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Enterprise software vendor PeopleSoft Inc. is reeling from a harsh financial quarter. The company said yesterday its license revenue, which typically shoots up anywhere from 30% to 100% quarterly, grew an anemic 3% in the fourth quarter, ended Dec. 31. As further evidence of the slowdown, PeopleSoft announced it is eliminating 430 jobs, or about 6% of its workforce. The cuts will come primarily from the administration, sales support, and marketing support areas.
Overall, revenue for the fourth quarter reached $364.2 million, up 40% from $260.6 million for the same period last year. But net income for the quarter was $26.1 million, down 34% from $39.5 million for the fourth quarter of 1997. As for year-end results, PeopleSoft posted total revenue of $1.3 billion for 1998, up 61% from $815.7 million in 1997. Net income in 1998 was $143.2 million, compared with $108.3 million last year.
To buffer itself from an industrywide decrease in ERP license sales, PeopleSoft is ramping up on services. Overall, service revenue accounted for 61% of total sales in 1998, coming in at $737.2 million. The company also said it plans to hire more people over the next few months than it is laying off this week. PeopleSoft officials said those new hires will be directed primarily at two areas in which the company is currently increasing its sales and development efforts: analytical and E-commerce applications.
Analysts believe 1999 may prove to be an even tougher year for PeopleSoft. "License revenue is slowing throughout the whole ERP industry, but PeopleSoft may be especially vulnerable," says Jim Holincheck, an analyst with the Giga Information Group. "Most of its sales are derived from financial and HR applications. Unlike its main competitors, the company hasn't done much into expanding into hotter growth areas such as customer-relationship management."
As for the layoffs, analysts say PeopleSoft went on a hiring binge early last year in response to anticipated demand. But with the overall downturn in the ERP market, the company was forced to take drastic action and slash its workforce. Another major concern: PeopleSoft is under increased pricing pressure from SAP, which is steadily encroaching on its core strength in the HR software market.
PeopleSoft, for its part, remains upbeat about its future. The company says it expects total revenue in 1999 to increase 20% to 30% over last year.
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