Borland NASDAQ:BORL - BUY or BUST?

I have been a huge fan of various Borland software development products for years. In particular, I love the Delphi programming language and RAD IDE that Borland currently markets under it's CodeGear sub-company. And, even though I am not necessarily a Ruby on Rails developer, I think that what Borland has created in their 3rdRail Ruby on Rails IDE is looking quite nice and has potential to become a leading Ruby IDE.

I would like to say my enthusiasm for their wonderful programming and software design tools extends to their Stock (NASDAQ:BORL), but it is a bit difficult to get excited about that which has plummeted over the past year.

This Borland Stock chart says a lot:


To begin with, Borland's executive leadership should removed - blanket action, and no huge payouts for their departures. Let me answer the question of "why? with another question:

What BONEHEADS publicly announce to the world they are going to spin off their flagship development tools (like, Delphi, JBuilder, etc.), try to market the spinoff company (now known as "CodeGear") for acquisition, fail, put everyone in a state of doubt over the future of their products (especially their customers), and further reduce their own ability to sell their products when their (apparently only) plan falls short of the target?

Just search the web for quotes and opinions from developers after the announcment. I have! And, I keep reading entry after entry on developer blogs were people say things like "I really like Delphi, but since Borland dumped it, I'm switching to Java", etc. Borland didn't "dump Delphi" or other products, but that was the overwhelming impression and information out there.

The idiots that came up with this business plan at Borland really, truly, deserve to be fired en masse, unless their objective was to drive the stock down to near nothing and then suddenly announce they are going private (i.e., managment insiders taking it private once the purchase price is low enough to be to their liking)! This is the ONLY way their moves make sense. And, if this is the case, instead of being fired (if and when a plan like this surfaces), they will all need sued - individually I'm talking, not corporate - and make them pay for screwing investors.

Next, something just doesn't add up with their financials in respect to product deployment claims. I was reading the marketing hype on the Borland VisiBroker page (a CORBA Environment), when I came across this quote:

Borland® VisiBroker® is the most widely deployed CORBA ORB infrastructure product on the market, with more than 30 million licenses in use.

OK, sure, they may be 30 million licenses in use, but is anyone paying you for them? The company's total annual revenue is only ~$300 million for all the Borland products and services! Had Borland just been able to get a mere TEN DOLLARS per year per supposed "in use" licenses of VisiBroker, they would have that $300,000,000 in sales with just one product.

So, OK Borland, tell me this: how many paying VisiBroker customers do you really have? Either you are distorting licensing "facts" or your company has absolutely no business acumen if you can't make money off your products. Which is it? Obviously, VisiBroker is essentially given away for near nothing, and/or the license count is otherwise meaningless.

Borland's entire market capitalization based on today's current $2.83/share price is barely over $200 million. So, you are telling me that once again, those installed licenses of VisiBroker are not even worth a 7 bucks each towards Borland's market cap? Again, this just seems wrong, unless those "licenses" mean nothing.

With some of their higher end tools for application life-cycle management and such, they boast rather "healthy" product prices. Caliber Analyst is listed at US$3000 per named license, ... Maintenance and technical support is 20% of the license cost fee as well. From their own "Technology Audit" PDF, I got the following:

Typically, customers begin with implementing one of the LQM point solutions (e.g. functional testing with SilkCentral Test Manager, Caliber DefineIT, and SilkTest) and undertake some process improvement services with some business users, and training courses, graduating later to a full lifecycle quality platform. For individual named user seats of the LQM products, prices start at between US$1,700 and US$2,000. The total cost of deployments is considerably variable, as a range of solution scopes can be implemented. Small scale projects may cost less than US$20,000, while large scale projects [...] may easily be over US$500,000. In most cases licence cost is the most significant part of total cost. Borland provides support and maintenance at a standard typical rate of 20% of license cost annually.

So, I dug deeper into that same report and uncovered what (limited) deployment statistics I could find with regards to some of their upper-end development related products. I found the following interesting information.

Borland’s Lifecycle Quality Management (LQM) - LQM 1.0 - January 2007 figures:

• EDS has approximately 5,000 user licenses (and that is a growing number)
• British Telecom (UK): Approx 3000 user licenses, deployed in more than 6 locations in the UK
• Hewlett Packard (OpenView Division, Germany): 200 Deployed licenses in at least 4 countries
• Jaguar Cars (UK): Approx 200 licences, mainly deployed at HQ in the UK. Departmental Deployment
• NOKIA (Finland): Approx 200 licenses, mainly deployed in Finland. Departmental Deployment.
• ING Direct (Benelux) – Global deployment

You can see that these are not inexpensive products. But, the real question is, how many people are actually purchasing them, and how many are paying anything near their published "list prices"? I have to wonder how deep of discounts Borland extended to EDS or BT, etc, in order to "land them" as clients and be able to boast about these installations.

If each of those installations listed above had paid the nearly $2,000 per individual product that is supposedly where product pricing starts, that short list of (example) clients would have given Borland nearly $20million in revenue, and would contribute $4million/year in maintenance and support thereafter.

The big problem is that I suspect this list of example clients 1) represents the largest installations, and 2) didn't pay nearly full price. Also, did you notice how few USA-based firms are on the list? Borland seems to be better able to sell its products outside of the USA (this, of course, could be a positive thing).

Next, I looked at their CodeGear RAD Studio 2007 U.S. Pricing and Availability announcement (quoted below), and tried to figure out how many installs of these products there would have to be to produce the company revenue levels reported in their financial statements.

The Professional edition is $1199 for new users, with special upgrade pricing of $549 for customers using earlier versions of Borland Developer Studio, Delphi, C++Builder or Turbo Professional products. The Enterprise edition is $2499 for new users and $1699 for customers upgrading from earlier versions of Borland Developer Studio, Delphi, C++Builder Enterprise or Professional. The Architect edition is $3299 for new users, $2499 for customers upgrading from earlier versions of Borland Developer Studio, Delphi, or C++Builder Enterprise or Architect editions.

Again, these are not inexpensive software products. With an "Architect Edition" license costing $2,500 per seat, every thousand licenses would generate $2.5million in revenue (sold directly to customers - not taking out a cut for resellers). So, it would take 100,000 licenses of such product(s) to generate $250million/year revenue (i.e., essentially Borland's entire revenue). But, how likely is it they can sell even half this many licenses of such expensive products?

With more software development moving out of the USA and into countries where intellectual property laws are, should I say, a bit "relaxed" (or unenforced) compared to ours, I can't help wondering how many of the overseas places developing software using Borland's tools have actually purchased their products from Borland. I'm sure some do. But, I really question this when I have looked on some of these rent-a-coder web-sites where I see a project requiring Borland Enterprise Edition products (as well as Microsoft Desktop and Server products) that I know would cost me a $5000 investment, but yet the "bidding" overseas coder says they have all the required software tools and can do the entire project for $100 or such. It certainly appears obvious that in such circumstances, some overseas (and USA too I'm sure) developers are not encumbered by the inconvenience (i.e., COST) of needing to purchase the Borland product, as they have acquired it via other means (copied, cracked, hacked, whatever). This is really hurting Borland (and other technology firms) in a big way.

Another problem I see is that when I search job sites for languages that are essentially "locked up" or "proprietary" to Borland (read: Delphi), I find little to no job postings. And, the trend has been downwards for quite a few years. Couple this with the final nail in the coffin I mentioned earlier - management announcing they'd spin off CodeGear, which was self-induced FUD [Fear, Uncertainty, and Doubt] (what morons would do this!!?? - usually they leave that task up to Microsoft) - and you get a company that has nowhere to go but down!

Borland, wake up and save yourself! (if you care to) Fire all top executives involved in this CodeGear fiasco. Publicly come out and admit that it was a mistake... and give clear indication that you are committed to your products. But, has your own stupidity made that a useless move - nobody will trust you now. Managers are not fired for buying into Microsoft, IBM , or Oracle platforms, but they will be for buying your tools if you go under.

Funny thing is, the best chances Borland has for "success" is if someone decides to buy them out while they are dirt cheap. I'd say that Borland is ripe for acquisition, and it would be barely a "blip" in the acquisitions department finances for someone like IBM, Oracle, or Microsoft. Even if they paid a 5x premium over the current stock price, it'd only be a $1 Billion acquisition on a cash-basis, and as a stock-based acquisition, it'd be a mere nothing to absorb.

The only thing I personally fear about Borland being acquired or bought out or whatever is that the acquirer / purchaser may not feel as strongly as I do about how wonderful the CodeGear Delphi and RAD Studio Tools are. But, it shouldn't take too much hands-on time with these tools to convince someone that there is still inherent value there to be extended, leveraged, and used to generate revenue (certainly more revenue than Borland seems capable of squeezing out of these products). In fact, with the right "brand name" on them, I could see an acquiring company quickly getting a nice ROI (Return On Investment) as people start buying the products that they otherwise would not for fear of Borland going under or such.

One more thing to note recently is how Borland filed to sell $200,000,000 worth of 2.75% Convertible Senior Notes due in 2012. This further tells me they are in operational peril perhaps. Only time will tell. Who knows, maybe Borland is poised to grow immensely soon, and I just can't see how? I guess that loan could be just to hold them over until a suitor buys CodeGear or all of Borland out? I still find it amazing when companies can get loans equal to the entire market capitalization of their stock - but that is another story, and another blog.

So, is Borland a "BUY" or a "BUST" (sell)??
I don't know.
I do consider it a gamble, with upside potential being solely dependent on Borland getting purchased by Microsoft, Oracle, or IBM or such.