- The Washington Times - Monday, April 3, 2006

Fairfax business software firm WebMethods is preparing itself for the switch by government and industry to “service-oriented architecture” in computer programs.

Service-oriented architecture allows government agencies or other large organizations to perform computer functions quickly by getting different parts of their software to work together on a single job, with each task done independently.

It works best for computer databases that require huge amounts of information to be synchronized, such as for the Defense Department.

The result can be “significant returns from modest investments,” said Deborah Rosen, WebMethods’ executive vice president of marketing.

The company’s major customers include the Internal Revenue Service, Motorola, Dell Inc. and Bank of America. WebMethods has about 800 employees, nearly 300 of them in the Washington area, where the company is focusing on government contracting.

“The government, ranging from local groups like Fairfax County Public Schools through the Department of Defense, is an important sector for us,” Miss Rosen said.

Industry analysts say that by 2008, about 80 percent of new Defense Department software projects will be based on service-oriented architecture.

“What I think WebMethods has done successfully is address lines of business, instead of just information technology,” said Irit Elrad-Jakoby, an analyst at Next Generation Equity Research LLC of Chicago, which has no financial dealings with WebMethods.

Rather than purchase a new software system each time an organization embarks on a venture, “You will be able to re-engineer what you already have,” Mrs. Elrad-Jakoby said. “The result is that [information technology] will be able to respond to business needs much quicker.”

The service-oriented architecture at the heart of WebMethods’ business is relatively new to industry.

“The greatest challenge is customer adoption of a service-oriented architecture environment,” Mrs. Elrad-Jakoby said.

Company officials admit that challenges lie ahead but that they mostly involve choosing between “opportunistic growth and prudent and sustainable growth,” Miss Rosen said.

Sterling Auty, an equity research analyst for the financial firm JP Morgan Securities, said WebMethods faces a competitive challenge if the market for service-oriented architecture continues to improve.

“With pure [service-oriented architecture] vendors like [WebMethods] attacking the market successfully, aggressive entry by others like IBM or [Tibco Software Inc.] via internal development or acquisition can threaten the company in a space where it is dominant,” Mr. Auty said in a research report.

Founded during the dot-com boom in 1996, WebMethods survived the industry’s bust four years later that caused a short-term drop in business.

The company’s revenue was nearly $52.5 million in the fourth quarter of 2005, compared with $54.9 million in that period in 2004. However, cost cutting increased net income from $48,000 (0 cents per diluted share) in the fourth quarter of 2004 to $5.5 million (10 cents per diluted share) in the last quarter of 2005.

Its stock closed yesterday on Nasdaq at $8.52 per share, up 10 cents, or about 1 percent.

The settlement last month of a lawsuit by former business associate Defywire is freeing WebMethods of a concern over sales of its software for hand-held devices to access information management systems.


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