Business & Money Trail:

SYBASE DEFIES SLUMP BY BETTING ON FUTURE

As reported by Dan Gallagher, PeopleSoft Inc's newest neighbor shares more in common with the Pleasanton software giant than just its Tri-Valley base.

Like PeopleSoft, Sybase Corp has spent the last year largely defying the crippling economic downturn as well as Wall Street's weighty expectations. And like PeopleSoft, the database software maker, which moved from Emeryville to its new corporate headquarters in Dublin earlier in January, thinks it can repeat its performance again this year.

"I'm pretty comfortable being bullish about us," Sybase CEO John Chen said in an interview this week. "People are starting to expect more things from us."

Meeting those expectations may become a tall order if the economy continues its slide. Added to that pressure is the fact that Sybase still derives most of its revenue from a market that many analysts consider to be in a "mature phase" -- meaning, opportunities for large sales growth is limited because most of the big customers have already been picked off.

But for Chen, confidence reigns supreme. Now entering his fifth year at Sybase, the 46-year-old chief executive can point to a record of 15 straight quarters of profitability. That's a change from when Chen arrived and Sybase was losing money despite its large database business.

Additionally, a series of smart acquisitions have boosted the company's sales in new markets with better growth potential than its mainstay database business.

"They've been very well-managed because they incrementally keep milking the cash cow and investing in new business at the same time," said Lehman Brothers analyst Michael Stanek.

That much was demonstrated last week, when Sybase issued its fourth quarter earnings report. For the period ended Dec. 31, the company posted earnings, excluding write-offs tied to an earlier acquisition, of $31.2 million, or 31 cents per diluted share. While this represented a 31 percent drop from earnings in the same period the previous year, it nonetheless beat expectations of 24 cents per share set by Wall Street analysts, according to First Call Inc.

Revenue dropped slightly to $236.3 million compared with $260.5 million in the previous year, although the results were considered good after taking into account the recession that has cut sharply into corporate technology spending.

Chen credited the performance to strong sales of new products like iAnywhere, a database software application that ties mobile wireless devices like cell phones, Palm Pilots and laptop computers into main company databases. Developed through an acquisition back in 1995, iAnywhere has helped Sybase grab 68 percent of the mobile database market, which International Data Corp predicts will be worth as much as $1.5 billion within four years.

Another strong performer for the company during the fourth quarter was Financial Fusion system, an enterprise software package designed for large financial institutions. The division, which Sybase acquired during the first quarter of 2000, marked its first profitable quarter and racked up $8 million in revenue, according to Sybase.

But even hot new products can suffer in a downturn. Sybase executives, however, say their expectations are modest given the state of the economy.

"The way we look at it, we believe the economy will begin to turn around in the second half of the year, so we don't think we're overstepping our expectations," said Sybase CFO Pieter Van der Vorst.

Chen is optimistic that he can squeeze even more sales out of the company's maturing database software applications. This partly comes from the company's strong presence in Asian markets, where it has a slight lead over competitors like Oracle and IBM. In the most recent quarter, revenue from Asian markets grew by 13 percent from the previous year, making the region the company's fastest growing market.

"It's a long-term investment that is now yielding some results," said Chen, a Hong Kong native who spends a large portion of his time personally overseeing the company's Pacific Rim operations.

After ceding the bulk of the database market to Oracle and Microsoft in the mid-1990s, analysts believe it is crucial for Sybase to establish a leading position this time around or risk getting cut out of the picture.

"We often run into people who are stuck on the Sybase story as it was a couple of years ago when they were a shrinking database company," said Gartner Inc analyst Jim Duggan. "They've gone from having no growth and no real prospects to having reasonably good products that could make some pretty profitable businesses. They have a pretty decent set of cards now, if they play them well."