IMI, IBM Take First Step in Third Quarter

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IMI, IBM Take First Step in Third Quarter
S. McVey - April 3rd, 2000

Event Summary

For its third quarter ended January 31, Industri-Matematik, a provider of solutions for advanced order management, warehouse management, and customer service, posted $4.3 million in license revenues, a 5% increase over the same period last year. Services and hardware revenues declined 9% from the same period last year to $14.5 million making licenses 23% of the total revenue for the quarter. IMI's percentage license revenues had fallen to an alarming 6% in the second quarter. Though revenues improved slightly, the company posted a loss of $5.9 million for the seventh straight quarter.

The most significant event for IMI in its third quarter was the first deal since joining IBM's Global Supply Chain Management initiative, a program launched by Big Blue last year that includes EXE Technologies and i2. Albert Heijn, The Netherlands' largest retailer, signed a license agreement to use a new solution being developed jointly by IBM and Industri-Matematik to streamline the replenishment of its 680 supermarkets and six warehouses.

Also of note are two deals that give the IMI the potential for recurring revenues. In one, FedEx Corp. will use components of IMI's VIVALDI software as the transaction backbone of its new e-Supply Chain Services suite for high-tech manufacturers. The other delivers VIVALDI Advanced Order Management and Customer Relationship Management applications to a European dot-com company. IMI will partner with Electronic Business Partner, an application service provider, to deploy the application over the Internet. Both agreements allow IMI to receive revenues on a per transaction basis.

Market Impact

IMI has suffered from sales execution problems in recent years, which have significantly eroded its financial position (see Figure 1). Less than two years ago, IMI's four-quarter revenues exceeded $100 million, ranking it first among supply chain execution software vendors. Since then, four-quarter total revenues have dropped 27%.

The main cause of IMI's declining fortunes centers on its exclusive arrangement with Oracle Corporation, a relationship that brought IMI decreasing license revenues in 1998 and 1999. Companies in the consumer packaged goods sector, the target of the Oracle joint marketing agreement, cut back spending on large-scale IT projects as they diverted funds to Y2K remediation. Its long reliance on Oracle's sales channel left IMI unable to effectively win business on its own.

The rise in license revenues is a sign of hope, but does not indicate a return to long term growth for IMI. Its win at Albert Heijn helps validate its arrangement with IBM and can lead to additional implementations in the European retail sector, but may not help IMI in the United States. IMI suffers from a lack of visibility outside Europe, although it derives over forty percent of its revenues from North American sources.

To resume growth, IMI needs to do build greater brand awareness in the U.S. and explore possibilities for tapping into the B2B commerce market. Although its efforts to renegotiate the Oracle agreement may allow it more freedom in its pursuit of business, IMI must build its direct sales force and develop the ability to sell its solutions as a standalone suite, a task partially accomplished by the introduction of its VIVALDI suite in 1999 .

User Recommendations

In spite of IMI's poor financial showing over the last several quarters, distribution-centered companies who sell high-volume, fast-moving goods via brick and mortar or Internet storefronts should keep IMI on its short list due to the past success of its advanced order management, WMS and potential benefits offered by its integrated CRM package. Dot-coms might be able to work an equity deal with IMI in lieu of a traditional software license. IMI made a similar deal with an undisclosed startup Internet retailer in the second quarter.


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