InformationWeek
Defining The Business Value Of Technology
February 14, 2000
 Printer ready |
Fourth-quarter revenue gains indicate possible resurgence in 2000
| Related links: |
|
|
| And from our sister publications: |
|
|
 Send Us Your Feedback |
t was a humbling year for sellers of enterprise resource planning software. The top vendors, long accustomed to insatiable demand for their products, were hit by a major slowdown in sales. Making matters worse, many ERP vendors lost top executives, who went running after gold at E-commerce startups and beyond.The ERP market still has life in it: Most of the leading vendors reported a healthy rise in software revenue in the fourth quarter, indicating a possible ERP market resurgence in 2000. But most analysts' outlook on the market remains tempered. "It's easy to have a rebound if you're comparing to depressed sales a year ago," says Chuck Phillips, a financial analyst at Morgan Stanley Dean Whitter.
SAP
Hanging on to the top spot in the ERP market, SAP sparked optimism among analysts when it reported better-than-expected fourth-quarter results last month. The company posted a 43% increase in product revenue to $1.12 billion and a 109% increase in net income to $315 million for the quarter compared with the same period a year earlier. The results come after a disappointing third quarter, in which net income and product revenue declined.
For the year, product revenue grew 14% over 1998 to $3.07 billion, and net income was up 14% to $598 million. The company expects to make double its 1998 revenue of $4.29 billion in 2001. "I don't think anyone's counting SAP out," says Steve Abrahamson, an analyst at the Prudential Volpe Technology Group. "They're an engineering machine."
That machine spent last year switching gears. SAP recast its applications--dubbed mySAP.com--for the Internet and focused on making them easier to use. And though SAP has been criticized for taking too long to articulate an Internet strategy, during the past year the vendor has delivered a Web portal for its applications and entered the hot Internet-marketplace arena, teaming up with partners in the health-care, chemicals, and oil and gas industries to host online trading exchanges.
Still, analysts say SAP is unlikely to see a return to the glory days when 50% to 60% growth year over year was commonplace. "They're not credible in all new markets," says Phillips. "They have new products, but they aren't seasoned yet."
Oracle
Oracle is the only ERP vendor to emerge unscathed from a difficult year. "The market clearly believes we're going to be a huge beneficiary of E-business," CFO Jeff Henley says.
Analysts agree, noting that Oracle's applications, including its ERP, customer-relationship management, and procurement offerings, are well ahead of its competitors' in E-commerce capabilities. That's despite the fact that the fully Web-enabled application suite, Oracle Applications Release 11i, won't be released until the end of the first quarter--and some components, such as CRM and order management, will ship even later. "They've been gaining market share relative to SAP," says Phillips. "SAP miscalculated the importance of the Internet. Oracle embraced it earlier."
Oracle's Internet savvy may have something to do with its steady growth in application license revenue during the last year. Peaking in the second fiscal quarter of 2000, ended Nov. 30, applications sales increased 31%, to $168 million, from the same period a year ago. Total application sales in the year ended May 31 were $2.43 billion, a 76% increase over the previous year.
PeopleSoft
PeopleSoft Inc.'s sales have languished during the past year. But the company ended 1999 on a more positive note, completing its acquisition of CRM vendor Vantive Corp.--and including the company's fourth-quarter revenue in its bottom line. While license revenue from PeopleSoft's ERP suite grew 37% over the previous quarter, license revenue from Vantive rose 68%. "We saw an increase in every product, every geography, and every market," says PeopleSoft CEO Craig Conway, who took the helm in September.
Although overall license revenue increased 45% over the previous quarter, fourth-quarter revenue of $372.3 million and net income of $11.1 million were lower year over year. Revenue and net income for 1999 were also lower: Revenue was down from $1.47 billion to $1.43 billion, and net income fell from $164 million to $21 million.
Fourth-quarter results were better than expected, but analysts remain critical. "There's vast difference between the knock-the-cover-off-the-ball results from SAP and 'Gee, it wasn't nearly as bad as we thought' results from PeopleSoft," says Robert Kugel, an analyst at FAC/Equities.
But PeopleSoft is looking forward to a brighter year. In the second quarter, the company expects to release PeopleSoft 8, which will make its ERP applications available via a Web browser. It also plans to offer complete integration between PeopleSoft's ERP and Vantive's CRM applications, and will host applications on the Web. And through a reseller agreement with procurement vendor Commerce One Inc., PeopleSoft is jumping into the business-to-business marketplace arena; it introduced an online marketplace for the apparel industry with clothier Guess Inc. in December.
"We think the technology PeopleSoft is about to release leapfrogs the competition," says Steve Kohn, an analyst at SoundView Technology Group. "The company is poised to recover."
J.D. Edwards
Once considered strictly a midtier player, J.D Edwards & Co. increasingly finds itself among ERP's elite, competing against SAP and Oracle for the business of large companies. The vendor ramped up its sales force during the last year, while others scaled theirs back. "It's a pretty good position to be in," says Kohn, who upgraded J.D. Edwards' shares to a "strong buy" from "buy" last month.
However, J.D. Edwards hasn't been immune to the misfortunes of the ERP market. The company reported a net loss of $7.9 million for the year ended Oct. 31, compared with net income of $74.5 million in 1998. Revenue for the year increased only to $944.2 million from $934 million the previous year.
Like SAP and PeopleSoft, J.D. Edwards reported better results for the fourth quarter than the first three. License revenue was $101 million, up 35% from the third quarter. Overall, revenue for the period was $257.6 million, and net income was $3.8 million.
Analysts say J.D. Edwards has a solid product strategy. The company added a Web portal front end to its OneWorld ERP applications and is integrating the supply-chain management applications it acquired from Numetrix Ltd. last year. J.D. Edwards is tackling CRM and business-to-business procurement by reselling applications from Siebel Systems Inc. and Ariba Inc. It's also entering the online business-to-business marketplace space through a reseller agreement with Tradex Technologies Inc.
Baan
Baan has suffered the most tumultuous fortunes of the ERP vendors. After six consecutive quarters of net losses, profitability remains elusive for the Dutch software vendor. The company reported a $236 million net loss for the fourth quarter, of which $168 million was attributed to restructuring write-offs. That restructuring, announced last month, involves cutting 190 jobs. CEO Mary Coleman and CFO James Mooney recently left the company.
Despite such setbacks, Baan's software sales continue to grow, albeit modestly. The company reported a 9% increase in fourth-quarter revenue to $143 million compared with a year ago, while license revenue increased 92% to $49 million. Baan's yearly net loss was $289 million, down from a net loss of $315 million in 1998. But net revenue for the year was $635 million, down from $736 million the previous year.
Baan's recovery strategy is to focus on providing online order-fulfillment and supply-chain management applications and to continue investment in the CRM suite it acquired from Aurum Software. The company will spend less time building industry-specific and custom extensions to its ERP suite, which haven't proved marketable, says VP of marketing Katrina Roche. "We think there will continue to be strong growth in ERP," she says. "But people will buy it in a different way."
Photo by Richard Morgenstein
see next story: "Microsoft Retools For The Internet Age"
Back to This Week's Issue
Send Us Your Feedback
Top of the Page
Featured Microsite
