system integrators, which include prominent names such as Accenture, BearingPoint, Electronic Data Systems, and Hewlett-Packard.

In all, it appears that webMethods has a credible plan to ramp up revenues over the next year. And if it's true that customers are increasingly moving toward SOA implementations, then the company may soon be entering a growth phase. That would certainly should be good news for shareholders.

Accenture is a Motley Fool Inside Value recommendation.

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