Sybase hopes purchase of XcelleNet will give a vital boost to its Unwired Enterprise strategy

Rethink IT, May, 2004

In the shadow of a profit warning, Sybase announced the acquisition of device management specialist XcelleNet, to bolster its increasingly pivotal iAnywhere middleware range.

Sybase will pay $95m for privately held XcelleNet, a deal that brings remote device management and data security features to iAnywhere, which is the centerpiece of the company's Unwired Enterprise strategy.

Sybase said it would gain 2,200 customers through the acquisition ofXcelleNet from Francisco Partners, a holding company, but more important will bc the company's expertise in mobile data security, a must-have for mobile enterprise programs; and its strong relationships with some key players such as Microsoft, Hewlett-Packard and Intel, which licenses XcelleNet for its Landesk management package.

Sybase has taken the market lead in wireless middleware, snatching it from RIM last year, but this sector will increasingly converge with mobile management, a crowded area in which all Sybase' rivals play. As enterprises adopt unwired strategies, the iAnywhere position will come under siege from mobile data offerings from Oracle, IBM and the other giants.

XcelleNet's well respected security features will strengthen Sybase' hand as it brings iAnywhere into the center of its growth plans.

The mobile middleware segment is expected to grow to $1.6bn by 2007, according to market researcher IDC. In 2002, iAnywhere took 12.7% of a sector then worth $700m, overtaking RIM on just under 12%.

The deal may be less good news for WLan management specialists, since Sybase has been adding more Wi-Fi support into iAnywhere, a development boosted by similar moves at XcelleNet. As the big players move out of the synchronized and cellular worlds to support Wi-Fi links too, 802.11 software specialists like Roving Planet will come under increased pressure.

The need for Sybase to accelerate its Unwired Enterprise initiative was thrown in to sharp relief by its first quarter profit warning. Blaming several delayed telecoms contracts, Sybase said it now expects pro forma earnings, excluding items, of 18 to 20 cents a share, below the consensus analyst estimate of 24 cents. The company expects revenue of $183m to $185m, compared with analysts' expectations of $191.1m.

The warning highlighted continuing uncertainty in Sybase' traditional database and middleware markets and the need rapidly to increase the percentage of revenue that it derives from the one market where it is a marker leader and that is seeing significant growth, mobile enterprise.

The company stuck by its full year forecast of 4-6% revenue growth, which would mean $809.2m to $824.8m. Much of this expected growth can be expected to come from wireless. In the 2003 fourth quarter, this was the strongest area for Sybase, with iAnywhere database and tools up 19% year-on-year in revenue terms, countering a 5% slide in overall software license sales and helping achieve a profit of $37.7m (reversing the year earlier loss of $9.8m).

These statistics explain the heavy focus on the Unwired Enterprise strategy, which will involve a complete overhaul of the mobile product range by midyear and aggressive developer programs.

iAnywhere offers a full development, management and synchronization environment to surround its core product. SQL Anywhere Studio 9 is an integrated development environment for cutdown databases, including XML import and export capabilities, SQL, and HTTP server and SOAP support for creating database-powered web services. There are also developer features that are far more sophisticated than those in most mobile toolsets, such as UltraLite Dynamic SQL, which eases the task of the SQL developer writing for miniature platforms.

iAnywhere strengthened its all-round offering by acquiring AvantGo at the end of 2002 for $38m, adding expertise in real time data access to its own synchronized approach and gaining position in the important enterprise mobile email server sector. This is critical because a large proportion of companies implement mobile email as their first wireless application, and then use it as the testing ground and foundation for other roll outs.

With iAnywhere, Sybase has followed in its own tradition as a technological trendsetter and, so far, has not shown its usual tendency to cede leadership of its chosen space to the big guns. At under 20% of revenue, Unwired Enterprise is not enough in itself to guarantee the company's turnaround, but they will be the primary factor and, with the growth in enterprise wireless deployments, should become Sybase's most important--and possibly only--business over the next five years, provided it hangs on to its lead.