Business Objects Execs See SMB Market as Engine of Future Growth in BI Arena

Sales of business intelligence software to small and mid-size businesses ultimately could account for 50 percent of Business Objects revenue, CEO John Schwarz said Wednesday. Schwarz' comments came during an earnings teleconference with Wall Street analysts at which the company announced that second-quarter sales increased 23 percent year-over-year to $363 million.

While business intelligence software sales to large companies and organizations account for the bulk of Business Objects' revenue today, "We still believe that the midmarket is a better long-term opportunity, or, let's say, [a] less penetrated opportunity than the enterprise, so therefore [it] will likely have more growth as time goes on," Schwarz said. "We would expect that the mid-market, over time, becomes as much as half of our overall business."

Earlier this year Business Objects launched an effort to expand sales to SMB customers, developing the Business Objects Crystal Decisions line of software packages tailored for smaller companies and announcing that solution providers would be the primary vehicle for delivering professional services to midmarket customers. Business Objects defines SMB companies as those with sales less than $1 billion and 2,500 or fewer employees.

"We're extending our reach into the midmarket with the training of over 1,800 partners on the new Business Objects Crystal Decisions product suite," Schwarz said during the call, adding that his goal is to win "a significant share" of that midmarket. He also said the company has to work harder to gain the attention of key systems integrators: As business intelligence software deployments become more complex, implementation and training services provided by systems integrators have become increasingly important in the hotly competitive BI arena.

For the second quarter ended June 30, Business Objects reported sales of $363 million, up 23 percent from the same period one year earlier. Earnings increased nearly 172 percent to $21.6 million. Software license revenue, a key growth indicator, increased 21 percent to $149 million with even growth even across all of the vendor's product lines. Service revenue, including product maintenance, consulting and training services, grew 25 percent to $214 million.

"In general, we are benefiting from the scale of becoming a $1.5 billion company, continuing programs to improve our productivity and leverage on our prior year acquisitions," CFO Jim Tolonen said during the conference call.

Business Objects has made several acquisitions this year, including performance management software vendor Cartesis and text analysis software developer Inxight Software. Cartesis' sales and expenses were included in the second quarter results. The Inxight acquisition was just completed earlier this month and its financials were not included.

For the current quarter Business Objects expects revenue in the range of $382 million to $387 million while the company is projecting revenue for all of 2007 between $1.52 billion and $1.53 billion. Schwarz said midmarket sales growth and upsell opportunities to large companies would be key growth drivers for the rest of this year and beyond.

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