BUSINESSWEEK ONLINE : NOVEMBER 27, 2000 ISSUE
INFORMATION TECHNOLOGY A 20-Year-Old Overnight Success No doubt Paul Levy, chairman of Rational Software Corp. ( RATL), thinks these heady days are long overdue. After nearly 20 years as a little-known, slow-growing software company, Rational has turned into a speed demon. What was a $50 million business just five years ago could top $800 million in annual revenues in fiscal 2001, ending next March. The reason? Rational's software--tools that help other people build programs--has become essential to turning established companies into e-businesses. Thanks to the Net, Rational's boring stuff is cool. ''The market has finally come to them,'' says analyst John McPeake of Prudential Securities. NOT CHEAP. That has certainly spruced up the company's financials. For fiscal 2000, Rational delivered $85 million in profits on $572 million in revenues--sales growth up 40% over 1999. Its stock had a similar pop over the past six months, though it was hit by the broad sell-off in tech issues in recent weeks. Rational's shares climbed from $36.72 to a peak of $69.50 in late September before settling at $44.88 on Nov. 13--making it No. 15 on the six-month update of BUSINESS WEEK's top 100 info-tech performers. ''Some of it is foresight,'' says Levy. ''Some of it is luck. And some of it is persistence.'' Levy's foresight was to spot the importance of the Net four years ago and revamp his products so they work well on the Web. With Rational's tools, a company can build its Net software with the latest technologies, manage the project, test it, and make sure it works before putting it online. The software, including Rational's Data Modeler, is not cheap. A sale can run more than $100,000. But by using it, a company can build its e-business applications up to 50% faster, analysts say. And it helps them sleep easier, too. ''Nothing is more expensive than putting out something that breaks,'' says customer Matthew Hildenbrand, director of quality assurance at e-marketplace host VerticalNet Inc. All of this has helped Rational dominate the $1.2 billion market for Net software tools. It has only a few sizable rivals, including Sterling Software Inc. and Telelogic AB. The result: Rational has a 38% market share, according to researcher International Data Corp. The other two have just 8% each. For the old-timers at Rational, success is sweet. Levy and U.S. Air Force Academy classmate Michael T. Devlin, Rational's CEO, started the company after they left the military in 1980. Fortunately for them, the computer technology they used was similar to Net technologies. ''All the stuff Rational had been working on became key to making the Internet breathe,'' says Levy. The partners waited out a two-decade countdown for what is turning out to be a rocket ship ride. By Jim Kerstetter in Cupertino, Calif. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS BW's Info Tech 100: Who's Still Standing? A 20-Year-Old Overnight Success TABLE: Rational Software SONICblue Is Singing a New Song TABLE: SONICblue (Formerly S3) TABLE: The Info Tech 100 INTERACT E-Mail to Business Week Online

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