- The Washington Times - Monday, October 20, 2003

Analysts are encouraged by WebMethods Inc.’s recent acquisitions, but remain cautious as the Fairfax software company releases its quarterly results today.

The company announced last week that it bought two software companies, The Mind Electric and Dante Group, and a portal technology from a third company, Netegrity Inc., for a total of $32 million in cash.

The purchases are part of WebMethods’ plans to diversify its product base, which has focused on enterprise application integration, software systems that link a business’ system to others, the company said in a prepared statement.

A WebMethods spokeswoman said officials were unavailable for comment.

Several analysts said the new product line will give WebMethods an edge in the increasingly crowded Web-services market.

“The acquisitions position them for technology changes and give their sales force a bigger products portfolio to work with,” said Jason Brueschke, a senior software analyst with Pacific Growth Equities Inc., a San Francisco investment bank.

Mr. Brueschke, who does not own WebMethods stock, said the new products come during a traditionally higher sales period when larger companies tend to spend more on technology.

“The company is entering what should be a sweet spot” that will push up sales and the stock price, he said, advising investors to buy.

Shares of WebMethods fell 3 percent on the Nasdaq Composite Index yesterday to $8.68, down 31 cents from $8.99 a week earlier. The stock had closed on Friday at $8.57.

Other analysts were more cautious about the company’s performance, pointing to expected losses for the fiscal second quarter.

“While we think that the company has acquired some solid technologies with its announcements, we believe that the company’s repositioning will take some time,” said Jason Maynard, an analyst with Merrill Lynch, in his most recent report.

Mr. Maynard forecast sales to pick up later in the company’s fiscal year, which ends in March. He planned to keep his rating neutral until the product line begins speeding up sales growth. Mr. Maynard does not own WebMethods stock, but Merrill Lynch is seeking a business relationship with the company.

Cheng Lim, a research analyst with New York research firm Fulcrum Global Partners, also said he would need to see more signs of business recovery before upgrading his neutral rating.

“The recent acquisitions do boost WebMethods’ product offering and potentially position the company for higher sales,” he said.

But more products do not always mean more sales, he added.

The company projected revenue between $42 million to $47 million, with a loss ranging from $3 million (6 cents per share) to $6 million (12 cents) for the quarter ended Sept. 30. Those results were to be released today after the markets close.

Revenue dropped 9 percent in the first quarter ended June 30 to $43.2 million from $47.7 million a year earlier. Losses in the quarter jumped to $6.8 million (13 cents) from $3.1 million (6 cents) in the previous year.

But the company has shown profits. WebMethods reported earnings in the fourth fiscal quarter ended March 30 of $157,000 (none) compared with a loss of $15.7 million (31 cents) a year earlier.

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