Database maestro Sybase (NYSE:SY) enjoyed a good 2005. The company beat analyst predictions for its profitability three times in three quarters -- batting 1.000, so to speak. But as we head into tomorrow's earnings report for Q4 and full-year 2005, the company looks set to end the year not with a bang, but with a whimper.

Wall Street Wisdom:

  • General consensus. Seven analysts cover the company up on Wall Street, where Sybase rates two "buys" and five "holds."
  • Revenues. Predictions for tomorrow center around the company reporting a mere 3% rise in revenues for its fourth quarter.
  • Earnings. As anemic as the revenue picture looks, analysts believe the profits picture will be even uglier -- they expect earnings to decline by 7% to $0.37 per share.

Margin watch:
Sybase's margins pose a bit of a quandary. The company has made real improvement on both its gross and operating margins recently, yet net margins lagged. The reason seems to be tax-related. Sybase paid relatively high tax rates in the December 2004 quarter and the March and June 2005 quarters. Those high tax rates helped to mask the underlying strength of this business. But don't let that fool you -- this is still a strong company.

Margins %

6/04

9/04

12/04

3/05

6/05

9/05

Gross

70.7

71.0

71.8

72.2

73.4

74.2

Op.

13.4

13.4

14.1

14.3

15.6

15.7

Net

11.1

10.4

8.6

8.5

8.7

10.0
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Where's Waldo watch:
Speaking of "masking," I've paid particular attention to Sybase's Financial Fusion (FF) banking software subsidiary in past quarters, first noting that the unit appeared to be losing money and market share to rivals like Online Resources (NASDAQ:ORCC), Digital Insight (NASDAQ:DGIN), and Corillian (NASDAQ:CORI). Sybase responded by refusing to break out the FF division's results in subsequent earnings releases. Tomorrow, we'll see whether the company will do the right thing by its shareholders and give a clearer picture of this unit's performance -- or persist in trying to "hide its shame."

Competitors:
Sybase faces plenty of competition in the database market: Motley Fool Inside Value pick Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL), and IBM (NYSE:IBM) all number among its rivals.

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Fool contributor Rich Smith owns shares of Corillian but of no other company named above.