I2 Revenue Drops

I2 Technologies Inc. acknowledged that poor execution of its business strategies played a part in dramatic declines in first-quarter revenue and software sales. I2 on Tuesday reported a loss of 8 cents a share on revenue of $168 million, compared with a loss of $1.90 a share on revenue of $364 million in the same quarter last year. License revenue for the quarter was $59 million, down from $211 million last year. In the previous quarter, i2 reported a loss of $1.40 a share on revenue of $198 million. License revenue, a key indicator of financial health for a software company, was $73 million in the previous quarter.

On a pro forma basis, the company reported a loss of 7 cents a share for the first quarter, compared with earning 2 cents a share a year ago. For the previous quarter, the company reported a loss of 8 cents a share. Pro forma reporting excluded the impact of amortization of intangibles and acquired technology, write-offs of acquired in-process research and development, certain nonrecurring items, employer taxes on stock option exercises, and net gains and losses realized on equity investments.

The struggling supply-chain management software vendor reported its results a day after the company said that CEO Greg Brady was resigning and being replaced by chairman, founder, and former CEO Sanjiv Sidhu. During a teleconference with financial analysts, Sidhu said his company has failed to take advantage of the demand for supply-chain management software, which lets companies leverage the Internet in automating business processes with suppliers. "The problem with i2 is clearly not with our strategy, is not with our vision, but it's with our execution," Sidhu said.

Sidhu said the company has gone through a major restructuring, chopping expenses by 40% in the last several quarters. The effectiveness of i2's sales force has declined because of the confusion resulting from such drastic changes and because of insufficient training on the company's extensive product line. However, Sidhu said, the problems have been fixed.

I2, which says its software delivers a high return on investment, has been hurt by high-profile problems with large customers. Siemens earlier this month said flawed i2 software caused it to miss project deadlines. Before that, the company came under fire by Nike. Sidhu insists problems with both companies have been corrected and blamed competitors for instilling "fear, uncertainty, and doubt" among potential customers. He also blamed the press. "We believe the perception here is far different from reality," Sidhu said.

Nevertheless, CFO Bill Beecher said the company expects pro forma operating expenses for the current quarter to be "roughly flat or increase somewhat," and revenue from services and maintenance to be down 10%, in part because of lower license sales. In addition, Beecher said, the company no longer expects to become profitable by the second half of the year.

Commerce One Inc., which also focuses on supply-chain-related software, reported first-quarter results Tuesday, blaming sluggish IT spending for its revenue plunge. For the quarter ended March 31, revenue was $31.8 million, down from $170.3 million a year ago. The company said it lost $220.6 million, or 77 cents a share, compared with a loss of $228.5 million, or $1.02 a share, for the same quarter a year ago.

The company expects to reduce operating expenses for the second quarter by $20 million, says Mark Hoffman, chairman and CEO. To that end, Commerce One will reduce head count by about 30%, to about 1,100. "We are retaining our major investment in research and development," Hoffman says, pointing out that the company will have about 400 people across its R&D team. He says the company will also leverage Web-services standards for the next generation of its collaborative platform.