J.D. Edwards Reaches $1B Milestone In Another Losing Year

J.D. Edwards Reaches $1B Milestone In Another Losing Year
P.J. Jakovljevic - January 11, 2001

Event Summary

On December 4, J.D. Edwards & Company (NASDAQ: JDEC), one of the biggest providers of enterprise applications, reported financial results for the fourth quarter and fiscal year ended October 31, 2000. License fee revenue grew to $137.4 million in Q4, 2000, a 36% increase over license fee revenue of $101.1 million in Q4 1999 (See Figure 1). It represents the second largest quarterly license fee revenue results in company history. Total revenue for Q4 2000 was $277.2 million, compared to revenue of $257.6 million in the same period last year. Net income from normalized operations tripled to $12.3 million, compared to $3.8 million in Q4 1999. Amounts from normalized operations exclude amortization of acquisition-related intangible assets, restructuring and other related costs, and gains on sales of equity investments and product line.

Figure 1.

For the fiscal year ended October 31, 2000, total revenue reached a record $1.0 billion, a 6% increase compared to revenue of $944.2 million in fiscal 1999 (See Figure 2). License fee revenue was $419.1 million, 34% higher compared to $312.8 million in the fiscal year ended October 31, 1999. Nevertheless, the company posted a net loss of $15.4 million for fiscal 2000. This net loss, however was significantly reduced compared to the fiscal 1999 net loss of $39.2 million.

Figure 2.

"J.D. Edwards has great momentum right now," said C. Edward McVaney, President and Chief Executive Officer. "Fiscal 2000 proved to be an extremely successful year with revenue at an all time high, greatly improved profitability, over 70 transactions more than $1 million, and the release of our new 100% web-enabled product, OneWorld Xe. We've emerged as a true leader in the rapidly-growing collaborative supply chain market and, unlike our competitors, can leverage our leadership in supply chain fulfillment to offer a complete supply chain solution. Our strength in this area is illustrated by the significant portion of license transactions that include our supply chain solutions - over half of our license fee revenue this quarter was generated from transactions including these solutions."

For the second consecutive quarter, the company's collaborative supply chain solutions were a driving force in the strong license fee growth. J.D. Edwards claims to hold a unique position in the supply chain market, providing fully integrated Advanced Planning and Fulfillment solutions. The major event of the quarter, however, was the general availability of 100% Internet-enabled OneWorld Xe - OneWorld Extended Enterprise, which happened in September 2000. (For more information, see J.D. Edwards Touts Leadership in Collaboration and Flexibility - There Seems to be Some Notable Functionality Too).

Market Impact

The last 12 months have been indisputably bittersweet, marked with a significant business model change and the shift of the company's focus. While the overall revenue growth has been dismal, J.D. Edwards has apparently recently been rebounding by focusing on Internet collaboration and extended-ERP applications, much of them coming from 3rd parties. The company has also differentiated itself from competitors by embedding Enterprise Application Integration (EAI) into its OneWorld Xe product. The idea - to spare customers from investing in 3rd-party EAI products to link disparate best-of-breed systems together - is certainly attractive. This is also a more sophisticated approach than the traditional EAI one given that most other vendors only enable users to integrate 3rd-party packages by providing them with application programming interfaces (APIs) that then require further coding.

While J.D. Edwards' move into the EAI arena is unquestionably risky, we commend its determination to take the plunge and include integration systems into the core product offering. Native integration has recently been becoming less of an issue; acquiring the best products at an acceptable price to meet an e-business strategy is the prevalent issue nowadays.

What may play even more important role in the company's license revenue revival is its strong native supply chain planning and collaboration functionality. This proves our belief that being only a glorified system integrator would not suffice in the long run.

Nevertheless, managing the large application portfolio, much of which involves partnering or extensive integration and customization, will be intricate and a challenge in itself. In addition to all apparent and hidden difficulties of integrating disparate products, the cost of this strategy is also growing. Namely, the cost of the myriad third-party licenses that the company has to purchase to provide this end-to-end solution more than doubled compared to a year ago and is eating heavily into the bottom line.

Look for J.D. Edwards' marketing and market awareness creation to be much more aggressive. J.D. Edward's latest, more vigorous posture and marketing initiatives seem to be going in the right direction. Also, to allay recent negative publicity, the company must continue to convey a message that assures the market and its customers that it will remain viable. It is also needless to say that the execution, particularly the service & support will have to be flawless, and the company should make every effort to beef up its recently dwindled consulting force.

User Recommendations

Potential and current J.D. Edwards users can be assured about its viability and the future. The company remains a Tier 1 vendor and will be around for a significant time to come. More important will be how well its global sales and service force, can demonstrate the touted collaboration benefits to the prospect or customer.

Due diligence should always be paid to satisfying your unique requirements as derived from your unique e-business strategy. While selecting a strategic software partner is a challenging and risky undertaking, the good news is that there is a myriad of companies competing for your dollars. Nonetheless, one would be hard pressed to justify not including J.D. Edwards on at least an initial long list of vendors in a global enterprise applications selection. The company's offerings and value proposition are attractive at first sight.

More comprehensive recommendations for both current and potential J.D. Edwards' users can be found in J.D. Edwards - A Collaboration Thought Leader Or A Disguised ERP Follower? Part 2: Evaluating J.D. Edwards.

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