Borland entered a nondisclosure agreement with the new suitor and it has granted it access to its accounting books. Among the possible buyer, the name of Embarcadero and Oracle are mentioned. Embarcadero already bought last year the CodeGear division and might be interested for some new tools that will complete its current offer… for cheap. Oracle, who just bought Sun, could seize the occasion to create a more complete offer of software development tools around Java. JDeveloper, the Java IDE from Oracle, was originally build around the JBuilder technology from Borland.

In the past year Borland has often blamed its IDE division to be the cause of this problems, slowing its ambition to be an ALM leader with huge financial losses. In May, Borland finally managed to sell the CodeGear unit to Embarcadero. The financial results of CodeGear are now difficult to estimate, as Embarcadero is a private company. What is left at Borland is a mixed set of products, resulting of some in-house innovation and external acquisitions (Togethersoft, Segue), grouped under the “Application Lifecycle Management” banner. None of the components of this set is considered as a top leader in its specific market and good integration between existing products is always difficult to realize. Trying to sell these type products is more difficult, because you have to reach a higher level in the enterprise than for individual developer products. It is also the type of project that most companies will postpone in a period of difficult economic conditions. Furthermore, this put Borland in competition with bigger fishes, like IBM that purchased rival Telelogic last year, and companies like MKS that have their roots in the ALM market.

It would be a bad thing if Borland fails just after having celebrated its 25th birthday, but if it was already struggling in times where the economy was good, we could fear that survival would be even more difficult in the hard times that are ahead of us. Researching for this post, I found that Borland had already cut 40% of its workforce in 1995 after the resignation of its founder Philippe Kahn, so maybe we should believe that it could be just “another deep crisis” in Borland history, a company briefly knew under the name of Inprise ;o)

Borland full press release

Borland made this announcement the same day that it announced a GAAP net loss of $22.3 million for the first quarter of 2008. Borland has been loosing money for quite a long time, at least since it already tried to sell its tools division at the end of 2006, before setting an independent entity named CodeGear. In 2007, Borland already reported a GAAP operating loss of $61 million for the year compared to a loss of $53.1 million in the prior year.

For 2007, CodeGear reported $57 million in revenue and Borland total revenue were $268.8 million. The price paid by Embarcadero is therefore around 50% of yearly revenues. This could be compare for instance with the price paid last year by IBM to acquire Telelogic, which was around 300% of 2007 revenues. Borland management has been accusing the tool division for dragging down profitability for a long time. It is more difficult today to be active in this market area, when most developers could use free open source solutions like Eclipse or NetBeans. Even commercial editors like Oracle or Microsoft offer a free basic edition of their IDE. With this transaction, we will finally able to judge Borland’s management on its ability to develop the other products (Silk, Caliber, StarTeam, etc.)

The question is why would Embarcadero buy such an apparently bad business? First, its current product is centered around database development, so there is no redundancy with CodeGear programming tools… but the management could see redundancies in the sales and administration people and cut a large part of the costs. With a “small company” culture, Embarcadero could be used to a more controlled spending that people used to the large pockets of Borland. Due to the price paid, Embarcadero is taking a relatively small financial risk, as it could have more easily a positive return on its investment with CodeGear recurring revenues. Finally, as Embarcadero was until now active on a “niche” market (database tools), it could have been less sensitive to the competition in the IDE segment.

It has to be noted that CodeGear has also made recently good efforts to explore new markets, like PHP and Rails, different from its existing Delphi, C and Java base. This could provide a good opportunity to cross-sell products through existing customer base. I hope that the growth forecasts announced in the acquisition press release will realize for the benefit of employees of these two companies, but I think that the expansion of diffusion of free open source and commercial competing products will make it very difficult to achieve them.

Borland press release

Embarcadero press release