By all accounts, infrastructure software maker BEA Systems (NASDAQ:BEAS) reported strong revenue and income gains yesterday. Yet investors remain unexcited about the stock, sending the shares marginally lower in trading today. What happened?

Well, BEA reported a year-over-year reduction in license revenue for the fourth straight quarter. This time, the company booked $132 million versus $143 million during the same period a year ago, an 8% decline. Full-year 2004 license revenues were down more than 7% from the year prior. License revenue is a key measure in the software industry because it indicates the amount of new software sold. Failing to win new business indicates a company in decline. No wonder investors are unenthused.

It would seem easy to write off BEA's problems as temporary. After all, it has been a technical leader in its field of infrastructure software for years. The company's WebLogic line of application servers -- which help manage the flow of electronic transactions -- has earned raves from customers. And reports from industry analysts such as Gartner (NYSE:IT) and IDG suggest BEA is still a dominant provider of infrastructure software in Unix environments.

But there's also no doubt that competitive pressure from IBM (NYSE:IBM), Oracle (NASDAQ:ORCL), and others has taken a toll. And it's for that reason that I think BEA is on a path of permanent decline. Evidence abounds on the income statement. For example, research and development spending has declined as a percentage of revenue for three of the last four quarters (see table below).

That these marginal reductions have come with the decline in license revenue could be a coincidence, but I don't think so. BEA appears to be relying on its existing products to carry it through tough times, avoiding big investments that might attract new customers.

The company says differently, however. BEA plans a major new product by mid-year that will probably be aimed at simplifying the way critical business processes like billing become automated. It's just that it's hard to imagine such an effort succeeding when the R&D team is being asked to do more with less. I hope I'm wrong.

For related Foolishness:

Current Year Prior Year
Quarter R&D
Spending 		Total
Revenue 		R&D as a
% of sales 		R&D
Spending 		Total
Revenue 		R&D as a
% of sales 		Difference
in %
Q4 2005 $38,136 $290,772 13.1% $37,053 $278,068 13.3% -0.2%
Q3 2005 $37,007 $264,399 14.0% $34,294 $252,082 13.6% +0.4%
Q2 2005 $36,474 $262,288 13.9% $34,723 $245,048 14.2% -0.3%
Q1 2005 $34,942 $262,635 13.3% $34,830 $237,294 14.7% -1.4%
* Totals are in millions

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Fool contributor Tim Beyers once was part of BEA's PR team through an external agency. He has no ties to the company today, but remains a fan of the technology. What do you think of BEA? Share your thoughts with other Fools at the BEA Systems discussion board. Tim owns shares of Oracle. You can find out what else is in his portfolio by checking Tim's Fool profile, which is here. The Motley Fool has a disclosure policy.