February 08, 2006, 9:27 AM — Borland Software Corp. plans to sell off its struggling Java development tools business to focus instead on selling services and products for managing software development, the company announced Wednesday.
Borland is seeking a buyer for its IDE (integrated development environment) business, which includes its Delphi and JBuilder products. The move will allow it to focus on growing its business in the area of application lifecycle management, or ALM, it said.
As part of the ALM focus, Borland also announced that it has agreed to buy Segue Software Inc., which makes software quality and testing products, in a transaction valued at about US$100 million.
Long known for its development tools, Borland has struggled to hold its footing in the IDE market amid tough competition -- particularly from Eclipse, an open-source Java IDE with similar functionality to Borland's JBuilder.
Revenue from its Java IDE products accounted for just 7 percent of total revenue in the third quarter of 2005, down from 15 percent in the same quarter a year earlier, it said in a U.S. regulatory filing in November.
The changes come a few months after Borland appointed a new president and chief executive officer, Tod Nielsen, a former executive at Oracle Corp., BEA Systems Inc. and Microsoft Corp. Nielsen replaced Dale Fuller, who resigned as Borland's CEO last July after the company reported weak sales for the second quarter.
Borland didn't name any potential bidders for the IDE products. It hopes they will form a standalone business that will allow continued investment in their development, Nielsen said in a letter to customers on Borland's Web site.
"We believe that separating [the IDE and ALM businesses] will enable both to flourish and grow more aggressively through targeted focus and investment," he wrote. The IDE business requires "a distinct business model and focused investments" that doesn't match Borland's ambitions in ALM, he said.
It is unclear whether Borland will find a buyer for the tools, however, particularly JBuilder, whose functionality overlaps most closely with Eclipse, said Bola Rotibi, a senior analyst for software development technologies with U.K. analyst company Ovum Ltd.
"JBuilder is a good tool," she said. "The thing is, if Borland didn't think it had a place for it, I'd be surprised if anyone else does, anyone major anyway."
Delphi, on the other hand, "has a strong market and a loyal following and is likely to be snapped up," she said.
The dramatic shift was seen as a necessary one for the 22-year-old company, as developers and vendors continue to embrace the open-source Eclipse IDE.
"I think this shows that Tod Nielsen has come into the camp, looked around and decided to shake up the company and put it in a position where it can make its mark," Rotibi said.
Still, the move is "ultimately a gamble," she said. Borland is a player in the ALM market today, but its brand is tightly linked to development tools. To do well, it will have to win customers in the face of larger ALM vendors such as IBM Corp. and Microsoft Corp., and against specialist suppliers such as Telelogic AB and Compuware Corp.
"I think it's the right move for them. The gamble is whether it's enough to keep them independent and to allow them to grow," Rotibi said.
Borland will now be a specialist ALM vendor itself. Its offerings will focus on four areas, it said: IT management and governance, requirements definition and management, lifecycle quality management, and change management. Segue's products will help build out the quality management area, it said.
Demand is growing for products that help big businesses manage the complex process of software development, Borland said, citing figures from research company IDC.
In the near term, it plans to build quality lifecycle management products that combine Borland's and Segue's offerings, along with services, it said.
The company has signed a definitive, "one-step" merger agreement to pay $8.67 in cash for each Segue share. That's a premium over Segue's Tuesday closing price of $6.92 on the Nasdaq stock market.
Borland has secured support from Segue shareholders representing 21.5 percent of the company's stock. It expects to complete the merger in the second calendar quarter, it said.
Wednesday's announcements came a day before Borland is due to announce its fourth-quarter and full year financial results for 2005.
In November, the company reported a third-quarter net loss of $4.8 million on $67.9 million in revenue, down from a loss of $150,000 and revenue of $77.7 million in the third quarter of 2004.
