Beating Down BEA

Following a disappointing fiscal Q3 report in November, BEA Systems (Nasdaq: BEAS  ) issued an earnings warning in May. Over that period, the stock has fallen 24%, with no apparent catalysts to get it moving in the right direction again.

BEA develops a variety of enterprise-software systems to help with complex things like e-commerce and other business applications. Another big focus is service-oriented architecture (SOA), which involves Web-based approaches to help companies meld information technology (IT) environments.

Yesterday BEA announced its Q1 results; they were fairly lackluster, with revenues up 7% to $345.8 million. Net income was not reported, because of the company's investigation of its options program.

One red flag: a 13% drop in license revenues, to $114.6 million. This is a key metric for software companies, because these revenues generally lead to future maintenance and service fees.

Why the drop? Management blamed a weaker IT climate and iffy sales execution. While BEA made some adjustments to its sales force, those changes may have a limited impact if the enterprise software market truly softens.

Despite the slow growth, BEA has a core business of large clients, including Citigroup (NYSE: C  ) , FedEx (NYSE: FDX  ) , Genentech (NYSE: DNA  ) , Verizon (NYSE: VZ  ) , and Procter & Gamble (NYSE: PG  ) . Players like these mean prodigious cash flows, to the tune of $95.1 million in Q1. BEA has about $1.3 billion in the bank.

So it's no surprise that management is focusing on stock buybacks. It's added $500 million to its buyback program, for a total of $620 million.

Still, there are few signs of growth here. The Q2 forecast calls for revenue of $353 million to $367 million, and license revenue of $113 million to $128.5 million. That means the license shortfall could be as much as 16% year over year.

The long-term prospects for SOA look bright, but its deployments can be expensive and time-consuming. BEA also faces intense competition from players such as IBM (NYSE: IBM  ) , and Oracle (Nasdaq: ORCL  ) . Amid a more tepid spending environment, BEA will likely continue its sluggish ways.

Further not-so-BEAutiful Foolishness:

Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. FedEx is aMotley Fool Stock Advisor pick. The Fool has a disclosure policy.

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