Software maker BEA Systems (NASDAQ:BEAS) is reporting earnings tonight for its fiscal Q2 of 2006. The company is an experienced player in a promising field, but its earnings rarely surprise investors. Will tonight be any different?

What analysts say:

  • Buy, sell, or waffle? Twenty-seven analysts follow BEA Systems. Thirteen of them are recommending a buy, three are telling you to sell, and the remaining 11 are holding for now.
  • Revenues. The analysts' sales estimates average out to $335 million, which is 17.6% higher than year-ago revenues.
  • Earnings. Earnings are expected to increase by 33%, to $0.12 per share.

What management says:
BEA is setting its sights on the blossoming service-oriented architecture (SOA) market, where small, modular pieces of software work together in a Web browser interface to accomplish complex tasks. BEA WebLogic has been a strong competitor in the Java-based Web application space for years, and the company keeps pushing out new releases of this flagship product.

The newest version of WebLogic is supported by a series of seminars to educate customers on how to make the most out of their software investment. Having sat through a few similar seminars in my day, I expect them to turn into full-on sales pitches, so chalk that initiative up as a sales and marketing effort.

What management does:
Trailing-12-month margins have declined since their peak three quarters ago. The culprit appears to be twofold: increased cost of revenues in the last two quarters, and slower sales growth year over year in Q1 2006. But the company's gross margins are better than those of BMC (NYSE:BMC), on par with those of Oracle (NASDAQ:ORCL), and almost as good as Microsoft's (NASDAQ:MSFT). Not a bad crowd to hang out with.

Unfortunately, all of these competitors are beating BEA's net margins, and the bottom line tends to count most. There's clearly some opportunity to tighten operations here and let those revenue dollars work a bit harder.

Margins %

1/05

4/05

7/05

10/05

1/06

4/06

Gross

78.6

78.6

78.7

79

78.5

78

Op.

18.9

18.7

18.6

18.5

17.8

17.4

Net

11.4

11.5

11.6

12

11.5

10.6

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

One Fool says:
There's no doubt that WebLogic is an excellent Java application platform, and it stands tall next to IBM's (NYSE:IBM) WebSphere or the open-source alternative, Apache Tomcat. Red Hat (NASDAQ:RHAT) recently acquired the high-performance JBoss engine, which could blossom into a serious competitor now that it has real financial backing. As you can see, it's a crowded marketplace, but one in which BEA is handling itself very well. The SOA aspect of the company's strategy is timely, and it meshes nicely with what BEA was already doing well.

This is a closely watched company, especially considering its modest $4.5 billion market cap, and the estimates tend to land within a penny or two of actual results. Based on that, I don't expect any huge surprises tonight. Instead, I'll look for optimistic forward guidance, and as always, any hints of new developments in the business model or marketplace. In other words, it's all about the conference call, not the numbers.

Related Companies:

  • IBM
  • Sun Microsystems (NASDAQ:SUNW)
  • BMC
  • Tibco Software (NASDAQ:TIBX)
  • Vignette (NASDAQ:VIGN)
  • Oracle
  • Red Hat

Microsoft is a Motley Fool Inside Value recommendation. Try a 30-day free trial to see why Philip Durell sees a bargain in Redmond.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdingsif you like. Foolishdisclosureis the only portal you need.